US Investment Advisers

Overview: 

Although state registration may apply to smaller US investment advisers, the majority of AIMA members who engage in investment advisory activities in the US are regulated by the US Securities and Exchange Commission (SEC). This regulation may take on different forms, depending on the activities and structure of the adviser; certain rules apply to all advisers, while others are specific to those fully registered with the SEC. Both registered and exempt reporting advisers benefit from AIMA’s advocacy and educational work. Workshops, webinars and online resources are available to all members and can be downloaded on demand.

Recent advocacy work includes topics such as private fund adviser reforms, securities lending reform, proposed changes to form PF, modernisation of beneficial ownership, marketing rules, climate change disclosures by corporates, proposed changes to position reporting (including short sales and synthetic positions), cross border application of European ESG disclosures to the public, insider trading enforcement, the impact of Chinese company delistings on minority shareholders, digital asset investment and valuation, alternative data usage, leverage relative to financial stability initiatives and regulatory harmonization. Members are encouraged to get involved in any of several working groups that focus on these and other issues affecting the investment advisory community at large.

Current work:

AIMA Responds to SEC Securities Lending Proposal:  On January 7, AIMA filed its response to the SEC's proposed rule that would require any person that loans a security on behalf of itself or another person to report the material terms of those securities lending transactions and related information regarding the securities the person has on loan and available to loan to a registered national securities association (“RSNA”) (the “Proposal”).  The Proposal would also require that the RNSA make available to the public certain information concerning each transaction and aggregate information on securities on loan and available to loan.

We encouraged the Commission to make several important changes to the Proposal prior to considering a final rule.  The Commission should:

  1. Limit the scope of the Proposal to the wholesale segment of the securities lending market;
  2. Revise its loan definition to exclude all customer short positions because short positions are not loans and should be addressed through a separate rulemaking:
  3. Eliminate its proposed 15-minute loan-by-loan reporting framework and instead publish aggregate, wholesale market loan data on a T+1 basis; and
  4. Incorporate a phased approach regarding the implementation of any final rule and seek a solution for the “day one problem,” i.e., existing loans not captured by a new reporting framework.

AIMA will stay apprised of any developments and when the SEC considers a final rule.  Click here to read AIMA's full comment letter.

On February 25, the SEC reopened the comment period to solicit responses on any potential effects of its proposed rule regarding short sale disclosure (see below for more details) that it should consider in determining whether to adopt the proposed rule regarding the reporting of securities loans.  AIMA's supplemental response can be found here

AIMA Responds to SEC's SBS Proposed Rulemaking:  On March 21, AIMA filed its response to the SEC's proposed rule that would, among other things, establish a new reporting regime for large security-based swaps (SBSs) positions (the "Proposal").  Because the new reporting regime would be highly detrimental both to the broader financial ecosystem and AIMA members' trading and risk management strategies, we limited our response to this aspect of the Proposal.  We encouraged the SEC to abandon its preliminary determination to disclose Schedule 10B report to the public and to consider other, more appropriately tailored alternatives and make several other important changes prior to considering a final rule. 

Click here to read AIMA's comment letter. 

SEC proposes amendments to Form PF:  On January 26, the SEC proposed amendments to enhance private fund reporting on Form PF.  Large hedge fund advisers (i.e., $1.5 billion AUM or higher) would be required to file current reports within one business day of the occurence of one or more major reporting events. In light of the March 2020 and January 2021 market turmoil, a new Section 5 is added which covers a range of events and also incorporates objective tests to allow advisers to determine whether a report must be filed. These events include: (i) extraordinary investment losses; (ii) significant margin and default events; (iii) material changes in relationship with prime broker; (iv) changes in unencumbered cash; (v) operation events; (vi) withdrawals and redemptions; and (vii) explanatory notes. A detailed summary of the proposal is available to members.

AIMA's response can be found here.  

SEC proposes amendments to rules affecting private fund advisers:  On February 9, the published proposed new rules and rule amendments principally affecting investment advisers registered with the SEC (“RIAs”) that advise one or more private funds. Some of the new requirements would affect all investment advisers advising private funds regardless of their registration status and one of the new requirements will affect all RIAs regardless of the types of clients they advise.

At the highest level, a breakdown of the application of the proposed requirements looks like this:

Proposal

RIAs advising private funds

All private funds advisers

All RIAs

Quarterly statements

 

 

Audited financial statements for directly or indirectly advised private funds

 

 

Fairness opinions and disclosure related to adviser-led transactions

 

 

Prohibition of certain preferential terms

 

 

Prohibition of certain activities

 

 

Documentation of the annual compliance program review

 

 

A summary of the rules and rule amendments the SEC has proposed can be accessed here.  An examination of the potential unintended consequences for investments advisers can be found here.  A replay of a webinar focused on the aspects of the propsoals that will affect exempt reporting advisers can be replayed here.  Other related resources for investors: Investors interested in the key takeaways from these proposals that will affect them should read this note.  Investors interested in the unintended conseqeunces of these proposals that may affect their relationships with funds and investment advisers should read this note.

