pdf

Dodd-Frank Act Anniversary: SEC Rulemaking Status Update

July 21, 2011

 

July 21, 2011 marks the first anniversary of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. A number of the Act’s provisions will go into effect on its first anniversary or the next day, and a significant number of implementing regulations are due to be adopted by those dates. In this Alert, we provide an update of the SEC’s implementation of the Dodd-Frank Act to date.

The Dodd-Frank Act introduced sweeping changes into the regulatory landscape governing the operations of financial services companies. In many cases, the new legislation expressly mandated rulemaking by federal agencies to implement and interpret the provisions of the Act; in others, while the Act did not expressly require agency rulemaking, the absence of clarity in the Act’s language necessitated interpretive guidance from regulators. Further, changes in the statutory bases of the regulatory agencies’ authority underlying some of the existing regulations made it necessary for agencies to promulgate regulations to address issues raised by the Act. The mandatory rulemaking directives of Dodd-Frank established extremely tight deadlines and, in most cases, Congress did not provide the additional staffing necessary to meet those mandates. The combination of budgetary restraints and the sheer volume of the issues subject to the regulatory rulemaking mandate have caused most regulatory agencies, including the SEC, to miss the July 21, 2011 deadline for rulemakings.

A period of uncertainty will follow the anniversary of the Act as a number of its provisions became effective on July 21, 2011 but no corresponding implementing regulations have been adopted. In addition, the Act does not provide a specific deadline for the implementation of some required regulations, the timing and substance of which currently remain unknown.

In the sections below, we provide an update on those regulations the SEC has adopted and those it has proposed but not yet adopted.


DODD-FRANK REGULATIONS THE SEC HAS ADOPTED

The following is a summary of the Dodd-Frank-required regulations that the SEC has adopted to date:

Relevant Provision of the Dodd-Frank Act: § 410
Rules Implementing Amendments to the Investment Advisers Act of 1940:

  • Reallocate regulatory oversight of mid-sized private advisers (with $25 million -$100 million in assets under management (AUM)) between states and the SEC
  • Implement a uniform AUM calculation method
  • Provide new buffer for mid-sized advisers with AUM close to $100 million for switches between state and Commission registration
  • Amend three exemptions from prohibition on SEC registration (Nationally Recognized Statistical Rating Organizations (NSRO), pension consultants, and multi-state advisors)
  • Eliminate safe harbor from SEC registration for investment advisers registered with the state
  • Interpret “required to be registered” and “subject to examinations” requirements of the Act in the context of adviser state registration
  • Require exempt reporting advisers to file reports with the Commission
  • Amend and expand Form ADV to address the adopted regulatory changes
  • Amend the Commission’s pay to play rule to extend its application to exempt reporting advisers and foreign private advisers and to add municipal advisors to the category of “regulated persons” for purposes of excepting them from certain prohibitions

Effective Date: Depending on the rule, July 21, 2011 or 60 days from date of publication in the Federal Register

Relevant Provision of the Dodd-Frank Act: § 407 and § 408
Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers With Less Than $150 Million in Assets Under Management, and Foreign Private Advisers:

  • Implement new exemptions from registration for advisers solely to venture capital funds, advisers to private funds with under $150 million in aggregate AUM, and certain foreign private advisers;
  • Define “venture capital fund” and related terms
  • Define terns related to the foreign private adviser exemption

Effective Date: July 21, 2011

Relevant Provision of the Dodd-Frank Act: § 409
Rule Defining “Family Offices” under the Investment Advisers Act:

  • Define “family offices” to exclude them from the definition of “investment adviser” and thus from regulation under the Investment Advisers Act

Effective Date: July 21, 2011

Relevant Provision of the Dodd-Frank Act: § 774 and various other provisions of Title VII
Guidance and Temporary Relief Regarding Security-Based Swap Provisions of Dodd-Frank Act:

  • Clarify that substantially all of Title VII’s requirements applicable to security-based swaps will not go into effect on July 16, 2011
  • Provide temporary relief and temporary exemptions from certain Securities Exchange Act requirements/provisions that would otherwise apply on July 16, 2011
  • Clarify that the antifraud and anti-manipulation prohibitions of the federal securities laws will continue to apply to security-based swaps after July 16, 2011
  • Provide guidance regarding compliance with other amended provisions of the Exchange Act concerning security-based swaps and request comments on such guidance and the temporary relief granted

Effective Date: Exemptive Order effective on June 15, 2011; comments due by July 6, 2011

Relevant Provision of the Dodd-Frank Act: § 922
Implementation of the Whistleblower Provisions of Section 21F of the Securities Exchange Act:

  • Define key terms related to the operation of the whistleblower program
  • Provide procedures for submitting information and claims to the Commission
  • Provide the Commission’s procedures for making decisions on claims

