The author wishes to acknowledge the contributions of summer associate Henry Little

Proposed Rules

The US Securities and Exchange Commission (SEC) indicated this summer that it plans to introduce proposals to regulate conflicts of interest associated with artificial intelligence (AI) later this year as part of its semiannual rule-writing agenda. The SEC is considering proposed

Introduction to AI and Definitions

Artificial intelligence (AI), a term first coined in the 1950s, is a field of technology that engages in problem-solving by using AI algorithms to make predictions or classifications based on input data.[1] With the recent emergence of generative AI technology, the regulation of AI has become a priority for

The delay has subsided with custody of digital asset securities by special purpose broker-dealers (SPBDs). By way of background, on July 8, 2019, SEC and FINRA staff issued a joint statement addressing how registered broker-dealers could facilitate transactions in digital asset securities without taking custody of the assets. The solution involved bilateral clearance and settlement of the transactions.

A year later, the SEC’s Division of Trading Markets staff issued a no-action letter to FINRA articulating the staff’s position on how alternative trading systems (ATSs) could facilitate trading in digital asset securities using a three-step process. However, per its terms, the no-action letter requires the ATSs to not take custody of the digital asset securities.

Between November 2017 and November 2021, three individuals actively solicited investments in securities, including providing marketing materials and advising on the merits of the investment, and receiving commissions for their sales. In May 2022, the U.S. Securities and Exchange Commission (SEC) halted the activities of the individual defendants involved in May 2022, for operating a

In the blitz of regulatory and financial developments that have made headlines throughout the first quarter of 2023, a recent FINRA enforcement action serves as a reminder to both broker-dealers and their representatives that Regulation Best Interest (Reg BI) remains an area of focus for FINRA. This action underscores how important it is for broker-dealers

On March 10, 2023, volatility resulting from concerns regarding runs on certain banks triggered trading halts in those banks’ stocks on the New York Stock Exchange (NYSE) and Nasdaq. March 13, 2023, saw additional trading halts on bank stocks. This post provides a brief explanation of the Limit Up Limit Down (LULD) rules that

On March 1, 2023, the U.S. Department of Justice (“DOJ”) unsealed an indictment against the CEO of a publicly traded health care company (the “Executive”) relating to charges of an insider trading scheme. The indictment represents the first time that DOJ has brought criminal insider trading charges stemming from an executive’s use of a Rule

In February 2023, FINRA provided an update on its review of member broker-dealer firms’ practices for their social media practices and related privacy protection. In it, FINRA summarized practices it has observed to date to help firms evaluate whether their practices and supervisory systems are reasonably designed to address risks related to social media influencer

This post will bring to a close, for now, our survey of the requirements of new Rule 18f-4, which investment companies must comply with by August 19, 2022. This post considers whether a Chief Compliance or Risk Officer should seek to treat some or all of their funds as Limited Derivatives Users and how that choice, in turn, relates to the decision about whether to treat reverse repurchase agreements as derivatives transactions. But first, we review the compliance procedures required by Rule 18f-4 for (nearly) every fund. We also provide links to compliance checklists provided in earlier posts.

As with Fund-of-Funds, the release adopting Rule 18f-4 (the “Adopting Release”) devotes a section to sub-advised funds. We again consider three types of funds:

  • VaR Funds in which a sub-adviser manages their entire portfolio (“Single Sub-Adviser Funds”);
  • VaR Funds in which one or more sub-advisers manage a portion or “sleeve” of their portfolio (“Sleeve Funds”); and
  • Sub-advised funds that seek to qualify as Limited Derivatives Users.

The Adopting Release discusses the first two circumstances but is silent on the third.