JUNE 2015




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Dear <<First Name>>,

Please find below the June 2015 issue of the US Securities Law Digest. This update is intended to provide a compilation of recent legal news relevant to a capital markets practice in the London and international markets. The news pieces have been collected and summarized from various sources, and links to the original sources are provided.

We continue to welcome any feedback that you may have about the Digest.

Daniel Winterfeldt
Head of International Capital Markets
CMS Cameron McKenna LLP
Founder and Co-Chair of the Forum

Ed Bibko
Baker & McKenzie LLP
Co-Chair of the Forum


The Forum for US Securities Lawyers in London publishes an International Capital Markets Glossary

We recently published the International Capital Markets Glossary (the “Glossary”) in an interactive PDF format as well as in app formats.  In this Glossary, you will find commonly used International Capital Markets terms and their definitions.  

To access the PDF version of the Glossary, please click here.

The Glossary is also available as an app in iTunes, Google Play and Windows formats.  Please download these apps using the links below.

For the iTunes app, please click here.
For the Googleplay app, please click here.
For the Window's Phone Store app, please click here.

Electronic settlement for Regulation S, Category 3 securities extended until September 1, 2015; comments due on EUI documentation on June 10, 2015

On May 11, 2015, The London Stock Exchange (the “Exchange”) announced an extension of the June 1, 2015 deadline for the electronic settlement of Regulation S, Category 3 securities pursuant to the EU Regulation on Central Securities Depositories to September 1, 2015.

On the same day, Euroclear UK and Ireland Limited (“EUI”) published its white book (“White Book”) on its new “Euroclear UK & Ireland: Regulation S Category 3 Settlement Service”. This White Book outlines EUI’s proposed changes to the CREST system in relation to the holding and transfer of Regulation S, Category 3 securities and, if applicable, in connection with any eligible resales under Rule 144A of the US Securities Act of 1933, as amended (the “Securities Act”). Together with the White Book, EUI also published a revised Security Application Form (“SAF”) as well as draft versions of the “CREST Terms & Conditions (general)”, the “CREST Rules”, the “CREST Reference Manual” and the “CREST Glossary” for review and consultation. We will be submitting comments to EUI on this documentation on their deadline of June 10, 2015.

For the London Stock Exchange Notice N09/15 announcing the extension, please click here.

The EUI documentation can be downloaded as follows:

  • For the EUI's White Book on its new “Euroclear UK & Ireland: Regulation S Category 3 Settlement Service”, which outlines EUI’s proposed changes to the CREST system in relation to the holding and transfer of Regulation S, Category 3 securities and, if applicable, in connection with any eligible resales under Rule 144A of the Securities Act, please click here.
  • For the draft Security Application Form (“SAF”), please click here.
  • For the draft CREST Terms & Conditions (general), please click here.
  • For the draft CREST Rules, please click here
  • For the draft CREST Reference Manual, please click here.
  • For the draft CREST Glossary, please click here.

Regulatory and Compliance

Accredited Investor Definition: Recommendations made by the SEC Advisory Committee on Small and Emerging Companies
The Advisory Committee on Small and Emerging Companies (the “Committee”) of the SEC set forth its rather limited recommendations regarding the definition of Accredited Investor (“AI”) as it applies to natural persons as found in Rule 501 under the Securities Act.   In recommending that the existing income and net worth thresholds for AIs should remain unchanged, the Committee noted that smaller public companies and emerging companies play a significant role as drivers of U.S. economic activity, innovation and job creation, and that the ability of such companies to raise capital in the private markets is critical to the economic well-being of the United States. 
See the Committee’s letter here.

See the Forum for US Securities Lawyers in London update here.
NYSE proposes rule changes requiring foreign private issuers to submit semi-annual financial information to the SEC
The New York Stock Exchange (“NYSE”) recently proposed amendments to the NYSE Listed Company Manual to adopt a requirement that NYSE-listed foreign private issuers submit semi-annual unaudited financial information to the US Securities Exchange Commission (“SEC”) on Form 6-K. The NYSE has solicited comment on the proposed rule changes from interested persons, who are invited to do so using the SEC’s Internet comment form available here.

See the Patterson Belknap Webb & Tyler article here.

SEC Chief Accountant will not recommend adoption of IFRS in US
In May 7, 2015 remarks, SEC Chief Accountant James Schnurr appeared to acknowledge what many have expected for some time—it is unlikely the SEC will mandate the incorporation of International Financial Reporting Standards (“IFRS”) into US accounting standards.

