As reported first by Law360, the budget boost for SEC and the CFTC envisions more auditors, more investigators, more enforcement staff. That said, according to one industry source who spoke off the record with BrokerDealer.com, “The SEC vision of using the increased budget to add 127 new staffers to Office of Compliance Inspections and Examinations is illustrative of the agency’s dedication to making their bureaucracy more bureaucratic, and even less efficient than it already is. Sounds like just more bodies tripping over their own shoes and tying up industry members with paper clips.”

Law360, New York (February 9, 2016, 11:14 PM ET) — A pair of Wall Street regulators on Tuesday laid out their wish lists for how to spend their budget bumps that President Barack Obama floated for fiscal year 2017, with eyes on ramping up enforcement and examination staffs to meet the demands of the Dodd-Frank Act and growing complexity of the markets.

Under Obama’s plan, the U.S. Securities and Exchange Commission would see its budget expand to $1.8 billion, an 11 percent increase, for the next fiscal year starting Sept. 30 while the U.S. Commodity Futures Trading Commission would grow to $330 million, a 32 percent bump. His economic adviser, Jeffrey Zients, said on Monday this amounted a “down payment” toward a long-range goal of doubling both agencies’ budgets by 2021.

In separate budget requests, both the SEC and the CFTC said they want to vastly expand their headcount and ramp up their spending on information technology to deal with emerging gaps and nagging shortcomings in their oversight.

“The SEC appreciates the confidence that Congress and the President have placed in it in recent appropriation cycles,
with enacted budgets that are permitting the SEC to begin to address longstanding resource challenges,” officials at the agency wrote. “In light of the continuing growth in the industry and the enormity of the responsibilities now placed on the agency, however, additional funding is critical,” they added.

Nonetheless, the SEC said it would take that money to add about 250 full- and part-time staffers, bringing its budgeted headcount up to just under 5,200 budgeted positions. The vast majority of these new positions, or 127, would be earmarked for the agency’s Office of Compliance Inspections and Examinations, where they would focus primarily on conducting investment adviser examinations.

For years, the SEC has struggled to examine more than 10 percent of the nearly 12,000 registered investment advisers under its watch, and about 40 percent of such firms have never been examined. Even with the proposed increase in examiner headcount coming out of the fiscal 2017 budget, however, the agency would only get to about 12 percent of registere advisers in a given year, the SEC noted.

The agency also would like to ramp up enforcement, adding 52 positions to the division. A dozen of those positions would reinforce its litigation efforts, the SEC told Congress.

“This increased allocation will enable the SEC to litigate any case where it believes admissions of wrongdoing are appropriate under its new policy, if necessary,” SEC officials wrote.

Other units would see more modest gains in headcount. The Division of Corporation Finance would look to gain four more budgeted positions as it expects to contend with an increase in request for guidance from small businesses and investors around the new rules passed out of the Jumpstart Our Business Startups Act aka JOBS Act such as equity crowdfunding and the so-called Regulation A+.

Over at the CFTC, Chairman Tiimothy Massad said he would use the additional $80 million that the president wants to give his agency to hire 183 full-equivalent staff across its divisions.

“This increase is necessary because the commission has not received budgetary increases sufficient enough to allow full implementation of its responsibilities,” Massad wrote to Congress.

More than a third of the proposed increase would go to bolstering the agency’s information technology infrastructure, Massad said. Within that total is the CFTC’s market surveillance function, which Massad wants to grow to 160 full-time positions, up from the current tally of 104 such positions. Such an increase would help support the agency’s development of automated surveillance and data visualization tools and ramp up its oversight of the uncleared swaps market, among other things.

Beyond that, the enforcement division, which netted the government $2.8 billion in fines during its fiscal 2015, would be a big winner under the CFTC’s proposal. It would add 51 full-time equivalent positions to the 161 such staffers budgeted for the current fiscal year.

“The commission not only has insufficient resources currently, it anticipates more time-intensive and inherently complex investigations due to innovative products and practices within the industry, including the use of automated and high frequency trading,” CFTC officials said.
To read the full story from Law360, click here

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Many of the applications courtesy of InvestExcel will need to be sanity-checked for accuracy, but premium services from the company are available. Our database development team here at BrokerDealer.com are happy to endorse this product!

