What is the first step towards preparing for the alternative dispute resolution process? Business disputes routinely arise as business owners navigate relationships with other partners, customers, employees, contractors, vendors, and many others. While business disputes are almost a given, business owners can avoid the courtroom by pursuing one of many forms of alternative dispute resolution […]
Lawrence Kamin has been ranked in the 2019 edition of “Best Law Firms” by U.S. News and Best Lawyers. With this recognition, the firm joins an elite group of law firms that demonstrate a unique combination of quality law practice and breadth of legal expertise. Lawrence Kamin achieved National Tier 1 ranking for its work […]
Long-time Lawrence Kamin partner Michael Wise was recently named for inclusion in the Best Lawyer in America – 25th edition in 2019. Michael received this recognition from his peers in the legal industry for exemplifying professional excellence in the law areas of Securities/Capital Markets and Securities Regulation. He joins an elite group of 1,891 attorneys […]
Our esteemed colleague and Associate Attorney, Elizabeth “Liz” C. Lyons, was recently recognized as an Emerging Lawyer™ in Commercial Litigation by Law Bulletin Media’s Leading Lawyers division. With this distinction, Liz joins the top two percent of all attorneys licensed to practice law in the State of Illinois who are recognized for having proven themselves […]
An enduring gray area in the Protocol for Broker Recruiting, dating back to 2004, has been whether and to what extent the Protocol preempts a notice provision of an adviser’s employment contract. In HA&W Capital Partners, LLC v. Bhandari, the Georgia Court of Appeals was tasked with deciding the Protocol’s impact on notice provisions contained […]
The Appellate Court for the Second District of Illinois recently expanded the reach of Illinois’ “common interest” doctrine in a professional negligence case against an insurance broker. In The Robert R. McCormick Foundation v. Arthur J. Gallagher Risk Management Services, Inc., 2018 IL App (2d) 170939 (July 20, 2018), the Court held that an insurance […]
On May 29, 2018, the CFTC and NFA1, respectively, issued enforcement decisions against Chicago-based Xchange Financial Access, LLC (“XFA”) that should serve as a cautionary tale for Futures Commission Merchants, and other registrants, about the importance of training, updating supervisory procedures, and appropriately maintaining records. According to the regulators, XFA failed to supervise its staff […]
The new AML rules significantly expand the obligations of FCMs and IBs when taking in new clients, opening new accounts for existing clients, and even updating the information on existing clients’ existing accounts – through the Customer Due Diligence (CDD) requirements for financial institutions. The new rules make two major changes to the existing AML […]
In Cassidy v. China Vitamins LLC, 2017 IL App (1st) 160933 (“China Vitamins”), the First District Appellate Court made it a lot harder for non-manufacturers to free themselves from litigation through the Illinois Distributor’s statute (sometimes referred to as the “innocent seller’s statute” or “seller’s exception”). Under China Vitamins’ new interpretation of the statute, a […]
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) has reduced the federal estate taxes to the point that such taxes currently affect a very small percentage of U.S. citizens and residents. Nevertheless, many individuals and families are still affected by State estate and inheritance taxes, which typically apply to individuals with wealth […]
Two Illinois cases, Van Dyke v. Jesse White, 2016 IL App (4th) 141109 (currently pending before the Illinois Supreme Court as Docket No. 121452) and Thrivent Investment Management v. Illinois Securities Department, Circuit Court of Cook County Case No. 2016-CH-16406 (currently pending before the First District Appellate Court as Docket No. 1-17-1913), could have broad-reaching […]
The post-sale duty to warn has been the subject of intense debate ever since it was included in the Restatement (Third) of Torts: Products Liability (1997) (hereinafter “Third Restatement”). This article provides an overview of the history and nature of the post-sale duty, summarizes some of the challenges it creates for practitioners, seeks to predict […]
On June 12, 2014, the Supreme Court ruled that inherited IRAs, unlike traditional IRAs, do not receive protection in bankruptcy. Depending on the size of the IRA and the age of the intended beneficiary(ies) and estate planning considerations, IRA holders may wish to consider creating a trust for each intended beneficiary, and designating those trusts […]
During the last five years, the securities and futures industry has been rocked by highly publicized insolvencies of several major broker-dealers and futures commission merchants. These events have highlighted deficiencies in the customer asset protection schemes of both the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”). On July 31, 2013, […]
The MF Global, Inc.1 (“MFGI”) bankruptcy shocked the ﬁnancial service world and raised a signiﬁcant number of regulatory and other issues that will shape the future world of ﬁnancial service regulation, including securities, futures and derivatives.
