In recent blogs, we have discussed the Securities and Exchange Commission’s (SEC) response to the coronavirus pandemic relating to mutual funds, large companies, and small businesses. This blog will provide an overview for two different but equally important market participants: investors and trading exchanges.
Any time there is a large event that impacts the markets, there will be bad actors looking to take advantage of the chaos. The coronavirus pandemic is certainly one of those moments, and the SEC has already seen plenty of illicit activity related to the virus. Most of these bad actors are companies falsely claiming that they have found ways to prevent, detect, or cure the virus, which would cause the stock of these companies to skyrocket in value. The SEC issued a fraud alert to investors to make investors more aware of companies making similar claims. From claims that non-contact temperature screening and facial recognition technology is the key to the testing situation, to declaring that a cure is certainly in the near future, investors should be wary of any bold claims related to the virus.
On April 24, 2020, the SEC announced the creation of a cross-divisional COVID-19 Market Monitoring Group to assist with oversight and enforcement of COVID related rules and regulations. The main tool that the SEC has used so far to combat companies looking to take advantage of investors has been trading suspensions. Dozens of suspensions have been issued to companies involved in frauds, illicit schemes, or other misconduct related to the coronavirus. Some examples of these suspensions already issued can be found on this page under Enforcement, Examinations, and Investor Education.
Trading and Markets
The SEC’s Division of Trading and Markets oversees stock exchanges, clearing agencies, and liquidity providers. The Division’s response to COVID-19 has consisted of closing trading floors at exchanges and providing relief from certain regulatory obligations. While trading floors are not as hectic as they were in the past, they would almost certainly help spread the virus if kept open considering that almost all are located in major cities. While trading at stock exchanges is already almost fully electronic, it’s notable that this is the first time in 228 years that the New York Stock Exchange will conduct trading without its trading floor.
The regulatory relief adopted by the Division of Trading and Markets also reflects the SEC’s efforts to help itself and market participants continue operations without spreading the virus. The relief announced so far consists of:
- A March 22nd press release stated that transfer agents may be exempt from or provided with relief for a broad range of regulatory obligations given that they provide evidence that the relief is warranted and they continue to adequately safeguard securities and funds in their possession.
- Entities subject to Regulation S-T, which governs the types of documents that are required to be filed electronically, do not have to manually sign documents if the filer retains a dated and manually signed signature page.
- Broker-dealers are granted temporary exemptive relief from certain obligations under Rule 606 of Regulation NMS. The deadline to provide the public report for the first quarter of 2020 is pushed back to May 29, 2020. Broker-dealers engaged in outsourced routing activity are exempt from the requirement to collect monthly customer-specific data until June 1, 2020. Customer requests made on or before July 17, 2020, for outsourced routing activity for the month of June do not have to be provided within seven business days of the request, as previously required.
- In March, SEC employees issued a no-action letter recommending that deadlines not be enforced for the implementation of the Consolidated Audit Trail (CAT) by SROs until May 20, 2020, which was then extended to June 22, 2020.
Keeping Up to Date
As the SEC tries to continue operations and adapt to rapidly changing circumstances, rulings may be extended, exemptions may change, and additional guidance may be issued. It’s important for all market participants to stay informed so be sure to subscribe to our blog for more updates.