United States: Corporate And Financial Weekly Digest - March 28, 2014

Last Updated: April 3 2014

Edited by Robert Weiss and Gregory Xethalis

SEC/CORPORATE

SEC Roundtable Discusses Cybersecurity Threats and Protections Against Cyberattacks

On March 26, the Securities and Exchange Commission hosted a roundtable discussion on various cybersecurity topics. Participants at the roundtable included representatives from the federal government, self-regulatory organizations, investment advisers, other financial institutions, academics and law firms. The roundtable underscores the SEC's increased focus on cybersecurity-related issues for SEC-registered entities.

Among other things, panelists discussed the growing frequency and sophistication of cyberattacks and their serious threat to capital markets and the overall market economy. Panelists acknowledged that preventing and responding to cyberattacks was difficult, given the evolving nature of the threat and technological landscape. The Cybersecurity Framework developed by the National Institute of Standards and Technology (NIST) provides guidelines on how to build cybersecurity infrastructure. The SEC has also begun to conduct cybersecurity exams for broker-dealers, as announced in the SEC's Examination Priorities for 2014.

For information on the roundtable, click here.

The NIST Cybersecurity Framework is available here.

The SEC Examination Priorities for 2014 are available here.

BROKER DEALER

Proposed Changes to FINRA Classification of Hybrid Securities for Trade Reporting Purposes

On March 26, the comment period ended for a Financial Industry Regulatory Authority, Inc. proposed rule change to adopt an interpretation to clarify the classification of a hybrid security with both debt- and equity-like features for trade reporting purposes. Generally, under FINRA Rule 6622, over-the-counter (OTC) transactions in "OTC Equity Securities" must be reported to the OTC Reporting Facility (ORF), while FINRA Rule 6700 Series requires that transactions in "TRACE-Eligible Securities" be reported to the Trade Reporting and Compliance Engine (TRACE). FINRA proposed including depositary shares in OTC Equity Securities and including capital trust securities and trust preferred securities not listed on a national securities exchange in TRACE-Eligible Securities. In response to a Securities Industry and Financial Markets Association (SIFMA) comment letter, FINRA amended the rule to include depositary shares or preferred securities with a liquidation preference of $1,000 or more and not listed on a national security exchange in TRACE-Eligible Securities and not in OTC Equity Securities. The proposed changes do not change the text of the rule.

The original Federal Register notice is available here.

The Federal Register notice of the amendment is available here.

FINRA Proposes to Amend Rule 4210

The Financial Industry Regulatory Authority, Inc. requested comments on amendments to Rule 4210 to establish margin requirements for To Be Announced (TBA) market transactions. The TBA market is where most agency mortgage-backed security (MBS) trading takes place. Most transactions are characterized with forward settlements up to six months past the trade date. The proposed rule change applies to TBA transactions, including adjustable rate mortgage (ARM) transactions, specified pool transactions and collateralized mortgage obligation (CMO) transactions, with forward settlement dates. FINRA members engaging in such transactions with any counterparty must determine risk limits unless the transactions are either cleared or with an exempt counterparty or central bank counterparty. For transactions with non-exempt accounts that meet a $250,000 de minimis amount, FINRA members must collect variation margin and maintenance margin equal to 2 percent of the market value of the securities. FINRA members must also report concentrated credit exposures and may be prohibited from entering into any new transactions if net capital deductions over a five business day period: (1) exceed 5 percent of the member's tentative net capital for a single account (or commonly controlled accounts) or (2) exceed 25 percent of the member's tentative net capital for all accounts. Exempt account determination depends on the beneficial ownership of the account, and sub-accounts of investment advisers must meet individual margin requirements.

The Proposed Rules are available here.

FINRA's notice to members is available here.

CFTC

CFTC Extends Expiration of MTF Relief

On February 12, the Commodity Futures Trading Commission's Division of Market Oversight (DMO) issued relief from registration as a swap execution facility (SEF) to multilateral trading facilities (MTFs) regulated within the European Union. To qualify for such relief, an MTF was required to submit a request to DMO that satisfied the conditions set forth in CFTC Letter No. 14-16. DMO simultaneously issued CFTC Letter No. 14-15, which provided temporary no-action relief to such an MTF until the earlier of March 24, 2014, or DMO's issuance of a letter granting the MTF's relief request pursuant to CFTC Letter No. 14-16. A Katten Client Advisory covering CFTC Letters Nos. 14-15 and 14-16 is available here.