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(FT.com) Five broker-dealers accused of conspiring with Tom Hayes to manipulate the Libor benchmark have been found not guilty in a London court, in a major setback for the UK’s Serious Fraud Office.

The brokers – Danny Wilkinson and Colin Goodman from ICAP, Noel Cryan from Tullett Prebon and RP Martin’s Jim Gilmour and Terry Farr – stood trial at London’s Southwark Crown Court for about 15 weeks in the SFO’s prosecution over alleged efforts at Libor manipulation. The jury is still considering one count against Darrell Read from ICAP.

Mr Hayes was found guilty of rigging Libor last August, and sentenced to 14 years in prison, though that sentence was later reduced.

Prosecutors alleged the men acted as go-betweens by passing along requests between traders for what number the rate should be set at on a given day. The SFO also alleged that Mr Goodman, in his daily emails, would suggest where he thought Libor would be set that day, and would alter the figure to appease Mr Hayes’s requests.

BrokerDealer.com is the global financial industry’s most comprehensive directory of broker-dealers operating in more than thirty countries throughout the free world

The prosecution also alleged that the brokers, with nicknames such as “Big Nose,” “Lord Libor” and “Sarge,” were rewarded by Mr Hayes, one of their biggest clients because of the volume of trading he conducted, with extra commission for their help.

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The total number of Financial Industry Regulatory Authority (FINRA) member retail brokerages has been on the decline for the last five years, but one sliver of the universe is showing new signs of life: A new crop of broker/dealers and online funding portals are joining FINRA to capitalize on new opportunities made possible by the JOBS Act of 2012. The legislation prompted the SEC to make it easier to market and solicit investments, and opened the door for small businesses to engage in so-called “equity crowdfunding.”

About 15 to 20 of these new firms have signed on since 2013, according to Fishbowl Strategies, with another three to six launching soon, in anticipation of a wave of issuers and investors entering the market. Whether there is a crowd for equity crowdfunding remains to be seen.

But Paul Boyd, managing partner at ClearPath Capital Partners, a wealth management firm for tech entrepreneurs, says there
is plenty of pent-up demand and a backlog of Reg D deals that are moving forward.

Boyd also expects the next phase of the JOBS Act, Title III, will bring a lot more attention to capital raises online. Set to go into effect in May, those rules let any investor, accredited or not, invest in unregistered securities online (with limits on the amounts that can both be invested, and raised, in a year). The tech-fueled vision of bypassing stuffy financial intermediaries in favor of a new-class of SEC-registered and FINRA member “crowdfunding portals” has inspired a flotilla of startups to enter the space.

Many of the new entrants have affiliated agreements with brokerdealers. Some have launched their own b/ds.

WealthForge launched its own b/d to provide all the services needed to complete a private securities transaction, including investor accreditation, regulatory filings and escrow. Co-founder and CEO Mat Dellorso says the new rules—and bringing the process online—have spurred their growth.

“When you bring the internet and you’re allowed to advertise a private security through 506(c), more investors do take part,” he says. WealthForge has completed 150 private financing transactions, bringing in 2,500 investors. “A traditional investment bank might complete three or five a year,” he says. “It’s a lot more volume because it’s more transparent and online now.

“Normally these transactions take weeks and months, but an investor can literally invest in a private placement on our platform in a matter of minutes,” he says.

Dellorso doubts they will do much work with firms looking to raise capital through the exemptions for non-accredted investors.

CircleUp is another new broker-dealer with a focus on consumer products and retail companies. Bhakti Chai, which makes Fair Trade Certified tea, raised nearly $865,000 on the platform.

Folio Institutional, a self-clearing broker/dealer, saw the interest around equity crowdfunding and decided to launch an online equity and debt-funding platform in September. Since the firm can custody the securities, it can enage in secondary-market transactions and, potentially, public offerings.

For the entire article from WealthManagement.com please click here

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Despite the fact Ms. Masters is undeniably a bona fide member of any Masters of the Universe Club (sic Tom Wolfe/Bonfire of the Vanities)—and however much “blockchain technology” has inspired a cadre of banks and broker-dealers to get on board a train that could evolutionize the financial industry at large, and despite a potential death-knell magazine cover story in October of this year courtesy of Bloomberg Magazine, Masters’ foray into the world of fintech startup funding is proving to be bumpy at best, as the blue ocean this blue-eyed blonde s is swimming in is already populated with migrant banker’s bodies floating ashore and otherwise left beside the yellow-brick road to billion dollar Unicorn valuations.

