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Route to: ❏ Accounting ❏ Audit ❏ Compliance ❏ EDP ❏ Funds Management ❏ Operations ❏ Sales/Training ❏ Training ❏ Trust MMARKETARKET SSOLUTIONOLUTIONSS Volume 23, Number 2 Financial Markets Association June 2014 In This Issue Municipal Time-of-Trade Disclosure & Suitability 2014 Legal and Legislative By Gregg L. Bienstock, Esq. Lumesis, Inc. Issues Conference ............. 19 2014 Securities Compliance SEC Approves New Rule A. Time-of-Trade Disclosure Seminar ............................. 20 Codifying Principle-Based 1. New Rules Actually Make Rule and Interpretive Notices; Legislative/Regulatory Actions ....2 Things Easier For You SEC Approves Incorporation New Members ................2,8,10,13 While many fret with the of Requirements in Suitability introduction of new rules and New Publication ..........................9 Determination. amendments to existing rules, both Program Update ........................19 n March 7, 2014, the the MSRB and SEC have made Sponsor Acknowledgement .......21 Municipal Securities clear that their objective is to help Watch For ..................................15 ORulemaking Board those who want to comply with the rule. The SEC’s Release (Release Who’s News ...............................18 (MSRB) received approval from the Securities and Exchange No. 34-71665) provides that: Commission (SEC) to consolidate extensive interpretive guidance Rule G-47 is designed to on the fair-practice obligations of consolidate most of the municipal securities dealers into previously issued guidance into three new rules and amendments rule language which the MSRB to an existing rule. Rules focused believes would ease the burden MARKET SOLUTIONS on Time-of-Trade Disclosures to on dealers and other market Editor investors, dealers’ dealings with participants who endeavor to Dorcas Pearce sophisticated municipal market understand, comply with and Contributing Editors* professionals and suitability of enforce these obligations.… Marc-Alain Galeazzi dealers’ recommendations of [t]he MSRB maintained that Barbara R. Mendelson municipal securities transactions the codification is an effort will be effective July 5, 2014. to consolidate the current Market Solutions is a quarterly newsletter obligations into streamlined about the activities of the Financial Markets Whether you are a Compliance Association as well as legislative/regulatory Professional charged with rule language. [Emphasis developments of interest to FMA members. protecting your firm and their supplied.] The opinions expressed in this publication employees, an Advisor interfacing are those of the authors, not necessarily Interestingly, the above quote from those of the Association and are not meant with retail clients or someone to constitute legal advice. Market Solutions working with non-SMMPs, these the SEC mirrors, in large part, the is provided as a membership service of the clarified rules should be welcome language the MSRB highlighted in Financial Markets Association, 333 2nd as the guesswork around “what its Request for Comment on Street, NE - #104B, Washington, DC 20002, information to disclose and Codifying Time-of-Trade [email protected], 202/544-6327, www.fmaweb.org. Please let us have your communicate” has been clarified. Disclosure Obligation (February suggestions on topics you would like to see This paper focuses on the 2013 Notice 2013-04): addressed in future issues. content and nuances of the new …ease the burden on dealers and ©2014, Financial Markets Association rules around Time-of-Trade Disclosure, the amended rule other market participants who regarding suitability and explores endeavor to understand, comply how technological innovation has with and enforce the Time-of- and will impact compliance and Trade Disclosure Obligation. business practices. (Continued on Page 3) REGISTER NOW for FMA’s LEGAL AND LEGISLATIVE ISSUES CONFERENCE October 23–24, 2014 ■ Hyatt Regency Washington (on Capitol Hill) ■ Washington, DC MARKET SOLUTIONS 2 Legislative/Regulatory Actions This column was written by lawyers from Morrison U.S. Banking Regulators Seek Comment & Foerster LLP to update selected key legislative and on Interagency Effort to Reduce regulatory developments affecting financial services and Regulatory Burden capital markets activities. Because of the generality of On June 4, 2014, the Federal Reserve Board, FDIC, this column, the information provided herein may not and the OCC (the “Agencies”) issued a notice be applicable in all situations, and should not be acted of regulatory review and request for comments upon without specific legal advice based on particular to identify outdated, unnecessary, or unduly situations. burdensome regulations for insured depository institutions, as required by