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SEC, NYSE Updates: Reg BI and Form CRS; Partial Floor Re-Opening

SEC Chairman Clayton Provides Public Statement Regulation Best Interest and Form CRS

On June 15, Securities and Exchange Commission Chairman Jay Clayton made a public statement (Statement) covering several topics related to Regulation Best Interest (Reg BI) and Form CRS. Chairman Clayton confirmed that the compliance date for Reg BI and Form CRS will be June 30, 2020 and emphasized the SEC’s focus on issues related to Main Street investors, including the creation of a new investor-focused resource to assist such investors with reviewing the Form CRS and researching firms and financial professionals.

Noting the ongoing effects of the COVID-19 pandemic and various related actions, Chairman Clayton emphasized that under Reg BI and the Investment Advisers Act of 1940, as amended, broker-dealers and investment advisers should review their operations to ensure the best interests of retail investors are being addressed when making recommendations or providing investment advice to such investors. In particular, Chairman Clayton noted that firms should focus on recommendations and advice related to the following: (1) rollovers and withdrawals from 401(k) and other plans; (2) complex or risky products (including significantly leveraged products that rely on derivatives strategies to enhance returns, or those that focus on investments in less liquid and more volatile markets); (3) COVID-related investments; and (4) special purpose acquisition companies and other structured investment vehicles.

A copy of the Statement is available here.

NYSE Proposes Rule Changes Regarding the Partial Re-Opening of the Trading Floor

On June 17, the New York Stock Exchange (NYSE) filed with the Securities and Exchange Commission a series of proposed rule changes (Rule Changes) that aim to support the partial return of Designated Market Makers (DMMs) to NYSE’s New York trading floor. For a temporary period that begins on June 17, 2020, and ends on the earlier of a full reopening of the New York trading floor facilities to DMMs or after the NYSE closes on June 30, 2020 (Covered Period), the following Rule Changes would apply:

  1. Commentary .06 to Rule 7.35A: The applicable price range specified in paragraphs (d)(3)(A) and (B) of Rule 7.35 will be suspended and such applicable price range will be 10 percent for securities with an indication reference price higher than $3.00 and $0.30 for securities with an indication reference price equal to or lower than $3.00.

  2. Commentary .03 to Rule 7.35B: Floor broker interest will not be eligible to participate in the closing auction.

  3. Supplementary Material .20 to Rule 76: The availability of “crossing” orders described in Rule 76, including the “Cross Function” as specified in Supplementary Material .10 to Rule 76, will be suspended.

  4. Supplementary Material .30 to Rule 36: A new paragraph to Supplementary Material .30 will be added stating that a DMM unit may maintain a telephone line at its trading post location to communicate with DMM unit personnel working in locations other than the off-floor offices of the DMM unit, provided that the telephone numbers of such persons are provided in advance to the NYSE.

Pursuant to Section 19(b)(3) of the Securities Exchange Act of 1934, as amended, and Rule 19b-4 thereunder, the Rule Changes became effective upon filing.

A description of the Rule Changes is available here.

©2022 Katten Muchin Rosenman LLPNational Law Review, Volume X, Number 171

About this Author

Susan Light, Katten Law Firm, Finance Law Attorney, New York

Susan Light focuses her practice on financial services regulatory matters. She counsels broker-dealers, hedge funds, investment banks and financial services clients on enforcement issues involving the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), other self-regulatory organizations (SROs) and state and federal regulatory authorities. She has particular experience related to sales practice issues, financial and operational issues, anti-money laundering, crowdfunding, cybersecurity, and cryptocurrencies.

Michael T. Foley, Katten, Lawyer, Finance, FINRA, Chicago
Special Counsel

Michael Foley represents broker-dealers, investment advisers and other financial services industry participants with respect to a broad spectrum of legal and regulatory matters arising under the federal securities laws.

Michael has nearly 20 years of experience in private practice and in-house at both a large, full-service broker-dealer and at an online discount broker-dealer, advising broker-dealers and other financial institutions regarding compliance with the federal securities and commodities laws, and with the regulations of the US Securities and Exchange...

Stanley V. Polit, Katten Muchin, Financial Services lawyer, Corporate Regulatory Matters Attorney

Stanley Polit concentrates his practice in transactional, corporate and regulatory aspects of financial services matters. Stan is able to provide legal services to a wide variety of clients including proprietary trading firms, hedge funds, broker-dealers, registered investment advisers, commodity trading advisers, financial institutions and general corporate clients.

Prior to joining Katten, Stan served as a council member for a national crisis management firm, where he specialized in crisis communication and merged media strategies. He has...