Dodd-Frank News Center

Volcker Board Proposes Changes in Taxation of Investment Funds as Part of Reforming Federal Tax Code

This story appeared in Jim Hamilton's World of Securities Regulation.

A report issued by the Volcker Tax Advisory Board proposes the reform of mutual fund and carried interest taxation within the scope of a broad simplification of how the Internal Revenue Code taxes capital gains. The report comes against the backdrop of pending but stalled legislation that would reform the carried interest taxation of hedge fund and other asset managers. The Board is chaired by former Fed Chair Paul Volcker and includes former SEC Chair William Donaldson. The Volcker Board, officially the President’s Economic Recovery Advisory Board, has a mandate to simplify and reform the federal tax code.

Commission Issues Guidance to Investment Companies on Derivatives-Related Disclosure

This story appeared in SEC Today.

In a July 30 letter to the Investment Company Institute, the staff of the SEC’s Division of Investment Management provided guidance on derivatives-related disclosure by investment companies in registration statements and shareholder reports (SEC No-Action Letters Ind. & Summaries (WSB) #0802201002 (July 30, 2010)).  The guidance resulted from the staff’s ongoing review of the use of derivatives by mutual funds, exchange-traded funds and other investment companies.  The staff decided to share its observations prior to completion of the review in order to give investment companies immediate guidance on providing more understandable disclosure on derivatives, including their risks.

Fund Industry: House Legislation Could Sweep Mutual Funds into Strict Systemic Risk Regulation

This story appeared in Jim Hamilton's World of Securities Regulation.

The mutual fund industry has criticized provisions of the Wall Street Reform and Consumer Protection Act, HR 4173, that could sweep large funds into strict prudential systemic risk regulation. The Investment Company Institute said that the legislation could subject mutual funds to wholly inappropriate forms of bank-like regulation were regulators, however improbably, to deem mutual funds to be a source of systemic risk. The ICI believes that mutual funds do not create broad systemic risks for the financial system since even the largest funds lack the interconnected web of relationships that is so crucial in spreading risks throughout the financial system.

SEC Approves Money Market Fund Proposals, Seeks Feedback on Floating NAV

This story appeared in SEC Today.

The SEC voted unanimously yesterday to issue proposed amendments to Investment Company Act Rule 2a-7 that would enhance the regulation of money market funds. The Commission also agreed to solicit feedback on several questions regarding the funds, including whether they should, like other types of mutual funds, effect transactions at the market-based net asset value rather than maintaining a stable $1 net asset value. Chair Mary Schapiro noted that a floating NAV might better protect investors from runs on money market funds, but asked for feedback on whether the efficiency of the $1 NAV is more beneficial to investors.

SEC and DOL Hold Hearing on Target Date Funds

This story appeared in SEC Today.

The SEC and the Department of Labor held a joint hearing on target date funds that included representatives of plan participants and beneficiaries, plan sponsors, investor organizations, academia and the financial services industry. SEC Chair Mary Schapiro said the varying results of these funds, which are intended to automatically shift to more conservative investments as a target date approaches, raised questions about the need for reforms or revisions. In 2008, the returns for 31 funds with a 2010 target date varied from minus 3.6% to minus 46%.

Of all of the issues that the SEC is examining in the aftermath of the economic crisis, Schapiro said the review of target date funds may be the one that most directly affects everyday Americans.

Capital Purchase Program Term Sheet for Mutual Banks Released

This story appeared in Bank Digest.

The Treasury has released a term sheet for qualifying financial institutions applying to the Capital Purchase Program that are mutual banks or savings associations. Mutual banks are depository institutions that are owned by their depositors. The term sheet provides for issuance of debt by mutual banks that do not have holding companies. The application deadline for mutual banks is May 14, 2009, and all applications must be submitted to the appropriate federal banking agency. In addition, the Treasury issued a set of Frequently Asked Questions regarding the program.

Administration Proposes Systemic Risk Legislation Covering Regulation of Hedge Funds, Credit Default Swaps and OTC Derivatives

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter and CCH Derivatives Regulation Law Reporter.

In testimony before the House Financial Services Committee, Treasury Secretary Tim Geithner outlined a broad legislative overhaul of the parallel unregulated universe of hedge funds, credit default swaps and OTC derivatives as part of creating a systemic risk regulator for the financial markets. The centerpiece of the legislative proposal is the creation of a federal systemic risk regulator with consolidated power over all systemically important firms that can impact the financial markets. The legislation should define the characteristics of covered firms, set objectives and principles for their oversight, and assigns responsibility for regulating these firms.