Even though Washington addressed part of the “fiscal cliff” by permanently extending several tax-saving provisions, tax planning remains very important. This article lists reasons for tax planning and provides a brief summary of current tax laws.
Did you know that on January 1, 2013 (just ten months from now), our tax laws in the U.S. will be changing? Based on the increases required under the Patient Protection and Affordable Care Act passed in 2010 and expiring Bush tax cuts, our taxes will change dramatically.
On December 16, 2011 Governor Quinn signed legislation that will increase the Illinois’ estate and generation-skipping transfer tax exemptions. What this means is that one can leave more money to one’s family and friends ($1.5 million more next year and $2 million more in 2013) without incurring any Illinois estate or GST tax.
The Financial Industry Regulatory Authority (“FINRA”)1 has adopted and proposed important changes to the current regulatory scheme and obligations relating to notice and supervision of outside business activities and private securities transactions. For a number of years, the National Association of Securities Dealers, Inc. (“NASD”) rules 3030, 3040 and 3050 were the principal rules of […]
The answer to this question is unclear as a result of the SEC interpretation of the statutory broker-dealer exemption from investment adviser registration and changed brokerage and investment adviser business practices in the securities industry. Although the SEC has attempted to clarify the broker-dealer exemption through informal interpretations and a forma Rule 202(a)(11)-1 (the “Vacated […]
The Commodity Futures Trading Commission (“CFTC”) adopted rules, effective March 31, 2010, which significantly increase net capital requirements for both futures commission merchants (“FCMs”) and introducing brokers (“IBs”). The National Futures Association (“NFA”) has also imposed parallel higher capital requirements for futures commission merchants (“FCMs”) effective March 31, 2010.
This article highlights key business and regulatory developments and issues relevant to the clearing arrangement between an introducing broker-dealer (“introducing broker”) and a clearing broker-dealer (“clearing firm”). It details clearing firm operations and regulations, clearing agency membership, and securities clearance and settlement, only as is relevant to introducing broker-dealers.
In today’s global economy, compliance officers may encounter questions concerning foreign broker-dealers directing investment opportunities to United States residents. These foreign broker-dealers may seek to enlist a United States firm or resident in their activities. Compliance issues arise whether sales activities are conducted in person, by telephone or e-mail, or through a website.
Part 3 of this article series deals with supervision and compliance procedures applicable to outside business activities, including the changes necessary to procedures as a result of the proposed FINRA rule changes.
Part 1 of this article series describes the applicable self-regulatory organization rules, particularly FINRA and NYSE rules. In addition, it discusses proposed revisions to those rules and applicable NASD Notices to Members dealing with personal outside business activities of associated persons of broker-dealers.
This article focuses on outside business activities, particularly selling away issues, and discusses the language and interpretations of FINRA Rules 3030, 3040, and 3050. It provides an overview of how and when mandatory arbitration applies to selling away cases, sets forth legal views which may impose civil or regulatory liability against a firm for outside […]
While the new Customer Code, under terms of the SEC Release No. 34-55158 (January 24, 2007), codifies certain well-known practices and limits other more controversial customs, it also imposes new restrictions and duties – in particular upon industry participants – which may affect the way in which brokerage firms approach and handle securities arbitrations in […]
Broker-dealer supervisory procedures and compliance systems have been significantly strengthened during the last five years, and now include enhanced training, documentation, testing and exception reporting. Notwithstanding these tools, the key to a successful compliance program is thoughtful analysis by supervisory personnel.
In 2004, securities customers filed over 9000 arbitration claims with the NASD Dispute Resolution and the New York Stock Exchange. Although 2003 and 2004 represent the high-water mark for securities arbitrations, a broker-dealer must anticipate that it will regularly be sued by disgruntled customers. Accordingly, a firm must establish and maintain a protocol for quickly […]
Despite its growing importance, mediation continues to be used ineffectively by many litigants and their counsel. Commonly, ineffective counsel fails to focus on the roles and differing goals that they, their client and the mediator have in mediation. This article offers compelling insight and effective strategies from the viewpoints of both an experienced client advocate […]
FINRA and the NYSE released a joint interpretation of the new uniform definition of the term “Branch Office” interpreting the exemptions from the term “Branch Office.” Members should carefully review the new interpretation in NTM 06-12 because it is quite complex and certain offices may fall within the definition of “Branch Office.”
