March 23, 2023

Volume XIII, Number 82


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March 20, 2023

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Katten Financial Markets and Funds Quick Take March 2023

FINRA Updates Its Sweep on Social Media Influencers, Customer Acquisition and Related Information Protection

On February 28, the Financial Industry Regulatory Authority (FINRA) provided an update for its sweep on Social Media Influencers, Customer Acquisition and Related Information Protection, which was first conducted in September 2021, the purpose of which was to review firms’ practices related to their acquisition of customers through social media channels and sharing of customers’ usage information with affiliates and non-affiliated third parties. Read about FINRA’s update.

Yet More Delays to FINRA’s Proposed Rule Amendments to Rule 4210 Margin for Covered Agency Transactions

FINRA recently filed a proposed rule change with the SEC to yet again delay until October 25, 2023 the implementation date for amendments to Rule 4210 (Margin Requirements) for Covered Agency Transactions. FINRA’s original 2015 proposal sought to establish margin requirements for (1) To Be Announced (TBA) transactions, inclusive of adjustable rate mortgage (ARM) transactions; (2) Specified Pool Transactions; and (3) transactions in Collateralized Mortgage Obligations (CMOs) (collectively, “Covered Agency Transactions”). Read about FINRA’s proposed rule change.

SEC 2023 Examination Priorities

On February 7, the Securities and Exchange Commission’s (SEC) Division of Examinations (Division) published its examination priorities for 2023. The Division noted that in fiscal year 2022, the Division examined approximately 15 percent of all registered investment advisers (RIAs). The Division stressed that moving forward increased examinations can only be achieved with “significant investments in human capital and technology resources.” This statement raises the possibility that in the future the Division may recommend a significant increase in resources devoted to adviser inspections, such as through the creation of a self-regulatory organization. Read Katten’s advisory.

SEC Shortens Settlement Cycle

On February 15, the SEC adopted rule changes to shorten the standard settlement cycle for most broker-dealer transactions from two business days after the trade date (T+2) to one business day after the trade date (T+1). The revised rules also shorten the standard settlement cycle for firm commitment offerings priced after 4:30 p.m. ET from four business days after the trade date to T+2. In addition, the revised rules include various other changes relating to security-based swaps, allocations, confirmations and affirmations, and clearing agency requirements to facilitate straight-through processing (STP). Read about the adopted rule change.

Regulate Staking-as-a-Service by Rules, Guidance, Not Enforcement – an Opinion

This opinion piece analyzes a recent SEC settlement which espoused the SECs view that a cryptoasset trading platform’s staking-as-a-service program involved the offer and sale of an unregistered security. Dan and Gary suggest that the SEC misapplied the “Howey” test used to determine when a public offering constitutes an investment contract and thus a security. “Even when customers’ cryptoassets were bonded for staking, customers apparently still owned them. There was no investment.” They further argue that novel, counter-intuitive theories articulated by the SEC in the settlement would benefit from regulatory guidance rather than rules generated from enforcement actions. Read Katten’s article.

Recent NLRB Decision Impacts Employer Use of Non-Disparagement and Confidentiality Clauses

The National Labor Relations Board (NLRB) issued a recent decision that impacts the use of non-disparagement and confidentiality clauses in employee agreements. In the McLaren Macomb decision, the Board concluded that non-disparagement and confidentiality clauses infringe on an employee’s rights under the National Labor Relations Act (NLRA) because they may dissuade protected employee activity. This decision has broad implications for all employers (not just those with a unionized workforce) whose employment templates contain such clauses. Read Katten’s advisory

Ever-Expanding BIPA Damages: Illinois Supreme Court Holds Each Collection or Dissemination of Biometric Data Constitutes a Separate Violation of BIPA

In an eagerly-awaited decision in Cothron v. White Castle System, Inc, the Illinois Supreme Court recently held, by a 4-3 margin, that a separate claim for damages accrues under the Illinois Biometric Information Privacy Act (BIPA) every time a private entity scans or transmits an individual’s biometric identifier or information in violation of BIPA. In so holding, the Court rejected the commonly asserted position that a BIPA violation occurs only upon the first scan and first transmission. This is bad news for businesses operating in Illinois that utilize biometric data, as this holding significantly expands the potential BIPA damages. Read about the decision.

China Issues Final Standard Contract Clauses for Cross-Border Data Transfers

On February 24, the Cyberspace Administration of China (CAC) released the final version of the Standard Contract Clauses for Cross-Border Transfer of Personal Information (the SCCs) and the Measures for the SCCs (the Measures) under the Personal Information Protection Law (PIPL). The final version of the Measures and the SCCs almost mirror the draft version published in June 2022 and track closely to the European Union’s SCCs for international transfers, pursuant to the General Data Protection Regulation (GDPR). Read about key takeaways.

©2023 Katten Muchin Rosenman LLPNational Law Review, Volume XIII, Number 76

About this Author

Wendy E. Cohen, Financial Services Lawyer, Katten Muchin Law firm

Wendy E. Cohen represents investment managers and other sponsors of domestic and offshore securities and commodities hedge funds, funds of funds and other public and private pooled investment vehicles, as well as their service providers, including their managers, brokers, financial intermediaries and other financial institutions, and investment professionals. She provides advice on all corporate and related matters facing investment funds, including structure and organization, ongoing operations, restructuring and dissolution.

Having practiced for...

Gary DeWaal, Securities Attorney, Katten Law Firm, New York
Special Counsel

Gary DeWaal focuses his practice on financial services regulatory matters. He counsels clients on the application of evolving regulatory requirements to existing businesses and structuring more effective compliance programs, as well as assists in defending and resolving regulatory disciplinary actions and enforcement matters. Gary also advises buy-side and sell-side clients, as well as trading facilities and clearing houses, on the developing laws and regulations related to cryptocurrencies and digital tokens.

Previously, Gary was a senior...

Christopher T. Shannon Financial Transactions Attorney Katten Chicago
Partner and Chair, Financial Transactions and Trading

Christopher Shannon represents private equity funds, hedge funds, proprietary trading firms and broker-dealers in a broad range of transactional and corporate matters.

Advising on acquisitions, investments and financings

Chris advises both public and private companies in complex transactions including M&A, divestitures, leveraged buyouts, private equity and venture capital investments, recapitalizations, and private financings. He also guides clients through complex transactions involving broker-dealers and proprietary trading firms.

In addition to his...

Allison C. Yacker, Katten Muchin, Corporate regulatory Matters Lawyer, Offshore Hedge Funds Attorney

Allison Yacker, co-chair of the New York Financial Services group, represents domestic and offshore hedge funds, including fund of funds, private equity funds, commodity pools, investment managers, managed account platforms, banks and broker-dealers on a broad range of corporate, securities, finance and other regulatory matters. She provides structuring, organization and ongoing advice related to hedge funds and private equity funds that employ a broad range of investment strategies and regularly counsels investment managers with respect to state and federal registration...

Lance A. Zinman, Attorney, Financial Services, Katten Muchin Law Firm

Lance Zinman serves as global co-chair of Katten's Financial Services practice and sits on the firm's Board of Directors and Executive Committee. Lance is a Registered Foreign Lawyer and a non-practicing partner in Katten Muchin Rosenman UK LLP. He represents hedge funds and commodity pools in all asset classes, private equity funds, investment advisers, commodity trading advisors and other asset managers. He also advises a broad cross section of proprietary trading firms—large and small—including many of the major firms in the industry. Lance’s multidimensional...