Katten’s Financial Markets and Funds Quick Take is a monthly newsletter highlighting key noteworthy developments potentially affecting financial markets and funds.
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The SEC Adopts New Short Sale Reporting Requirements for Institutional Investment Managers
By David Dickstein, Eli Krasnow
On October 13, the Securities and Exchange Commission’s (SEC) adopted Rule 13f-2 which will require institutional investment managers to report on new Form SHO specified short position data and short activity data for equity securities that exceed certain reporting thresholds. As a result, investment advisers, broker-dealers, family offices, corporations, insurance companies and pension funds that meet any one of the reporting thresholds will be required to file Form SHO. Read about SEC’s Rule 13f-2.
Significant Changes Proposed to CFTC Rule 4.7 ‘Registration Lite’
By Christian Hennion, Mia Hayes
For the last three decades, CFTC Regulation 4.7 has provided registered commodity pool operators (CPOs) and commodity trading advisors (CTAs) with exemptions from certain compliance requirements under Part 4 of the Commodity Exchange Act, in their dealings with investors and clients that are “qualified eligible persons” (QEPs) under that rule. Reliance on Regulation 4.7 has led the Commodity Futures Trading Commission (CFTC) to reassess whether the provisions of the rule continue to align with the purposes motivating its adoption, culminating in a proposal to implement substantial amendments to the rule. Read about CFTC Rule 4.7.
Tread with Caution: New CFTC Enforcement Advisory on Penalties, Monitors and Admissions Portends Increased Compliance Costs for Industry
By Carl Kennedy, Daniel Davis, Gary DeWaal, Alexander Kim
It is no longer just lions, tigers and bears Dorothy needs to be fearful of, but if she is a potential defendant in a CFTC enforcement action, she must also now worry about potential higher fines (especially if she is recidivist), imposition of third-party monitors, and mandatory admissions of facts and/or violations of law to obtain a settlement under a CFTC Division of Enforcement (DOE) Advisory issued on October 17. Read about the CFTC’s DOE Advisory.
CFTC Resuscitates Version of MLB’s Former ‘Neighborhood Play’ to Sue Principal of Defunct Crypto-Asset Entity Voyager as a Commodity Pool Operator
By Christian Hennion, Daniel Davis, Gary DeWaal
The CFTC appears to have revived a version of Major League Baseball’s “neighborhood play,” as evidenced by its allegations in a recently filed enforcement action, CFTC v. Stephen Ehrlich. There, the CFTC claimed that Voyager Digital Ltd. and certain of its affiliates, defunct crypto asset entities, should have been registered as a CPO (and were not) when they lent customers’ crypto assets to unrelated borrowers that engaged in commodity interest transactions (e.g., futures or swaps). Read about the CFTC’s enforcement action.
SEC’s Request for Interlocutory Appeal of Favorable Rulings for Ripple Labs’ Defendants Rejected Based on Well-Settled Law
By Gary DeWaal, Daniel Davis, Sheehan Band, Alexander Kim
On October 3, a federal court denied the SEC’s request to certify for appeal the same court’s decision (Initial Decision) granting Ripple Labs, Inc.’s and two principals’ motion for summary judgment that certain types of sales and distributions of the digital asset XRP did not constitute investment contracts. The SEC had charged that such (and other) offers and sales by the three defendants were investment contracts (and thus securities) that were required to be registered or exempt from registration and were not. Read about the rejection of the SECs appeal.
US Court Holds DeFi Developer Cannot Be Held Liable for Third-Party Bad Actors; A Week Later, CFTC Suggests Contrary View Over One Commissioner’s Dissent
By Gary DeWaal, Daniel Davis
A developer and financial backers of a renowned decentralized finance (DeFi) protocol cannot be held liable to private litigants for the activities of unrelated bad actors that utilized the protocol to launch and offer for sale scam digital assets, ruled a federal district court judge in New York City on August 29. About a week later, the Commodity Futures Trading Commission (CFTC) took a different approach, commencing and settling an enforcement action against the developer of a DeFi protocol for activities apparently engaged in through an unrelated third-party DeFi application that purportedly were in violation of the Commodity Exchange Act. Read about these contradictions.
FinCEN Announces Extension to CTA Reporting Deadlines
By Kevin Keen
The US Corporate Transparency Act (CTA) is the first comprehensive ultimate…
Read More: Financial Markets and Funds Quick Take | Issue 19 | Katten Muchin Rosenman LLP