Notes NY Times business news journalist Nathaniel Popper—one of the 4^th estate’s leading bitcoin industry experts, Digital Asset Holdings is running into the types of startup funding challenges that mostly all mortals encounter when pitching ideas scrapped from a whiteboard: questionable valuation, untested technology value proposition, a highly-fragmented and often dysfunctional target audience, and last but not least, an investment structure that is being increasingly challenged for giving preferential ownership treatment to a select group of early investors. In this case, Digital Asset Holdings is providing a very sweet deal and a very exclusive suite of follow-on round financing options to its anchor investor, which happens to be her former employer, JPMorgan.

To continue reading the story courtesy of MarketsMuse.com, please click here

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The moment many advisers hear the term “crowdfunding,” they tune out. Crowdfunding is for the unwashed masses, for Kickstarter fans, for small-time investing neophytes. It’s not a place for real investing.

Well, advisers can continue to believe that, but that doesn’t mean their clients will. Especially given changes on tap for 2016 that will shower more investors with opportunities to “get in on the ground floor of the next big thing.”

The odds of your clients being drawn to new ventures rose markedly on Oct. 30, when the Securities and Exchange Commission passed Title III, part of the 2012 JOBS Act, which allows non-accredited investors to get into private equity through crowdfunding platforms.

Jeff Benjamin’s column quoted a securities lawyer, Doug Ellenoff, calling this move “the publicification of the private investment market.” And Mr. Benjamin cautioned InvestmentNews readers about the coming “aggressive push into the retail space” early next year, when these sites can begin taking non-accredited money.

BUY-IN LIMITED

Luckily for advisers, who hold tight to client assets and manage portfolios holistically, the buy-in for these offers will be limited. The deals themselves will not be able to raise more than $1 million in a 12-month period, and individuals will be able to contribute only between 5% and 10% of their yearly income.

But any chunk broken out of a financial plan to wager on these offers deserves attention. That’s not to say none of these ventures will be worth considering. And likely, if a client wants to support a community project, for example, there may be factors to weigh in addition to possible returns.

But in this new environment, advisers need to tell clients: “Bring anything that comes your way to us first.” Deals will sound too good to be true because that’s how marketing works. That’s fine when it comes to toothpaste or hamburgers, but decisions to spend even a few grand in retirement savings on crowdfunding offers would benefit from professional scrutiny.

And advisers will need to stay current during the evolution of this new retail-level private equity market and its investment structure…

For the full article, please click here

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10 November (InvestmentNews.com)- Securities and Exchange Commission Chairwoman Mary Jo White said Tuesday that agency staff is “full-out” working on a proposal to raise standards for retail investment advice, but that it would take time to “get it right.”

BrokerDealer.com is home to the largest global database/directory of brokerdealers operating in more than 30 countries across the free world.

A primary reason for the slow pace is that the SEC wants to avoid unintended consequences, Ms. White told the audience at the Securities Industry and Financial Markets Association annual conference in Washington.

“If at the end of the day, you are depriving retail investors of reliable, reasonably priced advice, you will not have succeeded, obviously, in your purpose,” she said.

Ms. White’s comments echo those the industry makes when it criticizes the Labor Department best-interests rule for advice on retirement accounts, which is on its way toward finalization.

“It is a reminder that hopefully the DOL will reconsider [its proposal] due to the complexity of the issue,” Ira Hammerman, SIFMA executive vice president and general counsel, said in an interview. “The DOL should re-propose what they’re contemplating so that all interested parties can get one more look at what the DOL thinks the solution is.”

In the five years since the Dodd-Frank financial reform law gave the SEC authority to promulgate a rule that would require all retail investment advice to be given in the best interests of the client, the SEC has not made discernable progress.

“We will move on it as expeditiously as we can,” Ms. White said. “We must get it right and really take into account the complexities and impact. But we’re very full-out focused on it.”

In March, Ms. White told a SIFMA conference she wants the SEC to move ahead on a fiduciary rule. At Tuesday’s SIFMA meeting, she declined to give a timeline, but said crafting a proposal could be a protracted process.