In the Chapter 11 proceeding in the matter of Refco, Inc., et al., case number 05-6006 (RDD), involving not only Refco, Inc., but its unregulated affiliate Refco Capital Markets, Ltd. (“RCM”), the Court found that RCM was a “stockbroker” under the Bankruptcy Code. Although the Court ruled, it postponed the effective date of its ruling […]
Rules adopted by the NASD and NYSE in the past year have heightened the supervisory requirements for securities firms. Among the more significant changes are a certification requirement by the Chief Executive Officer and mandatory compliance inspections.
In the Chapter 11 proceeding in the matter of Refco, Inc., et al., case number 05-6006 (RDD), involving not only Refco, Inc., but its unregulated affiliate Refco Capital Markets, Ltd. (“RCM”), a number of issues were raised after the Court initially held that RCM, a Bermuda company, was a “stockbroker” under the Bankruptcy Code. The […]
This article discusses key business and regulatory issues that every introducing broker-dealer should consider before entering into a clearing arrangement. There are numerous business and regulatory complexities to the clearing arrangement between an introducing broker-dealer and a clearing broker-dealer.
The SEC substantially narrowed the exemption from the Investment Advisers Act of 1940 for broker-dealer activity by adopting a new Rule 202(a)(11)-1. Among the many changes is a requirement that any discretionary account will be considered and advisory account requiring a broker-dealer to register as an investment adviser.
In a 2000 article, we noted increasing attention and focus on whether individuals described as “proprietary traders” were truly trading on behalf of a firm or were, in fact, customers trading under the guise of proprietary trader. Nearly four years later, regulatory guidance in this area remains inconsistent and continues to result in uncertainty and […]
The purpose of this panel and the accompanying outline, presented to the National Regulatory Service, is to focus on various areas of advanced broker-dealer compliance, including supervisory responsibilities, key supervisory issues for remote office branches, and marketing issues.
The SEC adopted Rule 13b2-2 as part of the Sarbanes-Oxley Act of 2002, with the intention of precluding issuers, their officers, directors and others, including attorneys, from misleading independent public accountants. The Rule affects attorneys representing issuers, private or public, including broker-dealers and investment advisers that file with the SEC financial statements audited or reviewed […]
The SEC has promulgated final amendments to its investment adviser custody Rule 206(4)-2. Advisers will have until April 4, 2004 to change their procedures, policies and client arrangements to meet the requirements of this rule and a number of key changes within it.
The purpose of this panel and the accompanying outline, presented to the Union League Club of New York, is to focus on broker-dealer supervision, including general supervisory responsibilities, top-down compliance, and conflicts of interest.
The Securities and Exchange Commission (“SEC”) has placed a significant amount of enforcement and examination emphasis on personal trading and insider trading policies and procedures of investment advisers. Investment advisers are required to have written supervisory procedures to prevent insider trading and to prevent vicarious liability for personal trading. The absence of procedures and policies […]
Conflicts between research recommendations and the other activities of a broker-dealer, such as investment banking, market making and proprietary trading, have been a long-standing issue in the securities industry. Because of the Enron debacle and its resulting publicity, and because of Congressional, SEC and industry pressure, the NASD and NYSE developed and submitted to the […]
The purpose of this panel and the accompanying outline, presented at the Futures Industry Association’s Law & Compliance Division 25th Annual Workshop, is to focus on various areas of advanced broker-dealer compliance, including supervisory responsibilities, new books and records rules, key supervisory issues for remote branches, marketing, mandatory disclosure of order execution and routing practices, […]
The Commodities Futures Modernization Act of 2002 (“CFMA”) established for the first time in the United States a regulatory scheme to permit trading of futures on individual equities and narrow-based equity indices. This article discusses each of the major areas of CFMA involving security futures and comment on the efficiency of the regulation.
The SEC’s proposed Rule 13b2-2 will have an impact on attorneys representing issuers, private or public, including broker-dealers and investment advisers filing with the SEC financial statements audited or reviewed by independent public accountants. Audit letter responses, opinions and oral conversations by an attorney with an independent public account are within the scope of the […]
Because of the Enron debacle and its resulting publicity, and because of Congressional, SEC and industry pressure, the NASD developed and submitted to the SEC in record time Rule 2711, a new rule with respect to research conflicts. The new Rule 2711 is far more encompassing than the proposals to amend NASD Rule 2210 set […]
While the Sarbanes-Oxley Act (the “Act”) was directed primarily to publicly held companies and regulation of independent public accountants, it has a number of other provisions that impact privately owned and publicly held broker-dealers. This article discusses some of the key provisions that affect all broker-dealers.
