Rule News

Cyber Attacks on NYSE and Other Gov't, Business Sites

NYSE.com was one of several government and business Web sites in the U.S. and S. Korea hit by a"denial of service" attack.  It's believed that the following sites were  attacked:

• U.S. Gov't Sites -  White House; Dept. of Homeland Security;  State Dept.
• U.S. Commercial Sites -  NYSE Euronext; U.S. Bancorp; Washington Post.
• S. Korean Sites -  Office of the President; National Assembly;  Korea Exchange Bank.

Swiss Will Block UBS Handing Over Data to U.S.

CNBC.com reports that Switzerland vowed to prevent UBS from handing over client information to U.S. authorities, in an attempt to defend bank secrecy.  This statement precedes a court hearing that's scheduled for next week. UBS has refused to disclose data on 52,000 American holders of secret Swiss bank accounts to U.S. tax authorities.

New Options Linkage Plan: Building a Better Mousetrap

CBOE filed a proposed rule change that would facilitate the Exchange's transition to a new intermarket linkage structure - reflecting a decision by the country's options exchanges to adopt order protection provisions modeled after Regulation NMS, Rule 611.

Ex-Goldman Worker Arrested for Stealing Trade-Secrets

Sergey Aleynikov, a computer programmer who worked in the New York offices of Goldman Sachs, was arrested and charged with theft of trade secrets.  The Russian immigrant later admitted to having copied and encrypted computer files from his former employer - secret computer trading codes.  He claimed he  intended only to collect "open source" files on which he worked.  "Aleynikov downloaded the files from the Web site to his home computer, his laptop computer and a portable memory device," FBI agent Michael McSwain said. 

Rule News Quick Takes

1. SEC: Proposed Rule on Exec. Compensation
2. NYSE:  On Road to a Nanosecond
3. NYSE: New Rule 80B Circuit Breakers
4. NYSE:  Registration of CTs and RCMMs
5. NFA's Redesigned Web Site
6. CFTC: Account Ownership and Control Report
7. MSRB's Report on 'Build America Bonds'

SEC: Suspension of OTC Stock Triggers 15c2-11 Requirements

The SEC suspended trading in the securities of music production company GenX Corporation, a Pink Sheet stock, amid questions about and adequacy of publicly disseminated information appearing in stock promotional materials about the company and its purported relationships with music stars.

During the 10-day suspension, which ends 7/16, Rule 15c2-11, places restrictions and prohibitions on market making firms - e.g., they cannot submit and publish quotations for GenX securities, except to represent an unsolicited customer order.  [C-I Note:  FINRA and FINRA's Market Regulation examiners have had a field day collecting fines from firms that have quoted while trading in a security is suspended.  Time for compliance people to brush up on this simple, but treacherous rule.]   [SEC PR 9-148, 7/2]

Look Who's Talking - Recent Speeches, Testimony (Through 7.1.09)

C-I's Linked Directory for SEC, FINRA, CFTC.  [Click Date to Access Speech, Testimony]

Mary Schapiro, SEC Chairman

• June 18.  Address to NY Financial Writers' Association
• June 11.  Testimony Before Subcommittee of Senate Committee on Fincl Services
• June 11.  Improving Role of Securities Regulators in a Changing Global Fincl System
• May 14.  Statement at SEC Open Meeting (re: IA Custody of Client Assets)
• May 8.  Building a Stale and Efficient Financial System
• May 4.  Criticial Issues For Investment Company Directors
• Apr 27.  Address to Society of Am. Business Editors & Writers

Richard Ketchum, FINRA CEO

• June 17.  Remarks at The Exchequer Club, in D.C.
• June 8.  Remarks at NAVA Government & Regulatory Affairs Conference
• May 1.  Remarks at NYU Pollack Ctr for Law and Business
• Mar 26.  Testimony: Senate Committee on Banking, Housing, Urban Affairs
• Mar 23.  Keynote - SIFMA Compliance & Legal Annual Conference

Dear FINRA B/D: The 'Gas Bonds' Sweep Letter

For the period, 1/1/08 through 12/31/08, FINRA requested 8 categories of information from selected firms, relevant to transactions with retail customers of certain fixed income products known as "Gas Bonds."  Below, you'll find the requested information and a link to the text of FINRA's sweep letter.

Dear FINRA B/D: The Retail Muni Sweep Letter

For the period, 1/1/09 through 3/31/09, FINRA requested 8 categories of information from selected firms, relevant to retail customer muni transactions.  FYI, the term "retail municipal transaction" means a transaction of less than 100 muni bonds - i.e., less than $100K in par value - effected with a customer, including institutional customers.  Below, you'll find the requested information and a link to the text of FINRA's sweep letter.