Effective Date: August 12, 2011

Relevant Provision of the Dodd-Frank Act: § 951
Shareholder Vote on Executive Compensation and Golden Parachute Compensation:

  • Require issuers to include in their proxy statements a separate shareholder advisory vote to approve the compensation of executives not less frequently than once every three years
  • Require proxy statement disclosure of the general effect of the say-on-pay vote
  • Require issuers to provide a separate shareholder advisory vote in proxy statements on the frequency of the shareholder say-on-pay vote at least once every 6 years
  • Require Form 8-K filing disclosing the results of the say-on-frequency vote
  • Require issuers to approve golden parachute compensation arrangements in connection with certain extraordinary business transactions
  • Provide a temporary exemption from the requirement of shareholder votes on executive compensation and frequency of votes for smaller reporting companies (public float of less than $75 million)

Effective Date: Generally April 4, 2011; some provisions are effective for initial filings on or after April 25, 2011

For an OMM client alert discussing the rule, click here.

Relevant Provision of the Dodd-Frank Act: § 943
Disclosure for Asset-Backed Securities:

  • Require issuers of asset-backed securities to disclose the history of fulfilled and unfulfilled repurchase requests with respect to their outstanding asset-backed securities
  • Require NSROs to include information regarding the representations, warranties and enforcement mechanisms available to investors in an asset-backed securities offering

Effective Date: March 28, 2011

Relevant Provision of the Dodd-Frank Act: § 945 
Issuer Review of Assets in Offerings of Asset-Backed Securities (ABS):

  • Require issuers of ABS to conduct a review of the assets underlying the ABS
  • Require an ABS issuer to disclose the nature of its review of the assets and the findings and conclusions of the review

Effective Date: March 28, 2011

Relevant Provision of the Dodd-Frank Act: § 916
Rules of Practice:

  • Provide procedural requirements of proceedings to determine whether the Commission should disapprove a proposed rule change by an SRO

Effective Date: January 24, 2011

Relevant Provision of the Dodd-Frank Act: § 939B
Revise Regulation FD:

  • Remove exemption from certain disclosures for entities whose primary business is the issuance of credit ratings

Effective Date: October 4, 2010

In addition to these required rules, the SEC also adopted several regulatory measures that were not specifically required in the Act, but were nonetheless made necessary by the Act, such as re-adoption of beneficial ownership rules relating to security-based swaps, rescission of rules that administered the Commission’s Insider Trading Bounty program, conforming its Internal Control Audit Requirements for Smaller Companies to changes to the Sarbanes-Oxley Act made by the Act, and guidance on investor net worth.

DODD-FRANK REGULATION THE SEC HAS PROPOSED BUT NOT YET ADOPTED

The SEC has issued approximately 30 rulemaking proposals relating to Dodd-Frank. These rulemaking proposals, which are in varying stages of progress, are summarized below.

Relevant Provision of the Dodd-Frank Act: § 764
Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants 
SEC Timeline: Comments due by August 29, 2011

Relevant Provision of the Dodd-Frank Act: § 926
Disqualification of Felons and Other “Bad Actors” from Rule 506 Offerings 
SEC Timeline: Comments due by July 14, 2011

Relevant Provision of the Dodd-Frank Act: §§ 932, 936, 938
NSRO Reports of Internal Controls; Transparency of of NSRO Ratings Performance; Ratings Procedures and Methodologies; Training, Experience, and Competence Standards for NRSRO Analysts; Ratings Symbols; Due Diligence Issues Asset Backed Securities 
SEC Timeline: Comments due by August 8, 2011

Relevant Provision of the Dodd-Frank Act: § 418
Investment Adviser Performance Compensation; New Threshold for “Qualified Client”
SEC Timeline: Comments due by July 11, 2011

Relevant Provision of the Dodd-Frank Act: § 939A
Removal of Certain References to Credit Ratings under the Securities Exchange Act of 1934
SEC Timeline: Comments due by July 5, 2011

Relevant Provision of the Dodd-Frank Act: § 712
Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed Swaps; Security-Based Swap Agreement Recordkeeping*
SEC Timeline: Comments due by July 22, 2011

Relevant Provision of the Dodd-Frank Act: § 952 
Listing Standards for Compensation Committee Independence; Compensation Adviser Independence; Compensation Consultant Conflicts 
SEC Timeline: Comments due by April, 29 2011

For an OMM client alert discussing this Proposed Rule, please click here

Relevant Provision of the Dodd-Frank Act: § 941
Risk Retention by Securitizers of Asset-Backed Securities
SEC Timeline: Comments due by August 1, 2011

Relevant Provision of the Dodd-Frank Act: § 929W
Amendments to Rule 17Ad-17; Transfer agents’, brokers’, and dealers’ obligation to search for lost securityholders; paying agents’ obligation to search for missing securityholders 
SEC Timeline: Comments due by May 9, 2011

