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Regulation and Compliance > Legislation

House Panel Passes Bills on Family Offices, Payment for Order Flow

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What You Need to Know

  • Family offices with more than $750 million assets under management would have to register with the SEC.
  • Another bill prohibits trading ahead by market makers.
  • The SEC is directed to study and consider banning or limiting the payment for order flow in certain arrangements as part of another bill.

The House Financial Services Committee passed Friday a series of financial services bills that would codify actions by the Securities and Exchange Commission on senior exploitation, family offices and another that directs the SEC to study and consider banning payment for order flow practices.

The bills passed the committee en bloc by a vote.

The Financial Exploitation Act of 2021, H.R. 2265, introduced by Rep. Ann Wagner, R-Mo., would codify a SEC no-action letter by amending the Investment Company Act of 1940 to allow a company or agent of the company to postpone a payment or redemption of security, provided they meet certain conditions, when they suspect the request of payment or redemption is the result of exploitation of an elder.

Also passing the committee was the Order Flow Improvement Act, H.R. 4617, legislation by Rep. Brad Sherman, D-Calif., which directs the SEC to study and consider banning or limiting the payment for order flow in the form of exchange rebates or payments from market centers to broker-dealers, conflicts of interest based on PFOF arrangements, and the impact of PFOF on the quality of order execution.

The Family Office Regulation Act of 2021, H.R. 4620, introduced by Rep. Alexandria Ocasio-Cortez, D-N.Y., would limit the use of the family office exemption from registration as an investment advisor with the SEC to offices with $750 million or less in assets under management. The bill would also prevent persons who are barred or subject to final orders for conduct constituting fraud, manipulation or deceit from being associated with a family office.

Family offices with more than $750 million assets under management would have to register with the SEC as “exempt reporting advisers.”

The SEC said in its “Reg Flex” agenda, released in late March in the Federal Register, that it planned to review family office registration rule exemptions this year.

The Short Sale Transparency and Market Fairness Act, H.R. 4618, introduced by Committee Chairwoman Maxine Waters, D-Calif., would shorten the reporting period for 13-F disclosures from quarterly to monthly; require such reports to be filed within 10 days of the end of each month; expand the list of items to be disclosed to include certain derivatives; direct the SEC to complete rulemaking pursuant to Section 929X of Dodd-Frank, which requires aggregate short positions to be disclosed on form 13F; and direct the SEC to study and report the use of confidential filing requests.

Another bill, H.R. 4619, introduced by Rep. Al Green, D-Texas, would amend the Securities Exchange Act of 1934 to prohibit market makers from “trading ahead” or engaging in insider trading. It would also require the CEO of each market maker to annually certify that the CEO has performed reasonable due diligence during the reporting period to ensure the market maker has not engaged in the prohibited activities.


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