Reminder About Certain Upcoming Regulatory and Reporting Obligations for Investment Advisers

September 08, 2011

 In light of the flurry of regulatory activity this year, we thought it best to remind our clients and friends about certain upcoming regulatory and reporting obligations. A brief summary of recently implemented regulations and impending filing deadlines follows:

FINRA Rule 5131

In May, the SEC approved and FINRA adopted Rule 5131 (the “anti-spinning rule”) relating to the allocation of “new issues.” Rule 5131(b) prohibits allocations of new issues to executive officers and directors of current, and certain former or prospective, investment banking clients. Rule 5131 supplements, and does not replace, Rule 5130, which also relates to the allocation of new issues.

If an adviser manages private funds (or advises funds of funds) that invest in new issues, and therefore may have new issues income, the adviser should be aware that it will be required to amend the funds’ offering, subscription and other documents to provide disclosures to and obtain sufficient information from underlying investors so that the adviser can provide the certification broker-dealers require pursuant to Rule 5131. The adviser also will be required to contact investors in those funds to determine whether such investors are eligible to participate in profits and losses from new issues.

Rule 5131 is effective as of September 26, 2011. For more information, our December 10, 2010, alert on Rule 5131 may be read here: /Media.aspx?MediaID=11627.

Form SLT

In June, the Treasury Department released the finalized Form SLT, a new reporting form that is part of the Treasury International Capital (TIC) data reporting system. Form SLT is designed to gather information on cross-border ownership of long-term securities by U.S. and foreign residents‚ for use by the U.S. government in forming international financial and monetary policies and in preparing the U.S. balance of payments accounts and U.S. international investment position. All U.S. individuals or entities (i) who qualify as U.S.-resident custodians‚ issuers and/or end-investors (e.g.‚ funds), and (ii) whose consolidated long-term reportable securities exceed $1 billion as of the last business day of the reporting month‚ will be required to file Form SLT. Advisers should be aware that it may take substantial work to determine whether an adviser is required to file Form SLT on behalf of entities it manages and subsequently to complete the form. Where securities reportable on Form SLT are held by a U.S.-resident custodian‚ however, a Form SLT report covering these securities would be due from the custodian and not the beneficial owner of the securities.

In 2011‚ Form SLT will be filed quarterly, as of the last business day of each quarter starting with September 30‚ 2011. Beginning in 2012, Form SLT will be filed monthly‚ as of the last business day of the month in which the $1 billion threshold is exceeded. Investment advisers should be aware that, even if an investment adviser were to cease managing at least $1 billion in aggregated reportable securities at some point after filing Form SLT‚ it nevertheless will be required to submit a report for each remaining reporting date in that calendar year‚ regardless of the total fair market value of the consolidated reportable securities on any such date. Reporters must submit Form SLT to the Federal Reserve Bank of New York no later than the 23rd calendar day of the month following the applicable reporting date (or the next business day‚ if the filing date falls on a weekend or holiday).

The first report is due October 24, 2011, for the reporting date of September 30, 2011. For more information, our May 2, 2011, alert on Form SLT may be read here: /Media.aspx?MediaID=12388.

Form 13H

In July, the SEC adopted new Rule 13h-1 under Section 13(h) of the 1934 Act. The Rule imposes initial and ongoing filing obligations on “large traders” and subjects the required broker-dealers that service large traders to certain recordkeeping, monitoring and reporting requirements. The purpose of Rule 13h-1 is to assist the SEC in its efforts to identify the most significant participants in the U.S. securities markets and to gather information on their trading activity. Large traders must file an initial Form 13H with the SEC by December 1, 2011. Broker-dealers must begin maintaining the required records, monitoring large trader activity and be able to respond to requests from regulators with required information, including with respect to “unidentified large traders,” by April 30, 2012.

For more information, our August 16, 2011, alert on Form 13H may be read here: /Media.aspx?MediaID=12745.

Form ADV

Effective July 21, 2011, the Dodd-Frank Act repealed the “private adviser” exemption from registration under the Advisers Act. Recently, the SEC adopted final rules that, among other things, require unregistered private fund advisers (who had been relying on the now-repealed private adviser exemption) to register with the SEC by filing Form ADV by March 30, 2012.