Relevant Provision of the Dodd-Frank Act: § 763
Clearing Agency Standards for Operation and Governance 
SEC Timeline: Comments due by April 29, 2011

Relevant Provision of the Dodd-Frank Act: § 956
Disclosure of and Prohibitions of Certain Executive Compensation Structures and Arrangements at “Covered Financial Institutions”*
SEC Timeline: Comments due by May 31, 2011

Relevant Provision of the Dodd-Frank Act: § 939A
References to Credit Ratings in Certain Investment Company Act Rules and Forms 
SEC Timeline: Comments due by April 25, 2011

Relevant Provision of the Dodd-Frank Act: § 939A
Removal of Credit Ratings as Condition for Companies Seeking to Use Short-Form Registration 
SEC Timeline: Comments due by March 28 2011

Relevant Provision of the Dodd-Frank Act: § 763
Registration and Regulation of Security-Based Swap Execution Facilities 
SEC Timeline: Comments due by April 4, 2011

Relevant Provision of the Dodd-Frank Act: §§ 404, 406
Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF*
SEC Timeline: Comments due by April 12, 2011

For an OMM client alert discussing this Proposed Rule, please click here

Relevant Provision of the Dodd-Frank Act: § 413
Net Worth Standards for Accredited Investors 
SEC Timeline: Comments due by March 11, 2011

Relevant Provision of the Dodd-Frank Act: § 763
Trade Acknowledgment and Verification of Security-Based Swap Transactions 
SEC Timeline: Comments due by February 22, 2011

Relevant Provision of the Dodd-Frank Act: § 975
Registration of Municipal Advisors 
SEC Timeline: Comments due by February 22, 2011

Relevant Provision of the Dodd-Frank Act: § 763
Process for Submissions for Review of Security-Based Swaps for Mandatory Clearing and Notice Filing Requirements for Clearing Agencies
SEC Timeline: Comments due by February 14, 2011

Relevant Provision of the Dodd-Frank Act: § 763
End-User Exception to Mandatory Clearing of Security-Based Swaps 
SEC Timeline: Comments due by February 4, 2011

Relevant Provision of the Dodd-Frank Act: § 1502
Disclosures by Reporting Issuers Concerning Conflict Minerals 
SEC Timeline: Comments due by March 2, 2011

Relevant Provision of the Dodd-Frank Act: § 1503
Mining Company Disclosures Regarding Mine Safety and Health Standards 
SEC Timeline: Comments due by March 2, 2011

Relevant Provision of the Dodd-Frank Act: § 1504
Disclosure of Payments by Resource Extraction Issuers 
SEC Timeline: Comments due by March 2, 2011

Relevant Provision of the Dodd-Frank Act: § 712
Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap
Participant,” “Major Security-Based Swap Participant” and “Eligible Contract Participant
”* 
SEC Timeline: Comments due by February 22, 2011

Relevant Provision of the Dodd-Frank Act: §§ 763; 766
Regulation SBSR – Reporting and Dissemination of Security-Based Swap Information 
SEC Timeline: Comments due by January 18, 2011

Relevant Provision of the Dodd-Frank Act: § 763
Security-Based Swap Data Repository Registration, Duties, and Core Principles
SEC Timeline: Comments due by January 24, 2011

Relevant Provision of the Dodd-Frank Act: § 951 
Disclosure by Institutional Investment Managers of Votes on Executive Compensation 
SEC Timeline: Comments due by November 18, 2010

Relevant Provision of the Dodd-Frank Act: § 765
Ownership Limitations and Governance Requirements for Security-Based Swap Clearing
Agencies, Security-Based Swap Execution Facilities, and National Securities Exchanges with Respect to Security-Based Swaps under Regulation MC 
SEC Timeline: Comments due by April 29, 2011

* Proposed Rules proposed jointly with other federal agencies.

The Commission also proposed the following rules that were not specifically mandated by the Act: Suspension of the Duty to File Reports for Classes of Asset-Backed Securities under Section 15(d) of the Securities Exchange Act (comments due by February 7, 2011); and Prohibition Against Fraud, Manipulation, and Deception in Connection with Security-Based Swaps (comments due by December 23, 2010).

MORE DODD-FRANK RULEMAKING PROPOSALS TO COME FROM THE SEC

On its website, the Commission lists approximately 40 other rulemakings that it plans to complete between July 2011 and December 2012. These rulemakings address a broad range of subjects, including short sales, exempt offerings, corporate governance and disclosure, derivatives regulation, clearing and settlement, credit ratings, market oversight, asset-backed securities, oversight of investment advisers and broker-dealers, and municipal securities. Additionally, approximately 10 more rulemakings are intended to be adopted at undetermined dates in the future.

For questions regarding this alert or issues discussed herein, please contact the authors or your O’Melveny & Myers advisor.