| |
|
••••
|
Volume 11, no. 13 |
April 4, 2016 |
|
|
|
|
It’s that time of year again – proxy season! As public companies are in the midst of mailing out notices, ballots, proxies, and annual reports, we wanted to take this opportunity to remind investment advisers of their proxy voting obligations.
When investment advisers have the authority to vote proxies on behalf of their clients, there is a fiduciary duty imposed on the advisers to vote such proxies in the best interests of their clients. Under Section 206(4)-6 and Rule 204-2 of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), investment advisers are additionally required to: (1) adopt and maintain written policies and procedures regarding voting proxies, which policies must be reasonably designed to ensure that the adviser votes proxies in the best interests of the clients and that also address how conflicts of interest in voting proxies are handled; (2) disclose their proxy voting policies and procedures (including by providing a copy of the policies and procedures if requested by a client); (3) inform clients and investors how proxies were voted; and (4) retain certain records regarding the voting of proxies. Further, like all policies and procedures adopted by an investment adviser, the adviser’s proxy voting policies and procedures must be reviewed and tested periodically (the SEC has stated that an investment adviser should review the adequacy of its policies and procedures annually).
An adviser’s policy regarding proxy voting may – like many other investors – include retaining or looking to a proxy advisory firm to provide voting recommendations. In 2014, the Securities and Exchange Commission ( “SEC”) provided guidance to investment advisers regarding the retention of proxy advisory firms. Under this guidance, investment advisers may retain third parties (such as proxy advisory firms) to provide voting recommendations. The investment adviser, however, is obligated to (a) undertake due diligence regarding the proxy advisory firm (in particular, whether the proxy advisory firm has sufficient capacity and competency to analyze proxy issues and make voting recommendations on current and accurate information and whether there exist any relevant conflicts of interest) and (b) oversee the proxy advisory firm on an ongoing basis. The SEC noted that part of such oversight process by the investment adviser should include establishing measures that would identify conflicts of the proxy advisory firm that may arise after the initial engagement and due diligence, and address such conflicts of interest. In sum, while investment advisers may, as part of their proxy voting procedures, retain a third-party proxy advisory firm to provide voting recommendations and assistance, this cannot constitute an abdication of the adviser’s fiduciary and Advisers Act responsibilities. An adviser must adequately conduct a diligence review of the proxy advisory firm and oversee the proxy advisory firm on an ongoing basis, to ensure that it is voting proxies in the best interests of its clients and that conflicts of interest do not exist (or are appropriately addressed). |
| Sarah Hesse |
| ▲ |
|
|
According to the Institute for Women’s Policy Research in Washington, D.C., the U.S. gender wage gap is closing so slowly that pay equality won’t be reached until the year 2058. On average, women in the U.S. make only 79 cents for every $1 that men make. In an attempt to bring more transparency to the wage gap, President Obama in January 2016 issued a proposal that would require larger U.S. companies, which already provide race and gender statistics, to report salary data based on race, gender and ethnicity to the Equal Employment Opportunity Commission.