“It’s not a short, quick, uncomplicated rulemaking,” she said.

In addition to a fiduciary duty rule, the SEC is working on a rule that would allow adviser examinations by third-party organizations.

In a meeting with reporters on the sidelines of the conference, Ms. White said the agency is further ahead on the exam rule than the fiduciary rule, but “it’s going to take time to do them right.”

Due in part to the timing of an SEC rule, an advocate for the DOL rule said the agency should proceed independently.

“Nothing that Chair White said today provides any justification for the DOL’s delaying or reconsidering its efforts,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “They need to finalize the rule.”

For the full story from InvestmentNews Daily, please click here

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Will New Regs Create A Boon For BDs?  Brother, Can You Raise $1mil?

(RaiseMoney.com)–If only coincident to the Halloween Trick or Treat Holiday, it’s now official, on Friday Oct 30 the US Securities & Exchange Commission (SEC) passed new equity crowdfund regs, opening the path to what some believe will be a multi-billion dollar tidal wave of startup funding, and also, what more cautious experts believe could be an entirely new cycle of speculative investing by unsophisticated investors. The new rules approved will make it easier for start-ups to sell shares directly to the masses. Brother, can you spare $1million?

They could also be big business for a broad universe of broker-dealers, as well as handful of Los Angeles firms (among many others) that want to act as the stock exchanges where these deals will take place.

The rules, which will take effect in about six months, allow private companies to raise up to $1 million a year from small-time investors without most of the reporting and auditing required of larger firms or companies raising more money.

For the entire story from RaiseMoney.com, please click here

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BrokerDealer.com note: Its time to deploy a new regime of voice-recording record keeping…

The investment banking beast is changing its spots. Driven by the regulators and the threat of billion dollar fines, these traditionally ponderous organizations are awake to what they need to do in order to comply with the Dodd-Frank Act and MiFID. But it is quite clear that the establishment of new regulations is not going to be a one-off occurrence. 

BrokerDealer.com provides the most comprehensive list of global brokerdealers with a database of broker-dealers in 35 countries across the world.

The recent changes to the Markets in Financial Instruments Directive — MiFID II — demonstrate that the regulations are going to change often and rapidly. Adapting to amendments to regulations is the new status quo.

The MiFID II changes are wide-ranging and will affect functions across the board from trade strategy, trade initiation, trade execution, settlement and clearing to ongoing management. Your firm’s IT and HR systems are also likely to be affected. 

One significant change is that the scope of the Transaction Reporting Obligation is being extended. Investment firms will have to keep a complete record of all services, activities and transactions in a format that can be accessed by regulators. Let’s take a look.

Phone and Ecomms: Firms must record all phone and electronic communications relating to concluded and potential transactions. The records must be stored for a minimum of five years and where requested by an authority up to seven years. Under Dodd-Frank, phone recordings are required to be kept for 12 months.

Storage: All electronic records must be stored in a medium that cannot be changed or deleted and must be available to clients on demand.

Trading: All trades, including algorithmic trading records, must be stored on an approved form with accurate, time-sequenced record of orders that were placed executed or cancelled. Firms must keep all relevant data relating to orders and transactions, whether for their own account or on behalf of clients.

The MiFID II amendments illustrate that the regulations are subject to rapid change. This means the industry needs to become more strategic. In short, tactical solutions are no longer going to cut the mustard.

To read the entire primer, please visit TradersMagazine.com

Simon Richards is CEO of Fonetic USA.

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This is the single most common question I get asked. There’s a lot of misinformation about this, so let’s clear it up…

BrokerDealer.com hosts the world’s most comprehensive database of brokerdealers operating across 35 countries worldwide

Keep in mind that a “platform” is just a website. It’s NOT a business in and of itself (people often confuse a 506b/c or Reg A platform with a Title III “portal” as defined in the JOBS Act, and they are very differrent things). A platform is simply a tool for general solicitation. So you are not a platform, you are an issuer/investment adviser/listing service/broker-dealer who might have a website that lists offerings of securities, might use other websites that promote offerings of securities, might use social media to promote offerings of securities, might run newspaper ads to promote offerings of securities, might send emails to promote offerings of securities…you get the picture.