Broad definitions of “commodity pool operator” and “commodity trading adviser”, together with the very broad interpretations of these terms by the CFTC staff, has led to the “inadvertent pool” problem for many registered broker-dealers and futures commission merchants (“FCM”) engaged in proprietary trading activities. These problems have increased significantly over the last five years as […]
In the normal course of business, investment advisers face an increasing number of potential conflicts of interest between the investment adviser and the client. These conflicts arise in several areas and in connection with other activities, such as investment banking, if an investment adviser is part of or affiliated with a broker-dealer.
The Patriot Act of 2001 together with new and proposed regulations has significantly increased the anti-money laundering duties of broker-dealers. This article reviews new and proposed regulations and outlines supervisory procedures and programs that broker-dealers will need to comply with the rules.
The Commodity Futures Modernization Act of 2000 permitted for the first time the trading of futures on single stocks and narrow-based indices. This article describes new and proposed rules on a variety of subjects relating to the new trading, including the protection of customer funds, reporting and recordkeeping, minimum capital, margin, and SRO requirements.
The Commodity Futures Modernization Act of 2000 (“CFMA”) made fundamental changes in several federal acts, including the CEA, SEC “34 Act” and the Investment Advisers Act of 1940,6. This article focuses on changes affecting the financial responsibility requirements of broker-dealers, futures commission merchants, and introducing brokers as a result of CFMA and subsequent regulations, as […]
It is critically important that broker-dealers and investment advisers recognize when an examination by the SEC, an SRO, or a state is an examination for cause and how to deal with such an examination or investigation. This article details how the SEC, the SROs and states conduct for-cause examinations and investigations, and provides practical advice […]
Supervisory responsibilities in connection with branch offices, offices of supervisory jurisdiction (“OSJs”), and offsite brokers, including independent contractors, can be particularly challenging. Without on-site supervisors and compliance personnel, there are more opportunities for supervisory failures and sales practice abuse. The most serious of these problems is selling away of securities products or Ponzi schemes, many […]
This article focuses on selected customer litigation issues that arise in customer disputes and unfair competition. The areas covered include controversies dealing with arbitrator selection, discovery in arbitration, emerging on-line brokerage litigation issues, clearing firm liability, and correspondent arbitration agreement coverage under clearing firm customer agreements. The content sets forth the procedural or substantive rules […]
When the American Law Institute introduced the Restatement 3rd of Torts (the “Third Restatement”), which included, for the first time, sections proclaiming that sellers of commercial products had post-sale duties to consumers, it announced a manufacturer’s post-sale duty to warn of product risks, whether or not the product was defective at the time sold. This […]
The SEC and the CFTC have brought proceedings and focused investigations on an issue which had previously received little, if any, attention: whether individuals described as “proprietary traders” are truly trading on behalf of a firm or are, in fact, customers trading under the guise of proprietary trader. Because regulators have provided little guidance in […]
Issues faced by regulators include the validity of electronic signatures, disclosures required in online trading, whether hyperlinks are regulated with the documents in which they are embedded, what obligations online sites have to day traders, when offers to buy can be accepted in IPOs, and more. Inconsistencies between the U.S. and other national and regional […]
A regulatory scheme designed for electronic communications, after a slow start, seems to have caught up with the desire and need to communicate electronically. This article reviews the principle elements in the regulatory framework for communications between brokers and customers – in particular, issues related to online trading.
The CFTC has taken a definitive position that electronic signatures are permitted for customer agreements, required disclosure consents and other documents where signatures were previously required. CFTC Rule 1.4, 17 C.F.R. 1.4. Neither the CFTC nor the National Futures Association (“NFA’) mandates customer agreements; however, they do mandate customer acknowledgment of margin disclosures and agreements […]
Futures Commission Merchants (“FCMs”), Commodity Trading Advisers (“CTAs”), Commodity Pool Operators (“CPOs”) and commodity pools frequently deal with securities incidental to futures and futures activities. Considerable uncertainty exists as to when these securities activities trigger registration as a broker-dealer, investment adviser or investment company. These uncertainties have increased dramatically in the last year, as electronic […]
This article compares the advantages and disadvantages of litigation in federal or state court with reparations proceedings under the Commodities Exchange Act (“CEA”) and arbitration under the rules of futures exchanges or the National Futures Association (“NFA”). The content discusses the jurisdictional basis for litigation and the substantive claims that may be filed in state […]
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