In an attempt to speed up the process one high-profile company at a time, Natasha Lamb, the director of equity research and shareholder engagement at Arjuna Capital, the activist arm of Boston investment firm Baldwin Brothers Inc. and a shareholder in many of the U.S.’s biggest tech outfits, filed shareholder resolutions ahead of proxy season at several major technology companies, compelling each to consider a vote on equal pay transparency. “Our clients are interested in investing in such a way that they’re having a positive impact on the world with their money,” Lamb said. “We pick issues that we think are good for society, good for the environment, and will be good for the companies that manage them well.” Pay gap is an issue that specifically matters for investors because research has repeatedly shown that more diversity is tied to better performance; in addition, some investors want companies to get ahead of greater scrutiny that may be coming at the regulatory level. “It's about protecting their brand and attracting women to their companies,” Lamb stated. “The technology industry lives and dies on innovation, and gender-diverse teams are shown to be a key factor.” |
| ▲ |
|
|
| On March 31st, the Office of the Comptroller of the Currency (“OCC”) published Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective, its take on responsible innovation in the federal banking system, and solicited feedback on what more it could do to support innovation that better serves consumers, businesses, and communities. Comments on the whitepaper should be sent to innovation@occ.treas.gov by May 31, 2016. The OCC will host a forum on responsible innovation on June 23, 2016, at Constitution Center in Washington, D.C. During the event, the agency will discuss comments received on the whitepaper and lead discussions regarding financial services innovation. OCC Press Release. |
| On March 30th, the OCC announced that it will be hosting two workshops in Springfield, Ill., at the Wyndham Springfield, May 3-4, for directors of national community banks and federal savings associations supervised by the OCC. The May 3rd Risk Governance workshop will combine lectures, discussion, and exercises to provide practical information for directors to effectively measure and manage risks. The workshop will also focus on the OCC’s approach to risk-based supervision and major risks in the financial industry. The May 4th Compliance Risk workshop will combine lectures, discussion, and exercises on the critical elements of an effective compliance risk management program. The workshop will also focus on major compliance risks and critical regulations. Topics of discussion will include the Bank Secrecy Act, Community Reinvestment Act, and the Truth-in-Lending (“TILA”) and the Real Estate Settlement Procedures Act of 1974 (“RESPA”) Integrated Disclosures Rule (“TRID”). OCC Press Release. |
| On March 29th, the OCC announced that it will be hosting a workshop in Wilmington, Del., at the DoubleTree by Hilton Hotel Wilmington, May 2-4, for directors of national community banks and federal savings associations supervised by the OCC. The Building Blocks for Directors workshop will combine lectures, discussion, and exercises to provide practical information on the roles and responsibilities of board participation for both new and experienced directors. The workshop will also focus on directors’ duties and core responsibilities, discusses major laws and regulations, and increases familiarity with the examination process. OCC Press Release. |
| | | |
| On April 1st, the Federal Reserve Board finalized a rule to include certain U.S. general obligation state and municipal securities in the range of assets large banking organizations may use to satisfy regulatory requirements designed to ensure that these banking organizations have the capacity to meet their liquidity needs during a period of financial stress. The final rule will be effective on July 1, 2016. Federal Reserve Press Release. |
| On March 30th, the Federal Reserve released a survey, Consumers and Mobile Financial Services 2016, which shows how consumers use their mobile phones to interact with financial institutions, make payments, and manage their personal finances. Federal Reserve Press Release. |
| ▲ |
|
|
| On March 31st, Deputy Secretary Sarah Bloom Raskin delivered a speech at the Incident Response Forum of the Cybersecurity Docket in which she discuss the need to prepare for the possibility of major cyber incidents. Raskin Remarks. |
| ▲ |
|
|
