Editor's letter

Citation

Davis, H.A. (2013), "Editor's letter", Journal of Investment Compliance, Vol. 14 No. 4. https://doi.org/10.1108/JOIC-10-2013-0040

Editor's letter

Article Type:

Editor's letter

From:

Journal of Investment Compliance, Volume 14, Issue 4

In our first article, Charles Harrell and Michael Clark note that the need to properly protect private information that is electronically stored or transmitted is not new, but what has changed in recent years is the level of public awareness – and concern – about the scope and magnitude of cyber-attacks being conducted against government and business, and the resulting harm. Recently, the White House has issued an Executive Order making cyber-security a top national priority and the US Securities and Exchange Commission (SEC) has issued voluntary guidance on corporate disclosure concerning cyber-security that is likely to become mandatory soon. The authors discuss cyber-security liability risks for business; recent litigation and enforcement actions, largely from the US Federal Trade Commission (FTC); legal duties of directors; and the need for corporations and financial services firms to invest in improving the security of their computer systems and related policies and procedures.

Lukasz Prorokowski explains why many banks have begun to use interest rates based on the overnight indexed swap (OIS) curve in place of the London Interbank Offered Rate (LIBOR) for discounting in the valuation of collateral for repos, derivatives, and other transactions after the recent scandals that undermined the credibility of the LIBOR rate-setting process. He describes a landscape of increasingly complex collateral management with more trading through central counterparties (CCPs), the need for improved communications between financial institutions and CCPs, more stringent regulatory margin and collateral requirements, more collateralized transactions, more emphasis on collateral optimization, and increased regulatory collateral reporting requirements. Collateral management has become an important business for several large financial services firms.

Jennifer Zepralka, Meredith Cross, Thomas White, Knute Salhus, and Jonathan Wolfman analyze an SEC Report of Investigation prompted by the Netflix CEO’s posting of an updated corporate metric on his personal Facebook page without simultaneously making such disclosure through any other channels. To ensure SEC Regulation D compliance, they warn companies against using social media as the exclusive means of disseminating material non-public information and remind companies to regularly use multiple channels to communicate financial information – including traditional channels such as press releases, Form 8-Ks, and website postings – and to regularly inform investors of the communication channels they intend to use.

Elizabeth Gray, Daniel Schloendorn and Howard Kramer discuss SEC enforcement actions for short selling violations by 23 firms, point to the increasing number of those enforcement cases that have their origins in routine staff inspections, and remind firms of the need for employee training on the application of short selling rules and vigilance over internal compliance programs.

Daniel Nathan and Ana-Maria Ignat take us through FINRA's new suitability rule – ensuring that investment recommendations are suitable for a customer's age, investment experience, financial situation and needs, investment objectives, risk tolerance, tax status, liquidity requirements, and time horizon – and FINRA's subsequent practical advice to member firms about how it will be examining for compliance with the rule; the authors summarize helpful information from FINRA on the types of approaches, systems, procedures and practices that member firms have been using and that FINRA has determined to be most effective in ensuring compliance with the suitability rule.

Elliott Curzon and Jeanette Wingler explain the SEC's amendments to its net capital, customer protection, books and records, notification and reporting requirements for broker-dealers. These financial responsibility and investor asset safekeeping rules are intended to protect customers in the event of a broker-dealer's financial or recordkeeping disruptions as well as to improve the SEC's ability to monitor and prevent unsound business practices.

Paul Architzel, Gail Bernstein and Mahlet Ayalew explain the US Commodity Futures Trading Commission's (CFTC's) interpretive guidance on several additions by the Dodd-Frank Act to the list of prohibited trading practices, including "spoofing," violating bids and offers, and recklessly disregarding an orderly close. They note that different standards of "scienter" (state of mind) apply to each. Intent is required to violate the anti-spoofing provision; recklessness is required to violate the reckless-disregard-of-orderly-close provision; but no finding of intent is required for violating bids and offers.

Christian Brause analyzes a recent court's conclusion that a private equity fund constitutes a "trade or business" for purposes of the Employee Retirement Income Security Act of 1974 (ERISA) multiemployer pension withdrawal liability and that, therefore, the fund could, under a "piercing the veil" type of approach, be held liable for the ERISA withdrawal liability of a bankrupt portfolio company.

Finally, Holly Smith summarizes the SEC's new rules requiring broker-dealers with customer accounts to search for lost securityholders, meaning that a broker-dealer with security accounts must conduct database searches if the broker-dealer receives returned undeliverable correspondence from a securityholder and that paying agents – including issuers, transfer agents, brokers, dealers, investment advisers, trustees, and custodians – are required to send written notice to any securityholder to whom the paying agent has sent a check when such check has been uncashed for a period of 180 days.

Henry A. Davis