SEC Forms COVID-19 Task Force, Issues More Regulatory Relief

The second commission order focuses on those introducing brokers that meet the net capital requirements for small broker-dealers under Rule 0-10(c)(1) under the Securities Exchange Act of 1934, but fail to qualify as small broker-dealers for the purposes of the CAT NMS Plan.

The order provides exemptive relief permitting these firms to follow the CAT reporting timeline applicable to small broker-dealers.

Select milestones for broker-dealer reporting to the CAT are:

• June 22, 2020: Initial equities reporting for large broker-dealers and small broker-dealers that currently report to FINRA’s Order Audit Trail System (OATS);
• July 20, 2020: Initial options reporting for large broker-dealers; and
• Dec. 13, 2021:  Full equities and options reporting for large and small broker-dealers; and
• July 11, 2022: Full customer and account reporting for large and small broker-dealers.

Fund Valuation Modernization

The SEC also voted to propose a new rule to set up a framework for fund valuation practices.

The proposed rule is intended to clarify how fund boards can satisfy their valuation obligations in light of market developments, including an increase in the variety of asset classes held by funds and an increase in both the volume and type of data used in valuation determinations.

“The way a fund values its investments is critical to our Main Street investors,” said SEC Chairman Jay Clayton, in a statement. “It affects the fees they pay, the returns they receive, and the value of the fund shares they hold. Today’s proposal would improve valuation practices, including oversight, thereby protecting investors and improving market efficiency, integrity and fairness.”

Many funds now engage third-party pricing services to provide pricing information, particularly for thinly traded or more complex assets, the agency explained. “In addition, significant regulatory developments have altered how boards, investment advisers, independent auditors, and other market participants address valuation under the federal securities laws,” the SEC said.

The proposal “recognizes and reflects these changes, including the important role that funds’ investment advisers may play and the expertise they may provide,” the agency said.