| The SEC’s Office of Municipal Securities issued a letter on March 31st in response to the Municipal Securities Rulemaking Board’s (“MSRB”) request for guidance on the applicability of Section 3(a)(29) of the Securities Exchange Act to interests in savings accounts under the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (“ABLE”) to support individuals with disabilities. The Office of Municipal Securities indicated that some interests in ABLE accounts may be “municipal securities” as defined in Section 3(a)(29) of the Securities Exchange Act depending on the direct obligation of a State or any agency or instrumentality of a State. The Office also indicated that a dealer participating in the sale of ABLE account interests would be participating in a primary offering and would be subject to the requirements of Rule 15c2-12 under the Exchange Act. Office of Municipal Securities Staff Letter. |
| | | |
| The Division of Investment Management of the Securities and Exchange Commission (the “SEC”) granted a request by SPDR S&P Dividend ETF on March 28th for no-action relief from certain ownership restrictions under sections 12(d)(2) and 12(d)(3) of the Investment Company Act. In its no-action letter, the Division indicated it would not recommend enforcement action against the fund if it invests such that it may own more than 10 percent of the total outstanding voting stock of an insurance company and/or purchase more than 5 percent of an outstanding class of equity securities of an issuer that, in its most recent fiscal year, derived more than 15 percent of its gross revenues from securities related activities. SEC No-Action Letter. |
| | | |
| In remarks at the SEC-Rock Center for Corporate Governance’s Silicon Valley Initiative on March 31st, SEC Chair Mary Jo White discussed some of the opportunities, challenges, and risks facing private start-up financing and the IPO market. White expressed concern regarding the accuracy of unicorn valuations and emphasized the need for private companies to ensure the accuracy of their financial results and other disclosures. White also urged start-ups to develop their governance structures and internal controls as they grow in size and market impact. White Remarks. |
| In an address to the Mutual Fund Directors Forum 2016 Policy Conference on March 29th, SEC Chair Mary Jo White discussed the current risks and challenges facing mutual funds and their directors, the role directors should take in assessing these risks, and the need for directors to strike a balance between management and oversight. White highlighted recent failures and technological problems at mutual funds to emphasize the need for directors to be proactive, encouraging directors to investigate whether such problems could occur at their funds and whether their funds have appropriate preventive measures and response plans in place. White Remarks. |
| | | |
| The SEC announced that it has changed the date of the open meeting scheduled for March 30, 2016, to April 13, 2016. SEC Sunshine Act Meeting Notice. |
| The SEC issued an order on March 30th approving the Securities Investor Protection Corporation’s (“SIPC”) determination that the standard maximum cash advance amount available to satisfy customer claims in a Securities Investor Protection Act (“SIPA”) liquidation proceeding will remain at $250,000 beginning on January 1, 2017, and for the five-year period immediately thereafter. SEC Commission Notice SIPA 176. |
| Staff from the Office of Structured Disclosure in the SEC’s Division of Economic Risk and Analysis (“DERA”) published a report on March 29th regarding the use of custom axis tags, or tags not in the standard taxonomy, by some reporting companies in the XBRL exhibits that accompany their annual reports on Form 10-K. In the report, staff discouraged issuers from using custom axis tags as it impairs the ability of market participants to compare and analyze financial statement data. DERA Staff Report. |
| The SEC published the Draft EDGAR Filer Manual (Volume II) EDGAR Filing (Version 36) on March 25th. The changes in the draft filer manual, if approved by the SEC, will be implemented on April 25, 2016. Changes in the draft filer manual include new submission form types relating to the registration of security-based swap dealers and major security-based swap participants and submission form types for filing the Risk Assessment Reports for Brokers and Dealers. The SEC also published the Draft EDGAR ABS XML Technical Specification (Version 1.2); the Draft EDGAR Form 17-H XML Technical Specification (Version 1); and Draft EDGAR SBS Entity Forms XML Technical Specification (Version 1). |
| ▲ |
|
|
| On March 28th, the U.S. Commodity Futures Trading Commission (“CFTC”) announced that it approved a final rule adding an alternative for foreign natural persons to the requirement to provide fingerprints when applying for CFTC registration. The final rule will allow any such person’s registered firm to complete a criminal history background check instead of submitting fingerprints. The final rule is effective on May 2, 2016. CFTC Press Release. |
| ▲ |
|
|
| May 2, 2016 |
Alternative to Fingerprinting Requirement for Foreign Natural Persons. 81 FR 18743. |
| April 1, 2016 |
Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants. 81 FR 635. |
|
| | | |
| April 1, 2016 |
Margin and Capital Requirements for Covered Swap Entities. 80 FR 74839. |
|
| | | |