See the SEC Remarks here.

See the Wilmer Hale article here.

See the Cooley article here.
Montana joins Massachusetts in Regulation A+ challenge
Massachusetts and Montana have moved to block Regulation A+ in consolidated court actions. These two states are asking that the new Regulation A+ be vacated because it is arbitrary, capricious and not in accordance with the Administrative Procedures Act, the Securities Act and other law.

For the Massachusetts Petition for Review, please click here.

For the Montana Petition for Review, please click here.

See the CMS Cameron McKenna article here.
SEC proposes new pay-versus-performance disclosure rules
On April 29, 2015, the SEC proposed new rules that would require reporting companies to disclose the relationship between compensation “actually paid” to certain executives and the financial performance of the company. The rationale behind these proposed rules is to provide greater transparency so that shareholders are better informed in electing directors and submitting advisory votes related to executive compensation. The proposed rules were promulgated under the requirements of Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

See the Allen & Overy article here.

See the Tucker Ellis article here.

See the Barnes & Thornburg article here.

See the Fenwick & West article here.
SEC approves tick size pilot program
The SEC announced on May 6, 2015 that it has approved a two-year pilot program that would widen the minimum quoting and trading increments, which are known as “tick sizes,” for select stocks of companies with smaller market capitalizations.  The SEC stated that it plans to use the pilot program to assess whether wider tick sizes would enhance the market quality of these stocks and improve liquidity and capital formation for the benefit of issuers, investors and other market participants. The program will begin by May 6, 2016.

See the SEC Release here.

See the SEC order approving the tick size pilot program here.

See the Akin Gump article here.


Does the SEC's Enforcement Division guidance on forum selection do anything more than foreshadow increased use of administrative proceedings?
The SEC’s Enforcement Division issued its “Approach to Forum Selection in Contested Actions” last month. This guidance comes at a time of heightened criticism regarding the SEC’s increasing reliance on administrative enforcement proceedings over federal court actions. The guidance appears to reflect the Enforcement Division’s desire to lay the groundwork for the continued, expanded use of such administrative proceedings.

See the SEC “Approach to Forum Selection in Contested Actions” guidance here.

See the Carlton Fields Jorden Burt article here.

Recent Cases

Seventh Circuit reverses US$2.46 billion judgment in securities-fraud class action
The Seventh Circuit reversed a US$2.46 billion judgment in a long-running securities-fraud class action against Household International and granted a new trial on limited issues. The opinion provides a sophisticated analysis of events studies and loss causation and brings further clarity to what it means to “make” a false statement under the federal securities laws.

See the Opinion here.

See the Proskauer Rose article here.
Must the "maker" of a false statement have "ultimate authority" over that statement to be subject to liability for securities fraud?
The Eleventh Circuit again demonstrated its reluctance to allow the expansion of the Supreme Court’s 2011 Janus holding beyond a civil action under Rule 10b-5.

See the Carlton Fields Jorden Burt article here.
Dismissal of securities-fraud class action against Yahoo! affirmed by Ninth Circuit
On May 15, 2005, the Ninth Circuit declined to recognize a duty to correct prior representations under Sections 10(b) and 20(a) of the US Securities Exchange Act of 1934, as amended, by affirming the dismissal of a putative securities fraud class action against Yahoo!

See the Opinion here.

See the Benesch Friedlander Coplan & Aronoff article here.

See the Carlton Fields Jorden Burt article here.

Insider Trading and Whistleblowing

Internal whistleblower complaints raise important considerations
The number of whistleblower complaints is on the rise, according to the 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program, and defending against them can be costly and disrupt business operations. Taking appropriate steps in response to internal complaints can go a long way toward minimizing the risk that the issue becomes an external dispute.

See the 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program report here.

See the Epstein Becker Green article here.

Financial Industry Regulatory Authority ("FINRA") and Broker-Dealer Topics

FINRA introduces Revised Sanction Guidelines
FINRA has published updated and revised Sanction Guidelines that, among other things, highlight the SRO's position that penalties in disciplinary actions should be significant enough to achieve deterrence and not serve merely as a cost of doing business. The Sanction Guidelines were last revised in 2011. These latest revisions come on the heels of criticism, including remarks by a member of the SEC, that FINRA's penalties too often have been financially insignificant for wrongdoers.

See the FINRA Sanction Guidelines here.

See the FINRA Regulatory Notice here.

See the Morrison & Foerster article here.

See the Proskauer Rose article here.

