Last week, the week before "tax day" (this year, April 17), the Treasury Department and the IRS published their long-awaited final regulations under new Section 409A of the Internal Revenue Code, which pertains to the treatment of deferred compensation arrangements. The regulations, which are effective April 17, 2007, resolve many areas of uncertainty regarding scores of issues that have arisen since Section 409A's enactment in the Fall of 2004. This is a significant event for every employer in America because employers now have only until the December 31, 2007 deadline to amend all affected plans and agreements and receive distribution elections from executives. For more information on this important topic, please see "Treasury and the IRS Issue Final Regulations on Nonqualified Deferred Compensation Plans", below, as well as our initial Briefing on this topic that is linked at the end of this Weekly Update, or contact any of the attorneys listed in the Briefing. In other news, in discussing its regulatory priorities for 2007, FinCEN stated that it plans to finalize its long-pending anti-money laundering program rules for investment advisers, commodity trading advisors, and commodity pool operators. Specifics regarding the content and timing of any such final rules are unclear at this time.

• SEC May Change Corporate Penalty Policy.

On April 13th, the Washington Post reported the SEC may change its policy regarding corporate penalties. According to the Post, the SEC is testing a policy change which will require SEC enforcement attorneys to obtain the Commissioners' approval before beginning settlement talks involving financial penalties. Penalties.

• SEC and CFTC Officials Discuss Credit Default Swaps.

On April 13th, the Houston Chronicle reported the remarks made by Eric Sirri, SEC Director, Division of Market Regulation, and Reuben Jeffery III, CFTC Chairman, at a conference hosted by Vanderbilt University. Among other things, Sirri discussed the possible insider trading issues involved in credit default swaps. However, the Houston Chronicle noted, Jeffery questioned whether either the SEC or CFTC currently have regulatory authority over those financial instruments. Credit Default Swaps.

• Stock Option Valuations.

On April 12th, CFO.com reported on Employee Stock Option Appreciation Rights Securities ("ESOARS"), a method which uses auctions to value stock options. ESOARS.

• Treasury and the IRS Issue Final Regulations on Nonqualified Deferred Compensation Plans.

On April 10th, the Treasury Department and the IRS issued long-awaited final regulations on the treatment of nonqualified deferred compensation plans and arrangements under section 409A of the Internal Revenue Code. The regulations are effective April 17, 2007. The regulations provide guidance regarding the requirements for deferral elections and payment timing under section 409A. In addition to applying to deferred compensation plans, Section 409A can apply to employment and change in control agreements, severance plans, and even equity compensations plans. In addition, the final regulations confirm that compensation arrangements between hedge funds and hedge fund managers are subject to Section 409A. Affected plans and arrangements are required to comply with documentation requirements established in the final regulations by December 31, 2007. Final Regulations; Notice 2007-34; Press Release.

• Agencies Announce Availability of 2006 HMDA Data.

On April 12th, the federal bank supervisory agencies, along with the Department of Housing and Urban Development, announced the availability of the 2006 home loan data disclosed under the Home Mortgage Disclosure Act. Lenders are required to make these data available to the public, within 30 days after receiving a request, in the form of a Loan Application Register, after removing certain information to protect the privacy of applicants and borrowers. Joint Press Release.

• FinCEN Releases Annual Report.

On April 9th, FinCEN released its Fiscal Year 2006 Annual Report. In discussing its regulatory priorities for 2007, FinCEN stated that it plans to finalize anti-money laundering program rules for investment advisers, commodity trading advisors, and commodity pool operators. FinCEN will also continue to research the potential for applying anti-money laundering program requirements on loan or finance companies and government-sponsored enterprises. Other FinCEN regulatory priorities will involve tailoring the regulatory regime for money service businesses and studying and planning for a system to collect data on cross-border wire transfers. Annual Report.

• SEC and Department of Labor Working on 401(k) Disclosure Reform.