FINRA's Muni Bond Sweeps

FINRA has declared war on broker-dealers and inadequate retail sales practices in municipal bonds.  One element of its 3-prong attack involves sweeps into industry sales and supervisory practices.  The other 2 elements include:  (i) a comprehensive initiative to survey retail sales practices in the muni securities market;  (ii) the promotion of investor protection in that market, which includes giving investors online tools and information. 

New FTC 'Red Flags' Rule Template

FINRAhas developed a new, optional template that firms may use as a guide when fulfilling their requirements under the Federal Trade Commission's Red Flags Rule.  The Red Flags Rule is based on the Fair and Accurate Credit Transactions Act of 2003 (FACT Act), which requires specified firms to create a written Identity Theft Prevention Program (ITPP) that's designed to identify, detect and respond to "red flags" - patterns, practices or specific activities - that could indicate identity theft.

Curb Your Broker Proxy-Voting Enthusiasm

At today's open meeting, the SEC approved in a 3-2 vote to adopt a change to NYSE Rule 452 that will prevent brokers from voting the shares they hold on behalf of customers in director elections, when the customers haven't instructed them which way to vote. Commissioner Kathleen Casey spoke out against the rule change, saying it would "dramatically increase the power of institutional shareholders" at the expense of individual shareholders.  Ms. Casey added that any such change should be part of a larger reform of the proxy process.

SEC Previews Its Madoff Report

SEC Inspector General H. David Kotz released several suggestions on how to improve SEC oversight of the financial industry, that includes:  (i) an expanded bounty program that awards tipsters;  (ii) requirements to require 3rd party custody of HF and IA investments;  (iii) IA, HF Due Diligence for Investments and, (ii) increased authority for accounting's PCAOB.

SEC Proposes New MMF Rules

The SEC issued a 197-page proposed rule release that's intended to strengthen money market funds (MMF's) and provide greater protection for fund investors. The amendments would: 

• tighten the risk-limiting conditions of Rule 2a-7 by, among other things, requiring funds to maintain a portion of their portfolios in instruments that can be readily converted to cash,
  • reducing the weighted average maturity of portfolio holdings,
  • limiting funds to investing in the highest quality portfolio securities.

Time to Update WSPs for Muni Bond Changes

FINRA member firms that engage in municipal securities business are advised to review and, if necessary, modify their policies and procedures to address MSRB's new EMMA system (effective 7/1), and recent MSRB rule changes (effective 6/1).  FINRA also encourages firms to review pols and procedures related to:  (i) disclosure of material information;  (ii) suitability of recommendations to retail customers;  and, (iii) general supervision in this area.

Rule News Quick Takes: NYSE

1. NYSE, Amex:  Non-Regular Way Settlements
2. NYSE Reg:  DPTR Decommissioning
3. NYSE Reg:  Floor Conduct and Safety
4. NYSE, Amex: Series 15, DMM Exams

FINRA's New Rules for Trading Halts, Securities Offerings

FINRA proposes to adopt new FINRA rules that would be taken without material change from the following NASD rules:

• NASD Rule 2240 - ->> FINRA Rule 2262, Disclosure of Control Relationship with Issuer.
• NASD Rule 2250 - ->> FINRA Rule 2269, Disclosure of Participation or Interest in Primary or Secondary Distribution .
• NASD Rule 3340 - ->> FINRA Rule 5260, Prohibition on Transactions, Publication of Quotation, or Publications of Indications of Interest.

New York's New Metro Commuter Tax

New York State has enacted a new tax, the Metropolitan Commuter Transportation Mobility Tax, that will be levied on employers for payroll paid on or after 3/1/09.  For 2009, the first payment is due by 11/2/09 and covers the period, 3/1/09 through 9/30/09. 

The tax is imposed on all compensation paid to an employee whose services are "allocable" to the following cities and counties - New York City and its 5 boroughs, Rockland, and the counties of Nassau, Suffolk, Orange, Putnam, Dutchess and Westchester.  The tax is imposed at the flat rate of .34% of applicable compensation.  No tax is imposed if the compensation paid in a calendar quarter is less than $2,500. 

A person who has net earnings from self-employment allocable to the geographic district is subject to the new tax.   For further information, refer to ...  [Eisner LLP Tax Advisory Services Alert, 6/29]

IRS Okays Late 'FBAR' Report Filing

Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) must be filed by any U.S. taxpayer for non-U.S. bank and financial accounts if the aggregate value of the financial account(s) exceeds $10K at any time during the year.  For 2008, the due date is 6/30, but the IRS will allow taxpayers to filed the Report until 9/23 without penalties.  The late FBAR should be filed with an attachment providing the reason why the FBAR was not timely, filed together with a copy of the taxpayer's 2008 tax return (unless such return is due after 9/23/09).

The form is required to be filed by any U.S. person (including an individual, corporation, partnership, trust or estate, and others) who has a financial interest in, or signature or other authority over, any foreign financial account.  A financial account broadly includes any account - including savings, demand, checking, deposit or other account maintained with a financial institution.  [Katten, Eiser Advisories, 6/25]