Editor column

Citation

Davis, H.A. (2010), "Editor column", Journal of Investment Compliance, Vol. 11 No. 2. https://doi.org/10.1108/joic.2010.31311baa.001

Editor column

Article Type: Editor column From: Journal of Investment Compliance, Volume 11, Issue 2

In the lead article, Robert A. Robertson and Gerardo Perez-Giusti note that institutional investors such as registered investment companies, hedge funds, charitable foundations, ERISA plans, university endowments, and large corporations have dramatically increased their use of over-the-counter (OTC) derivatives in recent years. They explain the basic legal structure of OTC derivative arrangements, including use of the International Swaps and Derivatives Association (ISDA) Master Agreement, the trade confirmation, and related documents and recommend ways to manage dealer-counterparty credit risk, termination and default risk, and liquidity risk.

On the international side, Gabriella Opromolla explains a recent Legislative Decree and related regulations issued by Italian financial regulators that provide guidelines on the organization and proper functioning of internal bank control systems. Then Paget Dare Bryan, Yang TieCheng, and Patrick Phua discuss the implications of a recent announcement from the China Securities Regulatory System giving “in principle” approval to the trial implementation of stock index futures trading, margin trading, and securities lending in China.

Shifting back to the USA, Cameron S. Avery, Paul H. Dykstra, Richard M. Phillips, Paulita A. Pike, John W. Rotunno, and Gwendolyn A. Williamson analyze the US Supreme Court’s highly anticipated March 30 decision in Jones v. Harris reaffirming the principles set forth in the Second Circuit’s 1982 decision in Gartenberg v. Merrill Lynch concerning mutual fund directors’ approval processes for advisory fees and how to determine whether those fees are reasonable.

Next we cover three recent US Securities and Exchange Commission (SEC) actions. John Hunt discusses the Commission’s recent amendments to Rule 2a-7 and other new rules under the Investment Company Act of 1940 that address concerns triggered during the financial crisis in September 2008 when the Reserve Primary Fund “broke the buck,” i.e., the net asset value of its shares fell below one dollar. Jessica Forbes and Mark Molle explain recent amendments to the Investment Advisers Act custody rule that provide custody clients additional protections when a registered investment adviser has access to their assets. Laurie Cerveny, Floyd Wittlin, Michael O’Brien, and Michael Trocchio explain amendments the SEC has recently proposed to Rule 10b-18, which provides an issuer that is buying back its stock a safe harbor from liability for market manipulation if certain purchase, timing, price, and volume conditions are met. The amendments are in response to recent advances and technology and changes in market practices.

Finally we have several developments from the Financial Industry Regulatory Authority (FINRA). Jessica Forbes and Gregory Gnall explain FINRA’s new proposed rules on securities lending, permissible use of customer securities, and callable securities. Stuart Bressman and Theodore J. Ghorra discuss FINRA’s new same-day clearance process to expedite the approval of member firms’ own securities offerings; the new procedures were developed in response to volatile market conditions that could require member firms to raise new capital quickly. We close the issue with summaries of three FINRA notices, one on correct sales practices for deferred variable annuities, a relatively complex product for retail investors to understand; another on sales practices for reverse exchangeable securities or “reverse convertibles,” also a complex product; and a notice explaining historic transaction-level data that are now available in the Trade Reporting and Compliance Engine (TRACE).

Henry A. DavisEditor