On April 12th, Andrew J. Donohue, SEC Director, Division of Investment Management, gave the keynote address at the PLI Investment Management Institute. Donohue discussed, among other things, disclosure reform and interactive data. The Division is preparing a recommendation that would permit funds to offer securities pursuant to a streamlined disclosure document to be delivered to investors electronically or on paper, while requiring more detailed information to be available on the Internet or delivered in paper upon request. The streamlined disclosure document that the Division is considering could include key information investors need to make informed decisions, such as fees and expenses, risks, investment objectives and strategies, and historical returns. Additionally, the Division is working with the Department of Labor to extend the application of these disclosure reforms to 401(k) plans. Donohue Remarks.

• Senator Calls for Investigation of Alleged Sale of Reg D Securities.

On April 11th, the New York Times reported that Senator Edward Kennedy has requested the SEC to investigate allegations that Fabrizio Balestri, president of Student Loan Xpress, sold shares of the company which he received through a private placement to an official at the U.S. Education Department and financial aid directors at three universities. Student Loans.

• SEC Considers Mutual Fund Governance Rules.

On April 8th, the New York Times reported on the SEC's consideration of new independence requirements for mutual fund boards of directors and the likelihood that some measures may be adopted. Independence.

• CBOE and NASD File Proposed Plan for the Allocation of Regulatory Responsibilities.

On April 10th, the SEC provided notice of the filing of a plan for the allocation of regulatory responsibilities between the Chicago Board Options Exchange and the NASD. Under the proposed plan, NASD would assume examination and enforcement responsibility for the CBOE Stock Exchange, LLC. Comments must be submitted within 21 days after publication in the Federal Register. SEC Release No. 34-55612.

• SEC Grants Immediate Effectiveness to Proposal Relating to Unlisted Securities.

On April 9th, the SEC granted immediate effectiveness to a proposed rule change filed by the American Stock Exchange relating to the extension of the allocation and performance evaluation procedures for securities admitted to dealings on an unlisted basis. Comments should be submitted by May 4, 2007. SEC Release No. 34-55602.

• Amex Proposes Rule Change Relating to Book Clerks.

On April 5th, the SEC provided notice of a proposed rule change submitted by the American Stock Exchange that would eliminate the agency obligations of Amex options specialists and establish "Amex book clerks" -- market participants responsible for maintaining and operating the customer limit order book. Comments should be submitted on or before May 4, 2007. SEC Release No. 34-55583.

• SEC Approves Rule Change Relating to Late Trading Session.

On April 5th, the SEC approved a proposed rule change submitted by the Chicago Stock Exchange that extends the late trading session but permits only the execution of cross orders during that session. SEC Release No. 34-55584.

• ISE Proposes Automatic BBO Information Feed.

On April 5th, the SEC provided notice of a proposed change to International Securities Exchange rules relating to customer orders on the book. ISE proposes to include in an automatic information feed to all members the aggregate quantity of customer interest at the Exchange's best bid and offer (which currently is provided only to Primary Market Makers). Comments should be submitted on or before May 2, 2007. SEC Release No. 34-55589.

• SEC Grants Immediate Effectiveness to Proposal Giving Sponsored Customers Access to Exchange.

On April 5th, the SEC granted immediate effectiveness to a proposed rule change filed by the International Securities Exchange permitting Members to sponsored direct customer access to the Exchange. Comments should be submitted on or before May 4, 2007. SEC Release No. 34-55586.

• NASD Issues Notice to Members Regarding Frequently Asked Financial and Operational Questions.

On April 9th, NASD issued Notice to Members 07-16 answering frequently asked questions on financial and operational issues, including net capital and financial reporting. NASD Notice to Members 07-16.

• Deadline Extended for the Completion of Sponsored Access Rule Agreements.

On April 10th, NASDAQ issued Regulatory Alert 2007-033 advising that the deadline for completing the agreements required by NASDAQ's new Sponsored Access Rule has been extended to May 18, 2007. NASDAQ Regulatory Alert 2007-033.

• NYSE Rescinding Series 12 Examination.

