Editor column

Citation

Davis, H.A. (2008), "Editor column", Journal of Investment Compliance, Vol. 9 No. 4. https://doi.org/10.1108/joic.2008.31309daa.001

Editor column

Article Type: Editor column From: Journal of Investment Compliance, Volume 9, Issue 4

As this issue of the Journal of Investment Compliance goes into production, we are working our way through the world’s worst financial crisis since the 1930s. While the problems originated in the USA, their effects are being felt worldwide. Assuming, or at least hoping, that a government rescue will right the ship in the short term, we can expect years of analysis, argument, recrimination, and regulatory reform initiatives on top of numerous changes that were already underway, including increased coordination and cooperation among different country regulators. Chuck Grieve, Simon Gleeson, and Simon Crown start off this issue with some comments on the causes of the current crisis, include poor analysis and pricing of both credit risk and liquidity risk, and the likely direction of regulatory change. In the next article, Mr Grieve, along with Tom Pax, Rob Houck and Tim Plews show how, despite a trend of increasing international regulatory convergence, US banking regulations present a formidable challenge to any foreign acquirer of a US financial institution. In the current credit crisis, there is some controversy over whether fair value accounting is one of the causes or one of the solutions. Thomas Friedmann, Anthony Zacharski, Margaret Bancroft, Roger Mulvehill, Susan Reading, Robert Williams, and Alan Rosenblat summarize a recent SEC-sponsored roundtable in which investors, auditors, corporate financial executives, and others shared their views on some of the benefits and problems associated with fair value accounting. Next, in the electronic disclosure area, we have two articles. Laurence Lese and Azim Chowdhury give us guidelines on the use of company web sites to disclose information for investors, including time-sensitive information with SEC Regulation FD implications. Peter Romeo, Richard Parrino and Julie A. Bell then provide us with a useful background on XBRL (eXtensible Business Reporting Language) tagging of financial statements to enhance the ability of investors, analysts and others to retrieve and use companies’ financial information in electronic spreadsheet and other formats.

We also have numerous other articles in this issue covering investment company compliance trends that this journal covers on a continuous basis. Bibb Strench summarizes and comments on the SEC’s proposed guidelines for mutual fund directors in their responsibility to oversee fund advisers’ brokerage and soft dollar arrangements. Margaret Blake then summarizes findings along with areas of concern from recent investment adviser, mutual fund, broker-dealer, and transfer agent compliance exams by the SEC Office of Compliance Inspection and Examination. Then Lior Ohayon and Terisa Lee identify some of the issues and provide useful precautions on side letters that hedge funds provide to offer special arrangements for individual investors or groups of investors. Susan Ervin, Philip Hinkle, Brendan Fox, and Alan Rosenblat summarize key provisions of the CFTC Reauthorization Act of 2008, including reauthorization of the CFTC until the year 2013 and enhancing the CFTC’s authority in several areas, including clarifying the CFTC’s authority over foreign exchange transactions and closing the so-called “Enron Loophole” by increasing CFTC regulatory oversight over exempt commercial markets (“ECMs”). We have two articles by Caryn Jacobs, Jeffrey Strauss, John Tharp, and Katherine Agonis. In the first, the authors analyze court decisions in Section 10(b) cases as well as some cases related to subprime mortgage-backed securities since the landmark US Supreme Court Tellabs related to allegations that a defendant has acted with “scienter” – intent to deceive, manipulate, or defraud – in connection with the purchase or sale of securities (Please see this journal’s original article on Tellabs, “Tellabs Inc. v. Makor Issues & Rights Ltd – a uniform test for pleading scienter in securities fraud cases”, by P. Benjamin Duke, Volume 8, Number 4 (2007)). In their second article, the authors provide defendants in federal securities class actions with the foundation for arguments to remove those cases from state courts, often considered a friendlier forum for plaintiffs, to federal courts, which defendants generally prefer because of more onerous requirements of plaintiffs contained in the Private Securities Litigation Reform Act (PSLRA) of 1995. We conclude this issue of the journal with a summary of FINRA Regulatory Notices issued in July and August, including SEC orders and guidance on short selling, proposed FINRA rules governing communications about variable insurance products, amendment and finalization of the FINRA portfolio margin program, TRACE (Trade Reporting and Compliance Engine) reporting requirements for privately placed securities, and additional data elements for corporate bond transactions that must be reported to TRACE. We hope you will find the articles in this issue to provide useful coverage of a variety of regulatory and compliance issues currently relevant to investment companies.

Henry A. Davis