AIMA's response to the proposal can be found here

SEC proposes to shorten U.S. securities transaction settlement cycle to T+1: On February 9, the SEC proposed rule changes to shorten the standard U.S. settlement cycle for most broker-dealer transactions in securities from two business days after the trade date (“T+2”) to one business day after the trade date (“T+1”), with new requirements for the processing of institutional trades by broker-dealers, investment advisers and certain clearing agencies in order to achieve this accelerated settlement.  AIMA has prepared a summary of the details of this proposal which can be accessed here

AIMA's response to the proposed changes can be found here

AIMA Responds to SEC's Cybersecurity Risk Management for Advisers and Funds Proposed Rulemaking: On April 11, AIMA filed its response to the SEC's proposed new rules on cyber security, affecting registered investment advisers, registered investment companies and business development companies. The proposed rules would require written cyber security policies and procedures, reporting significant cyber incidents to the SEC, enhanced public disclosures regarding cyber incidents and risks, fund board approval of the fund's policies and procedures and specific recordkeeping.  AIMA prepared a more detailed summary of this proposed rule which is available here

SEC proposes amendments to Schedules 13D and 13G: On February 10, the SEC proposed amendments to the rules governing beneficial ownership reporting under Exchange Act Sections 13(d) and 13(g).  The proposed changes address several facets of the beneficial reporting regime, including shortening the filing deadlines for both Schedules 13D and 13G, the inclusion of certain cash-settled derivatives for purpose of determining beneficial ownership, clarifying when a group is formed and more.  Click here for AIMA’s full summary of the proposal.

AIMA's response can be found here. 

SEC proposes short sale disclosure rule, order marking requirements and CAT amendments:  On February 25, the SEC issued a proposed rule that would require institutional investment managers that meet or exceed a specified reporting threshold to report monthly, on a new form (Form SHO), specified short position data and short activity data for equity securities.  Accordingly, all managers, both U.S. and international, would be required to file Form SHO if they are engaged in short selliing in the U.S. and exceed one of the proposed thresholds.   The information reported on Form SHO would be aggreagted across all reporting managers for each reporting equity security prior to publication.  The proposed rule wold also establish a new "buyer to cover" order marking requirement for broker-dealers as well as amend the Consolidated Audit Trail (CAT) to require CAT reporting firms to report additional short sale data not currently required.  Click here for AIMA's full summary of the proposal.   

AIMA's response to the proposal can be found here

Joint trades letter to SEC:  In light of all the above proposals, AIMA and the ACC, together with a large group of other trade associations, have sent a letter to SEC Chair Gary Gensler commenting on the importance of providing an appropriate length of comment periods.

SEC proposes amendments to definition of 'dealer' and 'government securities dealer':   On March 28, the SEC issued a proposed rule that would amend the definitions of 'dealer' and 'government securities dealer' to further define these terms to identify certain activities that would constitute "regular business" thereby requiring a person engaged in thos activities to register as either a dealer or government securities dealer, absent an exemption.  The proposed rule would require registration by some principal trading firms, potentially private funds, including hedge funds, and some investement advisers.     

Comments are due May 27.  Click here for a AIMA's summary of the rulemaking and reach out to Daniel Austin with any questions. 

In light of the very brief comment period to consider and respond to the proposed rule, AIMA submitted a request for an extension of the comment period until August 16, 2022, which would be 120 days following publication in the Federal Register.  AIMA also led an effort among a group of industry trade associations in a letter to the Inter-Agency Working Group on Treasury Market Surveillance regarding the proposal and requesting its support for an extension of the comment period.     

Joint trades comment letter to Treasury and the IRS:  AIMA, together with a group of several other trade associations, submitted a joint response to proposed regulations that address the treatment of foreign corporations owned by partnerships and S corporations.  The proposed regulations would increase the information reporting and collection burdens between domestic partnerships and partners with respect to foreign corporations that are PFICs with repsect to the partners.   

Upcoming actions:

SEC Marketing Rule:  The SEC's new marketing rules came into effect on May 4, 2021 and registered investment advisers must comply by November 4, 2022.  Early compliance is possible but can only be complete compliance; selective early compliance is not permitted. 

(Last updated: May 23, 2022)


Other related workstreams

Reporting

AIMA's advocacy focuses on the improvement of a more efficient and streamlined reporting framework across the reporting regimes. The European Commission published a proposal for a European Single Access Point and outlined its Supervisory Data Strategy, introducing a range of new initiatives and actions to improve EU-wide regulatory reporting. The SEC has proposed amendments to Form PF which would require large hedge fund advisers to report information on key events within one business day.

Responsible Investment

AIMA's resources for implementing responsible investment (also known as 'ESG') and interpreting the relevant regulation. Notable research papers and relevant events are also linked.