See the Reed Smith article here.
The SEC proposes FINRA regulation for high-frequency traders
The SEC recently proposed an amendment to Rule 15b9-1 under the Securities Exchange Act of 1934, as amended. The proposed amendment would require many high-frequency traders to become members of FINRA.

See the SEC Proposed Rule here.

See the Skadden Arps Slate Meagher & Flom article here.
FINRA requests comment on proposed amendments to rules governing communications with the public
FINRA issued Regulatory Notice 15-16 to solicit comments on proposed amendments to FINRA Rules governing communications with the public. FINRA is, among other things, proposing to amend FINRA Rule 2210 so that a firm that is in its first year of FINRA membership would only have to file the contents of its website and any material changes thereto 10 business days prior to first use, rather than filing all of its retail communications with the public. The comment period expires on July 2.

See the FINRA Regulatory Notice here.

See the Katten Muchin Rosenman article here.

US Foreign Corrupt Practices Act ("FCPA")

BHP Billiton resolves FCPA charges with $25 million settlement

On May 20, 2015, the SEC announced a $25 million settlement with Australian mining company BHP Billiton to resolve FCPA charges arising from BHP Billiton’s sponsorship of the 2008 Summer Olympics. The allegations concern a hospitality program offered to hundreds of guests worldwide—most of whom were not government officials—to attend the summer games in Beijing. Although there was no allegation that the program was created to influence any particular business opportunities or deals, the SEC charged that BHP Billiton failed to implement adequate anti-bribery controls to monitor the hospitality program.

See the Paul, Weiss, Rifkind, Wharton & Garrison here.

See the Kelley Drye article here.

See the Ropes & Gray article here.

See the Brooks Pierce McLendon Humphrey & Leonard article here.
See the Debevoise & Plimpton article here.

International Developments

Meaning of information of a precise nature in market abuse clarified by ECJ

Following a recent European Court of Justice (“ECJ”) decision, the definition of 'inside information' for the purposes of the EU's market abuse regime has been widened. In Lafonta v Autorité des marches financiers (Case C-628/13) the ECJ held that information of a “precise nature” for the purposes of Directive 2003/6/EC and article 1(1) of Commission Directive 2003/124/EC was not restricted to information which made it possible to determine the likely direction of a change in price and that the only information that could be regarded as imprecise was information that was vague or general, from which it was impossible to draw a conclusion as regards its possible effect on price.

See the RPC Finance article here.

European Parliament proposes tough measures on conflict materials

On May 20, 2015, by a narrow margin the left wing of the European Parliament successfully pushed through amendments to a proposed conflict minerals law that would, if enacted, be much more onerous and involve hundreds of thousands more European businesses in the process of tracking conflict minerals than the regulation proposed by the European Commission and supported by the Parliament’s International Trade Committee and industry. 

See the Kelley Drye article here.

See the Baker & McKenzie update here.

Noteworthy News and Publications

ESMA calls for EMIR modifications to UCITS Directive

On May 22, 2015, The European Securities and Markets Authority (“ESMA”) published an opinion to the EU institutions (including the Commission, Parliament and Council) calling for a modification of the Directive for Undertakings for the Collective Investment of Transferable Securities (the “UCITS Directive”) to take into account the clearing obligations for both exchange-traded and over-the-counter (“OTC”) financial derivatives arising under the European Market Infrastructure Regulation (“EMIR”).

See the Katten Muchin Rosenman here.

The SEC and the Department of Justice ("DOJ") announce new guidance for companies on how to respond to cyber incidents and attacks

At the end of April, both the SEC and the DOJ announced new guidance for companies on how to respond to cyber incidents and attacks. The SEC has prioritized cybersecurity as a critical issue for such firms, especially for those that retain confidential client information.  The SEC’s guidance was issued on the heels of a cybersecurity examination sweep conducted by the SEC's Office of Compliance Inspections and Examinations, in which more than 88 percent of broker-dealers and 74 percent of advisors disclosed that they had been the subject of some form of cybersecurity incident, originating internally from employees or externally from hackers. After this survey of basic cybersecurity practices, the Division of Investment Management’s Guidance Update offers more specific directives to investment funds and advisors.
See the SEC Guidance Update here.

See the SEC Cybersecurity Examination Sweep Summary here.

See the DOJ Best Practices for Victim Response and Reporting of Cyber Incidents here.

See the Haynes and Boone Cybersecurity Risk Management for the Securities Industry Report here.

See the Bracewell & Giuliani article here.

See the Alston & Bird article here.


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