Editor column

Citation

Davis, H.A. (2008), "Editor column", Journal of Investment Compliance, Vol. 9 No. 3. https://doi.org/10.1108/joic.2008.31309caa.001

Editor column

Article Type: Editor column From: Journal of Investment Compliance, Volume 9, Issue 3

Donald Carleen and Jeffrey Ross start us off with an explanation of complex US Department of Labor existing and proposed regulations that may subject certain private investment fund sponsors to costly and time-consuming additional reporting requirements related to the compensation they have paid to service providers. Next Roger Lorence illustrates several ways hedge fund managers can get into trouble under the guidelines of US FIN 48, Uncertain Tax Positions; in so doing, Mr. Lorence emphasizes the hedge fund manager’s responsibility for careful tax planning and compliance. Then Lea Anne Copenhefer, Roger Joseph, and Joshua Sterling interpret a May 2008 US Seventh Circuit Court decision that appears at first blush to contradict the standard set by a 1982 Second Court of Appeals decision in Gartenberg v. Merrill Lynch Asset Mgmt. concerning reasonable levels of advisory fees paid by mutual funds under the Investment Company Act of 1940. Upon further analysis, however, the authors believe even though this decision provides a new criterion for determining the legality of such fees, directors and advisers of mutual funds should continue with the processes they have in place to satisfy the existing Gartenberg standard, including for example making sure they have the information necessary to evaluate the terms of an advisory contract. William McGuinness, Peter Simmons, Robert Schwenkel, and John Sorkin discuss a new decision by the New York federal district court finding that an investor that consciously structured cash-settled total return equity swaps to try to end-run otherwise applicable reporting obligations for owners of shares under Section 13(d) of the Securities Exchange Act of 1934 was deemed to beneficially own the shares subject to the swaps, and accordingly had violated Section 13(d) by failing to file a Schedule 13D in the required time. Brandon Becker, Elizabeth Derbes, Russell Bruemmer, Franca Gutierrez, and Martin Lybecker summarize and provide commentary on the US Department of the Treasury’s widely discussed “Blueprint for a Modernized Financial Regulatory Structure,” which suggests changes such as broadening the US President’s Working Group on Capital Markets to include the entire financial sector; creating a federal mortgage origination commission; enhancing the Federal Reserve Board’s temporary liquidity provisioning process; phasing out the thrift charter; merging the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC); an objectives-based regulatory approach with three primary regulators focused on market stability, prudential financial regulation, and business conduct; and three types of charters for financial institutions: federal insurance depository institutions, federal insurance institutions, and federal financial service providers. Among the Blueprint’s more controversial suggestions are the merger of the SEC and CFTC and terms of non-depository institutions’ access to Federal Reserve Discount Window. These proposals of course show further evidence of the convergence of banking and investment company regulations. Next Joseph Goldstein and and Adriaen Morse discuss the SEC’s proposed new rule that will replace the existing standard for disclosing volumes of oil and gas reserves in SEC filings. While these rules do not apply to investment companies themselves, they are of vital interest to investment bankers and securities analysts covering the petroleum industry. The article provides insight into an important area of the SEC’s rulemaking authority. Chris Bates, Carlos Conceicao, Guy Norman, David Pudge, and Patrick Sarch explain the new disclosure regime in the UK for short-selling during rights issues, which the FSA implemented as additions to the Code of Market Conduct without the usual consultation and cost benefit analysis because it perceived that the rules were urgently needed. Vivan Teu documents the continued expansion of the PRC financial sector in her explanation of the China Securities Regulatory Commission’s new rules that allow domestic fund management companies to establish subsidiaries in Hong Kong – a step toward allowing those companies to create global investment management platforms outside the PRC. We close the issue with our usual summary of recent actions by the US Financial Industry Regulatory Authority, including Regulatory Notice 08-16 concerning disclosure and supervisory review requirements related to the distribution of third-party research reports, 08-17 on reporting customer complaints relating to auction rate securities, 08-18 on prevention and detection of unauthorized proprietary trading, 08-21 on the partial redemption of auction rate securities, 08-22 concerning the addition of an annual revenue limitation to the definition of public arbitrator, 08-27 on misleading communications about registered representatives’ expertise in marketing materials, 08-30 on obligations that may arise in connection with customer requests to sell generally illiquid securities, 08-31 concerning the exemption of certain proprietary trades that are the result of intermarket sweep orders (ISOs) from the rules that prohibit member firms from trading ahead of customer limit orders and customer market orders, and 08-33 concerning the expansion of the FINRA Minor Rule Violation Plan to include violations of options position and exercise limits. The FINRA summary concludes with detailed accounts of several disciplinary actions concerning firms and individuals.

Henry A. Davis