On April 11th, NYSE Regulation issued Information Memo 07-32 advising that the Securities Manager (Series 12) qualification examination is being rescinded. NYSE Information Memo 07-32.

• SEC Grants Immediate Effectiveness to Market Center Rules.

On April 5th, the SEC granted immediate effectiveness to a proposal by the New York Stock Exchange to amend Rules 13 (Definitions of Orders) and 17 (Use of Exchange Facilities) to establish a mechanism to route orders to away market centers when that market center is displaying the national best bid and offer. Comments should be submitted on or before May 4, 2007. SEC Release No. 34-55590.

• SEC Grants Immediate Effectiveness to Rule Change Relating to Ratio Spreads.

On April 6th, the SEC granted immediate effectiveness to a proposed rule change filed by the Philadelphia Stock Exchange relating to ratio spreads. Comments should be submitted on or before May 3, 2007. SEC Release No. 34-55591.

• Technical Amendment to Regulation S-T, Rel.No. 34-55502.

The Securities and Exchange Commission has issued a technical amendment to Regulation S-T, effective April 27, 2007, to make a correction with respect to mandated electronic submissions. The amendment will clarify that a filing submitted on an electronic filing system other than the EDGAR system is not a mandated submission under Regulation S-T and will clarify that filers who submit forms on EDGAR for review by the Division of Market Regulation are subject to the requirements of Regulation S-T. The Commission is also amending the Rules of Organization and Program Management to delegate additional authority to the Director of the Division of Market Regulation. The amendment will be effective 30 days after publication in the Federal Register. View Release.

• Termination of a Foreign Private Issuer's Registration of a Class of Securities under Section 12(g) and Duty to File Reports under Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

The Securities and Exchange Commission has adopted amendments to the rules that govern when a foreign private issuer may terminate the registration of a class of equity securities under section 12(g) of the Securities Exchange Act of 1934 and the corresponding duty to file reports required under section 13(a) of the Exchange Act, and when it may cease its reporting obligations regarding a class of equity or debt securities under section 15(d) of the Exchange Act. New Exchange Act Rule 12h-6 will permit a foreign private issuer of equity securities to terminate its reporting obligations under either section 13(a) or section 15(d) of the Exchange Act by meeting a quantitative benchmark designed to measure relative U.S. market interest for its equity securities that does not depend on a head count of the issuer's U.S. security holders. The new rule will permit a foreign private issuer to compare the average daily trading volume of its securities in the United States with its worldwide average daily trading volume, using a 5 percent benchmark. The accompanying rule amendments will also help provide U.S. investors with ready access through the Internet on an ongoing basis to material information about a foreign private issuer of equity securities that is required by its home country after it has exited the Exchange Act reporting system. The new rule will also permit a foreign private issuer of debt securities to terminate, rather than merely suspend, its section 15(d) reporting obligations. The Rule will be effective 60 days after publication in the Federal Register. View Release.

• Ring v. AXA Financial, Inc., No. 05-0616 (2nd Cir. 2007).

On April 6th, the Second Circuit held that a Children's Term Rider ("CTR") added to a whole life insurance policy must be disaggregated from that variable life policy because it is a separate promise. Because the CTR is not a covered security for the purposes of state law preemption under the Securities Litigation Uniform Standards Act of 1998, the Second Circuit vacated the dismissal of the class action lawsuit and ordered that it be remanded to state court. Second Circuit Opinion.

• Bank of New York v. Rubin, No. 06-1606 (2nd Cir. 2007).

Individuals with default judgment against Iran relating to the 1997 terrorist bombing in Israel sought to attach assets of three Iranian banks held in Bank of New York accounts. The district court refused the attachment, holding that assets blocked by Executive Order and subject to the general license of 31 CFR 535.579 were not blocked assets subject to attachment under the Terrorism Risk Insurance Act of 2002. The Second Circuit affirmed regarding two banks and remanded for further proceedings regarding the third. Second Circuit Opinion.

• IRS Releases Section 409A Regulations.

View Briefing.

• Contact Us.

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