DMO has now issued CFTC Letter No. 14-31, which provides that DMO and the Division of Swap Dealer and Intermediary Oversight intend to issue yet another no-action letter to supersede and replace No-Action Letter 14- 16. (As of March 21, no MTF had submitted a formal relief request to DMO pursuant to CFTC Letter No. 14-16.) The replacement no-action letter will provide similar long-term relief to MTFs, but will contain certain clarifications and other amendments. In the interim, CFTC Letter No. 14-31 extends temporary no-action relief from SEF registration to an MTF until the earlier of May 14, 2014, or DMO's issuance of a letter granting an MTF's relief request pursuant to the replacement no-action letter.

CFTC Letter No. 14-31 is available here.

CFTC Requests Public Comment on ICE Swap Trade Packaged Transaction Rule

ICE Swap Trade, LLC, a swap execution facility temporarily registered with the Commodity Futures Trading Commission, recently self-certified amendments to its rules (ICE Rules) to allow market participants to execute "packaged transactions" as block trades. To qualify as a "packaged transaction" under the ICE Rules, a transaction must consist of two or more interrelated components with at least one component subject to the trade execution requirement in Section 2(h)(8) of the Commodity Exchange Act.

The CFTC's Division of Market Oversight (DMO) issued a stay of ICE's self-certification on February 26, and the CFTC is now requesting public comments on the rule amendments. Among other things, the CFTC has asked for comments on current market conventions regarding package transactions. The CFTC has also asked for comment on whether package transactions should be subject to the minimum notional or principal amounts required for block trades in Part 43 to the CFTC's Regulations. Public comments must be submitted by April 23, 2014.

ICE's self-certification is available here.

More information regarding the CFTC's request for public comment is available here.

LITIGATION

Money Manager Sues SEC to Stop Administrative Action in $1.5 Billion CDO Case

A money manager and his firm recently sued the Securities and Exchange Commission claiming that the agency violated their constitutional rights by bringing an administrative proceeding for securities claims in connection with several collateralized debt obligation transactions (CDOs). Wing F. Chau and his firm Harding Advisory LLC (Plaintiffs) assert that the SEC deprived them of significant procedural protections by not bringing a lawsuit in federal court.

In October 2013, the SEC commenced an administrative proceeding against Plaintiffs, alleging that they committed fraud in connection with the creation and marketing of various CDOs, including a $1.5 billion CDO known as Octans I for which Harding served as collateral manager. The SEC alleged that Plaintiffs defrauded investors by failing to reveal that a hedge fund, whose interests were not aligned with those of investors, had a role in choosing the collateral for Octans I.

In filing suit against the SEC, Plaintiffs claim that the SEC "intentionally and strategically singled out the Plaintiffs by bringing [the] case as an [administrative proceeding] and effectively tying the Plaintiffs' hands behind their backs." Plaintiffs allege that the SEC engaged in disparate and unlawful treatment of Plaintiffs, citing what Plaintiffs contend are several factually similar CDO cases that were tried in federal court. Plaintiffs seek a declaration that the SEC's decision to initiate and pursue administrative proceedings against them violates their equal protection rights, and seek a permanent injunction enjoining the SEC from pursuing the administrative action.

Chau v. SEC, No. 14-CV-1903 (S.D.N.Y. Mar. 18, 2014).

Texas District Court Denies Class Certification in IPO Securities Suit

The US District Court for the Northern District of Texas recently denied class certification for a securities action arising from alleged false and misleading statements in Kosmos Energy Limited's initial public offering.

Investors sued Kosmos under the Securities Act of 1933, alleging that offering documents contained misrepresentations about the performance and expected production of an offshore oilfield in Ghana called "Jubilee Field," which investors claim resulted in "hundreds of millions of dollars" in damages. The proposed Lead Plaintiff, a pension plan, filed a motion for class certification, arguing that it met certification requirements under Rule 23 and the Private Securities Litigation Reform Act. Defendants opposed the motion, arguing among other things that the Lead Plaintiff failed to possess a sufficient level of knowledge and understanding of the case. Defendants pointed to deposition testimony of the pension plan's representative, which they argued revealed that the representative had never even seen Kosmos' Registration Statement, the central document in the case, and that the representative was generally unfamiliar with the theories of the case. The District Court agreed with the Defendants and found that the Lead Plaintiff demonstrated insufficient knowledge of the case to act as the class representative. In denying class certification, the District Court emphasized that plaintiffs seeking class certification must produce "actual, credible evidence that proposed class representatives are informed, able individuals, who are themselves – not the lawyers – actually directing the litigation."

In re Kosmos Energy Ltd. Securities Litigation, No. 3:12-CV-373-B (N.D. Tex Mar. 19, 2014).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions