Securities Associations

“Big Boy Letters” are usually used to identify that the buyer in a transaction has made its own independent assessment of certain risks involved and that certain information has not been disclosed to the buyer by the seller.  In particular, this means that a party is not relying upon certain representations or the lack of representations.

The critical step in these letters is considering the application of these non-reliance provisions are received by the courts and the SEC.  In particular, the SEC has taken the position that such a letter will not foreclose an insider trading liability case under a misappropriation theory  However, courts and private litigants could effectively eliminate or at least limit the potential liability from these letters.

Essentially, the use of these letters is somewhat uncertain depending upon the context.  Nonetheless, these letters are certainly not a complete “get out of jail free” card, and will depend upon the facts and circumstances of each situation.

A senior Congressman has indicated that he wants to see a wide-ranging pilot program to examine different minimum spreads for different stocks.  He believes that such a program would allow the SEC to determine if tick sizes in equity markets are appropriate.

Tick sizes are increments whereby a stock price may move, and, currently, that size is $0.01.  Other global markets have different values.  This senior Congressman wanted a large number of stocks in the program to provide enough data, and he wanted the review completed by the end of this year.  There is no indication that this study is currently being conducted.

Nonetheless, at least theoretically, it presents an interesting possibility for real market change if taken seriously.

Statements by certain United States Senators have indicated that they hope the SEC is cracking down on and scrutinizing the activities of the national securities exchanges and associations.

Such statements were made after the SEC’s fine of $5 million fine against NYSE. The SEC had previously announced that the NYSE agreed to pay $5 million to settle claims over its alleged compliance failures in 2008 surrounding certain front-running allegations.  The NYSE, of course, settled the SEC’s charges without admitting or denying any wrongdoing, and indicated that it improved its systems with updated technology.

Initially, these senators complained that it was too low, but they did indicate this was a first step, and was important as a symbolic move.  It was their belief more should come from the SEC in regulating securities exchanges and associations.  Certain lawmakers have also indicated that this sanction may initiate a process where these national securities exchanges and associations may re-think their “for profit” models.  Finally, one senator in particular has suggested that Congress should re-think the SEC’s funding to allow it do more in this regard.

No one should hold their breadth waiting for more money from Congress, however, it will be interesting to see if the SEC follows up on this action with others over the next year.