All advisers registered with the SEC as of January 1, 2012, must file an amended Form ADV no later than March 30, 2012, notwithstanding the normal deadline for filing their annual updating amendments to Form ADV. If a mid-sized adviser (who meets a certain threshold of “regulatory assets under management”) that is registered with the SEC on January 1, 2012, is no longer eligible for such registration, the adviser will have until June 28, 2012, to withdraw its registration with the SEC and register with the applicable state securities authorities.

The SEC noted in its release adopting the final rules that advisers filing an initial application for registration with the SEC should file a complete application by February 14, 2012, because it can take up to 45 days for the SEC to process an initial application for registration as an investment adviser.

For more information, our June 27, 2011, alert on the implementation of certain Dodd-Frank Act provisions, including adviser registration, may be read here: /Media.aspx?MediaID=12559.

Proposed Form PF

The SEC, jointly with the CFTC, has proposed joint rules that would require SEC-registered investment advisers and dual SEC/CFTC registrants that advise private funds to provide specific information about the private funds they advise on a new Form PF. The Financial Stability Oversight Committee would use this information to monitor systemic risk.

Form PF would require all private fund advisers to disclose their assets under management (including certain breakdowns thereof) and other fund-specific data. Those advisers deemed Large Private Fund Advisers (“LPFAs”), which are private fund advisers with at least $1 billion in hedge fund, liquidity fund or private equity fund assets under management in the aggregate, would report additional detailed information, the focus of which would depend on the type of fund advised.

Although the rules implementing Form PF have not yet been finalized, it is anticipated that LPFAs would begin filing Form PF quarterly within 15 days after December 31, 2011, and within 15 days after the end of each calendar quarter thereafter (the first report would be due January 15, 2012). Smaller private fund advisers would make their first filing of Form PF within 90 days of the end of their first fiscal year occurring on or after December 31, 2011 (by March 31, 2012 for most smaller private fund advisers). Annual updates for smaller private fund advisers would be due no later than the last day on which the adviser may timely file its annual updating amendment to Form ADV (90 days after the end of the adviser’s fiscal year). A newly registered adviser’s initial Form PF would need to be submitted within 15 days following the end of its next occurring calendar quarter after registering with the SEC.

For more information, our February 2, 2011, alert on Form PF may be read here: /Media.aspx?MediaID=11959.

Other Regulatory Changes

Investment advisers also may be required to update their subscription documents as a result of other recent regulatory changes. In addition to the amendments required by FINRA’s adoption of Rule 5131, subscription documents should be updated to include the following:

  • The revised accredited investor standard, which provides that in calculating net worth, an individual investor should exclude the value of the primary residence. For more information, our January 28, 2011, alert on the revised “accredited investor” definition may be read here: /Media.aspx?MediaID=11928.
  • The revised definition of “qualified client” in SEC Rule 205-3, which raises the thresholds used to determine whether an adviser may charge its clients performance-based fees and includes any client that has at least $1 million under management with the adviser or that the adviser reasonably believes has a net worth of more than $2 million. For more information, our May 13, 2011, alert on the revised “qualified client” definition may be read here: /Media.aspx?MediaID=12429.
  • Questions related to SEC Rule 206(4)-5, or the “Pay-to-Play” rule, which bans third-party solicitation. For more information, our July 22, 2010, alert on the Pay-to-Play rule may be read here: /Media.aspx?MediaID=11084.


For additional information concerning this alert, please contact the following lawyers:

Investment Management Partners:

Marion Giliberti Barish, 617.951.8801

David C. Boch, 617.951.8485

Lea Anne Copenhefer, 617.951.8515

Steven M. Giordano, 617.951.8205

Michael Glazer, 213.680.6646

Anne-Marie Godfrey, +852.3182.1705

Richard A. Goldman, 617.951.8851

Thomas John Holton, 617.951.8587

Barry N. Hurwitz, 617.951.8267

Roger P. Joseph, Practice Group Leader; Co-chair, Financial Services Area, 617.951.8247

Amy Natterson Kroll, 202.373.6118

Michael P. O’Brien, 617.951.8302

Nancy M. Persechino, 202.373.6185

Paul B. Raymond, 617.951.8567

Toby R. Serkin, 617.951.8760

L. Kevin Sheridan Jr., 212.705.7738

Edwin E. Smith, Co-chair, Financial Services Area, 617.951.8615

Tim Burke, Practice Group Leader, Broker-Dealer Group; Co-chair, Financial Services Area, 617.951.8620

Joshua B. Sterling, 202.373.6556

Stephen C. Tirrell, 617.951.8833

This article was originally published by Bingham McCutchen LLP.