| April 1, 2016 |
Margin and Capital Requirements for Covered Swap Entities. 80 FR 74839. |
|
| | | |
| April 1, 2016 |
Margin and Capital Requirements for Covered Swap Entities. 80 FR 74839. |
|
| | | |
| April 29, 2016 |
Investment and Deposit Activities—Bank Notes. 81 FR 17601. |
|
| | | |
| April 1, 2016 |
Margin and Capital Requirements for Covered Swap Entities. 80 FR 74839. |
|
| | | |
| May 16, 2016 |
Crowdfunding. 80 FR 71387. |
| April 19, 2016 |
Security-Based Swap Transactions Connected With a Non-U.S. Person's Dealing Activity That Are Arranged, Negotiated, or Executed by Personnel Located in a U.S. Branch or Office or in a U.S. Branch or Office of an Agent; Security-Based Swap Dealer De Minimis Exception. 81 FR 8597. |
|
| ▲ |
|
|
| On March 30th, the SEC approved BATS Exchange, Inc. (“BATS”) proposal to amend BATS rules regarding the handling of securities subject to an initial public offering (“IPO”). Among other things, the amendments will change the definition of Eligible Auction Order, exclude certain order types from participation in an IPO auction, specify the types of orders that would be converted by the exchange for purposes of participating in an IPO auction, and implement changes to the Quote-Only Period. SEC Release 34-77476. |
| | | |
| On March 25th, the SEC requested comments on the Chicago Board Options Exchange, Incorporated’s (“CBOE”) amendment to its proposed rule change that would modify the methodology for counting average daily order submissions in listed options to determine whether a person or entity meets the definition of a Professional. The amendment makes changes to the way in which complex orders will be computed under the proposed rule change. Comments on the amendment should be submitted on or before April 21, 2016. SEC Release No. 34-77450. |
| | | |
| On March 29th, the SEC instituted proceedings to determine whether to approve or disapprove the Financial Industry Regulatory Authority’s (“FINRA”) proposed adoption of new “pay-to-play” and related rules to regulate the activities of member firms that engage in distribution or solicitation activities for compensation with government entities on behalf of investment advisers. Comments should be submitted within 21 days of publication in the Federal Register. Rebuttal comments are due within 45 days. SEC Release No. 34-77465. |
| On March 28th, the SEC and FINRA released the agenda for the first Compliance Outreach Program for Broker-Dealers, which will be held in New York on April 7, 2016. The agenda for the New York program includes a discussion of hot topics in sales practices and recent developments regarding conflicts, firm culture, and compliance, including recent examination findings and industry practices. Joint Agency Press Release. |
| | | |
| On March 31st, the SEC requested comments on International Securities Exchange, LLC’s (“ISE”) and ISE Gemini, LLC’s (“ISE Gemini”) separately filed proposals to amend their respective rules to introduce two new mandatory, activity-based risk protections for orders, which are designed to protect members against entering or executing orders at a rate that exceeds predefined thresholds and risk settings. Comments on the proposals should be submitted within 21 days of publication in the Federal Register, which is expected the week of April 4, 2016. |
| | | |
| On April 1st, the International Swaps and Derivatives Association (“ISDA”) announced the firms selected through an annual process to serve on the five regional Determinations Committees (“DCs”), which are responsible for determining whether a credit event has occurred in the credit derivatives market. The selected firms will begin serving on the DCs on April 29, 2016. ISDA Press Release. |
| On March 31st, the ISDA published an updated version of its OTC Derivatives Compliance Calendar. |
| | | |
| The MSRB requested comments on March 28th on a concept proposal for potential rules that would require municipal advisors to disclose information about the bank loans and direct purchases of their municipal entity clients to the MSRB’s Electronic Municipal Market Access (“EMMA”) website. Comments should be submitted on or before May 27, 2016. MSRB Press Release. |
| | | |
| On March 30th, the SEC requested comments on The Nasdaq Stock Market LLC’s (“Nasdaq”) proposed rule change that would require listed companies to publicly disclose compensation or other payments by third parties to any nominee for director or sitting director in connection with their candidacy for or service on the companies’ Board of Directors. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of April 4, 2016. SEC Release No. 34-77481. |
| On March 25th, the SEC issued an order granting accelerated approval to NASDAQ PHLX LLC’s (“PHLX”) proposal to amend its methodology for counting daily order submissions in listed options to determine whether a person or entity meets the definition of a Professional. The SEC also requested comments on an amendment to PHLX’s original proposal, which revises the way PHLX will count complex orders with respect to Professional order counting. Comments on the amendment should be submitted on or before April 21, 2016. SEC Release No. 34-77449. |
