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Research Analyst Conflicts

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 […]

Broker-Dealer Compliance, Futures Industry Association

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, […]

Securities Futures Two Years After the CFMA: An Assessment

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.

SEC Proposed Rule 13b2-2: Improper Influence on Conduct on Audits

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 […]

Conflicts Regarding Research Recommendations

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 […]

The Sarbanes-Oxley Act of 2002 Impact on Broker-Dealers

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.

A Pool Too Big for a FCM or a Broker-Dealer

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 […]

Investment Adviser Conflicts

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.  

Anti-Money Laundering Provisions for Broker-Dealers

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.

Security Futures – A New Frontier

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.

Advanced Concepts of Broker-Dealer Compliance

Disclosure of conflicts resulting from a broker-dealer’s recommendations to clients and the public and the other activities of the recommending broker-dealer, such as investment banking, market making and its proprietary trading, have been a long-standing issue in the industry. It has recently received renewed emphasis from the Securities and Exchange Commission (“SEC”). The principal catalyst […]

Capital, Customer Funds and Margin After the Commodity Futures Modernization Act of 2000

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 […]

Managing Regulatory Investigations and Examinations for Cause

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 […]

Regulatory Examinations For Cause

The number of for-cause examinations and investigations by the SEC and self-regulatory organizations (“SROs”) and state securities departments (“state”) has increased markedly over the last several years and will probably continue to increase. High volume, new products and the market downturn have resulted in an increased number of complaints to regulators resulting in more examinations […]

Supervision of Branch Offices, OSI’s and Offsite Brokers and Independent Contractors

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 […]

Broker-Dealer Customer and Recruiting Disputes

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 […]

The Post-Sale Duty to Warn and Recall: Are They Preempted When NHTSA or the CPSC Oversees the Manufacturer’s Conduct?

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 […]

Who is a Proprietary Trader? A Changing and Rocky Landscape

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 […]

Securities Sites and Online Trading Become Regulatory Priorities

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 […]

Regulation of Electronic Communication, Execution and Delivery of Documents to FCM/BDs

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 […]

When is an FCM, CTA or Pool a Securities Broker-Dealer, an Investment Adviser or an Investment Company Under the Securities Laws?

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 […]

State and Federal Court Litigation Involving Futures and Derivatives

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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