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Investment Services Regulatory Update - September 2018

Public Statements, Press Releases and Testimony

Public Statements

SEC Chairman Clayton Issues Statement About SEC Staff Views 

On September 13, 2018, SEC Chairman Jay Clayton issued a public statement about the “important distinction between the Commission’s rules and regulations, on the one hand, and staff views on the other.” Specifically, he noted the Commission’s “longstanding position” is that the views of the staff—whether communicated in written statements, compliance guides, letters, speeches, responses to frequently asked questions or responses to specific requests for assistance—are “nonbinding and create no enforceable legal rights or obligations of the Commission or other parties.” Chairman Clayton added that the SEC staff “[has] been and will continue to review whether prior staff statements and staff documents should be modified, rescinded or supplemented in light of market or other developments.” 

Chairman Clayton’s statement is available here.

SEC Staff Withdraws Proxy Advisory Guidance

In 2003, to address the potential conflicts of interest that arise when investment advisers vote client proxies, the SEC adopted Rule 206(4)-6 under the Investment Advisers Act of 1940.  This rule requires advisers to adopt and implement written proxy voting policies designed to ensure proxies are voted in clients’ best interests, to describe these policies to clients and to provide clients information on how proxies are actually voted.  In 2004, the SEC staff issued two no-action letters, to Egan-Jones Proxy Services and Institutional Shareholder Services, Inc., indicating that advisers may satisfy Rule 206(4)-6 by voting client proxies in accordance with recommendations provided by third-party proxy advisory firms, provided the advisers adopt and implement policies and procedures to ensure that the proxy advisory firms are not themselves subject to conflicts of interest.  Under the guidance set forth in the noaction letters, before relying on a proxy advisory firm’s recommendations, an adviser must first determine, among other things, that the advisory firm has the capacity and competency to adequately analyze proxy issues and can make such recommendations impartially and in the best interests of the adviser’s clients.  In 2014, the SEC staff  issued additional guidance in Q&A format regarding advisers’ responsibilities with respect to voting client proxies and using proxy advisory firms, including the responsibility to identify and address any conflicts of interest facing the proxy advisory firm.

In July 2018, SEC Chairman Jay Clayton announced that the SEC staff would host a roundtable later in the year to gather input from investors, issuers and other market participants on the proxy process, which may lead to changes in rules and staff guidance relating to proxy solicitations and proxy voting.  On September 13, 2018, the SEC staff issued a public statement announcing that it was withdrawing the two 2004 no-action letters referenced above to facilitate discussion at the roundtable, which is now expected to take place in November 2018.  The staff indicated that it would expect to use input from the roundtable to prepare any future guidance relating to the use of proxy advisory firms, including any changes to the guidance previously provided by the staff.

The statement is available here. ​

New Rules, Proposed Rules, Guidance and Alerts


Regulatory Developments Concerning Exchange Proposals  to List Bitcoin ETPs

On August 22, 2018, the SEC’s Division of Trading and Markets, acting pursuant to delegated authority, issued orders disapproving two proposed rule changes filed by NYSE Arca, Inc. and one proposed rule change filed by Cboe BZX Exchange, Inc. relating to proposals to list and trade shares of certain ETPs sponsored by ProShares Capital Management LLC, Direxion Asset Management, LLC and GraniteShares Advisors LLC that would seek investment results based on the performance of bitcoin futures contracts. 

Each order stated that the SEC had disapproved the proposed rule change because the applicable exchange had failed to provide a sufficient basis upon which the SEC could find, as required by Section 6(b)(5) of the Securities Exchange Act of 1934, that the proposal was “designed to prevent fraudulent and manipulative acts and practices.” In particular, although both exchanges represented that they had entered into surveillance-sharing agreements with CFTC-regulated markets for bitcoin futures, the orders stated that the exchanges had failed to establish that they had entered into such agreements with markets of “significant size” related to bitcoin, noting concerns about the maturity of the bitcoin futures markets and the size of such markets relative to the bitcoin spot market, for which reliable data are not available.

On August 23, 2018, the SEC provided notice to the exchanges that it would review the orders issued the previous day and, in accordance with Rule 431(e) of the SEC’s Rules of Practice, that the orders were stayed.

The orders disapproving the exchanges’ rule change proposals are available here:

The letters from the Office of the Secretary of the SEC notifying the exchanges that the orders have been stayed are available here:


Adopts Technical Amendments to Update  and Simplify Certain Disclosure Requirements

On August 17, 2018, the SEC adopted amendments to various disclosure requirements that were intended to remove redundant, duplicative, overlapping and outdated requirements, as well as requirements that have been superseded in light of other SEC disclosure changes, GAAP standards and changes in the “information environment.” Included among the various changes are technical amendments to Regulation S-X applicable to the preparation of investment company financial statements, technical amendments to the primary registration statement forms used by investment companies relating to the treatment of “extraordinary expenses” in the preparation of fee tables and expense examples and an elimination of the requirement to disclose that shareholders can review and copy filings at the SEC’s public reference room.
The effective date of the amendments is 30 days after publication in the Federal Register. 

The SEC’s adopting release is available here.

© 2019 Vedder Price


About this Author

Vedder Price P.C. attorneys provide a full range of services to a diverse financial services clientele. Attorneys practicing in the firm’s Investment Services Group are experienced in all aspects of investment company and investment adviser securities regulations, broker-dealer regulatory and compliance matters, derivatives and financial product matters, and ERISA and tax matters. Clients include mutual fund complexes, hedge and other private funds, money managers, broker-dealers, independent directors, and many other types of institutions such as banks, savings and loans,...