| | | |
| On March 31st, the SEC requested comments on the New York Stock Exchange LLC’s (“NYSE”) proposed rule change that would amend rules related to the pre-opening indication process and opening procedures. Among other things, the proposed amendments would consolidate the requirements for publication of pre-open indications in a single rule, change the conditions in which a Designated Market Maker (“DMM”) is required to publish a pre-opening indication in a security, and specify percentage and volume parameters within which a DMM may effect an opening of a security electronically. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of April 4, 2016. SEC Release No. 34-77491. |
| On March 30th, the SEC provided notice of a proposed rule change filed by the NYSE that would amend its rules to add additional order types to the NYSE Bonds platform and to codify the operation of currently available order types. The proposed rule change would also amend the definition of Indicative Price Match (“IMP”) to provide greater detail of how an IMP is established with respect to Bond Auctions. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of April 4, 2016. SEC Release No. 34-77477. |
| ▲ |
|
|
| An individual subject to an SEC disgorgement order established several companies and a trust, which the government claims he uses to hide his assets. The government sought a declaration that the defendant companies and trust are the individual’s alter egos under a reverse-piercing theory so it can pursue their assets to satisfy the judgment. Defendants argue that the government’s claim falls under the Fair Debt Collection Procedures Act (“FDCPA”) and is therefore time-barred. The district court ruled that the government’s reverse-piercing alter-ego theory is not available under Utah law. On March 25th, the U.S. Court of Appeals for the Tenth Circuit reversed and remanded, holding that Utah appellate court opinions suggest Utah may apply reverse piercing given the facts of the case. The court also rejected defendants’ argument that the claim is subject to the FDCPA, holding that the FDCPA does not apply to disgorgement orders. United States v. Badger. |
| ▲ |
|
|
| As part of The Real Deal webinar series, Winston & Strawn will present “Recent Trends and Legal Developments You Should Consider in 2016: Part I – Mergers & Acquisitions” on April 6, 2016. The one-hour seminar will begin at noon (CST). Corporate Partners Oscar David, Richard Falek, Jim Junewicz, and Robert Rawn will review important developments in 2015 and provide an overview of potential M&A trends in 2016. Webinar. |
| | | |
| Please join us on April 8th for the Forum for Financial Institution Directors which is a series of webinars focusing on important issues for directors. This program will be the third in the series and will include a discussion of the current trends of securities litigation against directors and what those trends mean for director’s responsibilities. We will explore the latest in D&O coverage issues and steps directors should take to avoid personal liability. A link to the RSVP form can be found here. Webinar. |
| | | |
| Winston & Strawn will host a seminar titled “Is Permanent Capital Structure Right for Your Fund?” on April 28 at the Peninsula Beverly Hills. Registration will be held from 3:30-4:00 p.m. and the program will take place from 4:00-5:30 p.m. A reception will immediately follow. Seminar. |
| ▲ |
|
|
| For an update on a recent challenge to FSOC’s authority to designate companies as a non-bank systemically important financial institution, please see our client briefing from March 31. Briefing. |
| | | |
| The EU Weekly Briefing is designed to provide timely updates on recent European Union competition law by including a short description of, and links to, recent developments. Newsletter. |
| | | |
| The Investment Management Legal Resource provides financial services professionals with up-to-date news, analysis, and commentary on regulatory and legal developments affecting the investment management industry. It covers a broad range of topics that may be of interest to traditional investment advisers, hedge fund managers, private equity fund managers, real estate fund managers, venture capital fund managers, commodity pool operators, and broker dealers. IMLR Blog. |
| ▲ |
|
|
| For more information regarding the Financial Services Update and the Financial Services Practice please contact: Basil V. Godellas (+1 (312) 558-7237 or bgodellas@winston.com) or Jay Gould (+1 (415) 591-1575 or jgould@winston.com), Co-Chairs of Winston’s Financial Services Corporate Practice Group. Please click here to see a list of Winston & Strawn professionals with practices in the financial services industry. |
|
|
|
|