the Economic Growth and In this issue, we address various selected Regulatory Paperwork Reduction Act of 1996. developments from the Banking Regulators, the To facilitate this review, the Agencies have divided Dodd-Frank Act’s Title VII and the Consumer regulations into 12 subject-matter categories, which Financial Protection Bureau (CFPB), and we have a will be addressed in four Federal Register requests look across the pond to the most recent updates in over the next two years. The requests invite the Europe public to identify in such categories outdated, unnecessary, or unduly burdensome regulatory requirements imposed on insured depository institutions and their holding companies. BANKING REGULATORS The June 4 request seeks comment on the following three categories: Applications and OCC Issues Interim Volcker Rule Reporting, Powers and Activities, and International Examination Procedures Operations. The remaining nine categories, which will be addressed in the three subsequent requests On June 12, 2014, the OCC issued interim procedures for examiners to assess banks’ progress (Continued on Page 8 ) in developing a framework to comply with the requirements of what is commonly known as the “Volcker Rule.” The Volcker Rule prohibits banking entities from engaging in short-term proprietary FMA Welcomes trading of financial instruments and from owning, New Members! sponsoring, or having certain relationships with hedge funds or private equity funds. The interim procedures would apply to George Alexakos Crowe Horwath examinations of national banks (other than certain Brian Baum Goodwin Procter LLP limited-purpose trust banks), federal savings associations, and federal branches and agencies Gregg Bienstock Lumesis, Inc. of foreign banks. Although the OCC’s interim Patrick Brooks Stifel Nicolaus procedures are addressed to examiners rather than banks, they shed some (long-awaited) light on Christopher Cuzzucoli LPL Financial the OCC’s focus and priorities with regard to the Heather Dautel Wells Fargo Securities implementation of the Volcker Rule. The interim procedures are divided into four categories: General Patrick Dennis Oyster Consulting, LLC Procedures, Proprietary Trading, Covered Funds, and Robert Ducklo FTN Financial Conclusions. For more information, please read our client alert at http://www.mofo.com/~/media/Files/ClientAl Askari Foy SEC/Atlanta Regional Office ert/140617OCCInterimVolckerRuleProcedures.pdf. Bruce Harrison P.J. Robb Variable Corp. Established in 1991, FMA is the leading association specifically dedicated to meeting the special and unique needs of banks and bank-affiliated securities firms. MARKET SOLUTIONS 3 Municipal Time-of-Trade Disclosure… Continued from Page 1 The new rule delivers as billed although, as selling is a factor that can be considered in making discussed below, one must continue to assess the materiality determination: the efficacy of their policies and procedures as “Whether the customer is purchasing or selling clarification is provided and technology continues the municipal securities may be a consideration to make material information more reasonably in determining what information is material.” accessible. G-47, Supplementary Material: .01(d). 2. Introduction to the New Time-of-Trade G-47 makes clear that the “Time-of-Trade Disclosure Obligations Disclosure” obligation Rule G-47 is a codification extends to recommended and of the interpretive guidance “The new rule makes clear its application unsolicited orders as well on Time-of-Trade Disclosure as primary and secondary Obligations that were part is when you ‘sell a municipal security to a market transactions. In other of MSRB Rule G-17. This customer, or purchase a municipal security words, in all situations where codification is part of the from a customer, whether unsolicited or a municipal bond is traded MSRB’s effort to review for, or on behalf of, a retail its rules and, in this case, recommended, and whether in a primary client or non-SMMP proper clarify the obligations of offering or secondary market transaction.’ ” those interfacing with retail disclosure, as provided for in clients and non-SMMPs in G-47, is required. the municipal space. In addition to the MSRB’s stated b. Material Information that is Reasonably purpose, protection of the retail investor has been Accessible and continues to be a priority of the SEC, FINRA and the MSRB. G-47(a) speaks to material information that is reasonably accessible to the market. Information is considered G-47 provides, in part, as follows: material if: No broker, dealer, or municipal securities dealer …there is a substantial likelihood that the shall sell a municipal security to a customer, or information would be considered important or purchase a municipal security from a customer, significant