Platform Types:

There are four main types of businesses using platforms to market securities pursuant to 506-D (aka “Title II of the JOBS Act”) and Regulation A (“Title IV”):

• Broker-dealers
• Investment advisers
• Ad/listing services
• Direct Issuers

Which one are you? Well that depends upon your business model.

Broker-dealers can charge commissions based upon the amount and/or success of an offering. They can also make specific recommendations (not to be confused with “general solicitation”, which anyone can do in a 506(c) or Reg A offering whether registered or not). BD’s typically charge around 8%+ of an offering to cover costs associated with compliance, due diligence, sales commissions, etc. So if you want to charge, for example, an 8% commission on a $1M offering then you need to either be a FINRA member firm or a registered representative of one.

NOTE: only BD’s and registered representatives can receive commissions or success-based compensation. You CANNOT receive commissions as a rep and then hand those over to an unregistered person or company. This is a huge mistake we have heard many operators are making; getting someone in their firm registered so the BD can pay them, and then having them hand over those fees as income to the firm. Illegal. Games cannot be played with this (e.g. charging the rep a huge office rent) as regulators are wise to that and the results will not be pretty. So unless you intend to register every single person in your business, or to buy all or part of a broker-dealer, there is no way for you to receive any income tied to the amount or success of a securities offering.

Investment-advisers typically operate on a “2/20” model – meaning a 2% annual management fee on the assets resulting from the funds raised in the offering and an upside profit-share of 20% in the profits of the business/investment (referred to in securities lingo as “carried interest” – it’s called that as it’s your interest in the success of the venture, so don’t confuse it with interest-rate or a commission on the deal). This falls under the Investment Advisers Act of 1940. Thus, under this model it is not necessary (or advisable) to be a BD or a branch-office of one. Starting an IA is generally free as you are usually initially exempt from federal and state registration requirements due to de minimis exemptions. Even when you do hit the threshold for state or SEC registration, the costs are minuscule compared to those associated with operating a broker-dealer.

Ad/Listing services might charge a listing fee that is non-refundable and/or a fixed transaction fee for processing data and/or other types of fees which are not (and cannot be) contingent upon the success of the deal. Issuers come to the platform and agree to pay the ad or listing fees (if any) for displaying their offering. The platform focuses on marketing itself and providing general solicitation services to issuers who engage them. They get no compensation in the form of commissions, fund management fees or carried interest like broker-dealers or investment advisers do. Thus, under this model it is not necessary (or advisable) to be a BD or a branch-office of one.

Interesting: investment advisers and broker-dealers can post the offerings or deals they are selling on listing services platforms. Some such platforms are even aggregating (re-displaying) offerings which are displayed on other platforms. My next article will discuss various forms of syndication.

Issuer-Direct websites (platforms) are run by businesses (e.g. real estate developers, technology incubators and others) to solicit investors for their own deals, and as such don’t charge any fees at all. They are just platforms that list and advertise the offerings to prospective investors as allowed in 506-D and Reg A offerings. These platforms are not subject to any specific regulatory memberships or oversight, though of course the securities themselves still have to comply with the requirements of the Securities Act of 1933 (’33 Act), and the sale of those securities has to comply with each of the 50 “mini-SEC’s” state laws regarding securities dealers. Under this model it is not necessary (or advisable) to be a BD or a branch-office of one (but almost always necessary to engage one to “sell” your securities to states residents).

Why not just go ahead and operate as a broker-dealer even if you really don’t have to? Because unless you’re already a broker-dealer then your expertise is likely elsewhere, it’s not what you do, and the added burden of regulatory compliance can be debilitating to your business and to the offerings your promote; and registered representatives can’t share fees with non-registered persons anyhow. So stick with what you know, and hire other firms to do what they do.

But don’t offerings displayed on platforms have to be under the control of/underwritten by a broker-dealer? No.

So, is my business model legal? Here are a few guidelines…
If operating as an investment advisor, listing service or issuer direct - do not charge fees based upon the amount or success of the offering and don’t make specific investor recommendations (as opposed to general solicitation, which is fine). Engage a broker-dealer to assist you with various federal and state compliance tasks.
If you are operating as a broker-dealer – do not pay anyone (neither individuals nor businesses) any portion of the compensation you are receiving unless they too are registered and you have specific approval to do so from your broker-dealer.
But…as always…check with your securities attorney before you do anything.

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