The Securities Compliance Podcast Season 4 Episode 14 – The Impact of Data on Compliance, Part II

Podcast

Securities Compliance Podcast: Compliance in Context

In Season 4 Episode 14 of The Securities Compliance Podcast: Compliance in Context, host and Calfee Partner Patrick D. Hayes welcomes David Scalzetti, Senior Director of Regulatory Products and Strategy at ICE, for the second of a two-part program looking at the impact of data on compliance. In this program, David focuses on how data can dramatically help firms trying to navigate new regulations, especially in areas affecting mutual funds and broker-dealers. The Headlines section reviews two recently adopted rules from the SEC that expand the definition of “broker-dealer” under the SEA. Finally, the podcast concludes with an installment of Outtakes with a review of a significant enforcement action relating to text messaging and other messaging applications.

Show

Headlines

• The SEC adopted two new rules under the Securities Exchange Act (Rule 3a5-4 and 3a44-2) to further define the term “as a part of a regular business.”

• The new rules expand the scope of firms that are required to register as broker-dealers and as government securities broker-dealers.

Interview with David Scalzetti

• Background on the SEC Names Rule requiring registered investment companies whose names suggest a focus on a particular type of investment to adopt a policy to invest at least 80% of the value of their assets in those investments (an “80% investment policy”).

• What specifically do managers of a mutual fund need to do to comply with the Names Rule?

• What are some of the actions firms can take to better manage the data to ensure compliance with the Names Rule?

• How can data assist in the portfolio management process to benchmark against how other firms are evaluating their growth, value, or sustainable investment strategies?

• What are some best practices firms can utilize to comply with the Names Rule or enhance their own internal controls?

• Background on SEC Rule 15c2-11 (Broker-Dealer Quotations over a quotation medium)

• What can firms do to ensure compliance in difficult areas like fixed income that carry new requirements under SEC Rule 15c2-11?

• How can data assist in determining which fixed-income securities may be eligible for the relief provided in the SEC Staff’s December 16 No-Action Letter?

Outtakes

• SEC Fines 16 Firms More Than $81 Million for Off-Channel Communications

Quotes

11:24 - “So the names rule dates back to the dot.com era. Really when the SEC was finding some nefarious actors were marketing themselves as technology funds because everyone was getting in on technology. Although, they may not have been investing in true technology funds. So they introduced the requirement to have an 80% investment policy requirement for the use of thematic or even industry-specific or even location-specific terms implied in the fund’s name, that at least 80% of investments need to align with that. That rule was recently amended to add two things. Explicitly add strategy terms like value and growth, which were considered exempt from the 80% policy.” – David Scalzetti

15:18 – “So the investment policy requirements (the 80% test) is exactly a data… So from my perspective, we view this as you have a value fund. You advertise that you’re a value investor. Well, what does that mean to you? And not every value fund is going to have the same exact definition of what constitutes a value strategy. But no matter what your definition is, the rule is going to require you to be transparent around that definition.” – David Scalzetti

19:26 – “Something doesn’t have to be sustainable today if you’re using your ownership as a stewardship to improve the greening of those investee companies. But then, if that is your strategy, you should be showing improvement of those companies over time, in whatever metric you consider to be sustainable.” – David Scalzetti

24:47 – “From my perspective, data providers such as yourselves should have one rule: ‘What can we do to help that audience, your audience here, most seamlessly use this data to simplify and streamline those workflows that they’re going to have to do anyway?’” – David Scalzetti

---

About the Securities Compliance Podcast: Compliance in Context

Introducing the Securities Compliance Podcast: Compliance in Context presented by Calfee, Halter & Griswold, and the National Society of Compliance Professionals and hosted by Patrick D. Hayes, Partner and Chair of Calfee's Investment Management practice.

Designed as a personal master class for the securities legal and compliance professional, this podcast embodies Patrick’s passion to help you put Compliance In Context™ by combining the technical expertise of industry thought leaders and innovators with the practical experience of doers and key decision makers.

Listeners will find the podcast on Apple Podcast, Google Podcast, Spotify, and Stitcher.

---

The opinions expressed by guest speakers and panelists during Securities Compliance Podcasts may not necessarily reflect the viewpoints of the attorneys and professionals of Calfee, Halter & Griswold LLP or its subsidiaries or affiliates. Calfee’s educational content is intended to inform and educate readers about legal developments and is not intended as legal advice for any specific individual or specific situation. Please consult with your attorney regarding any legal questions you may have. With regard to all content including case studies or descriptions, past outcomes do not predict future results.