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Written by Michael Wu

Market regulators in France, Italy, Spain and Belgium, in coordination with the European Securities and Markets Authority (ESMA), have decided to extend their current short selling ban that was enacted on August 11, 2011.  A summary of the action taken by each regulator is summarized below.

France.  The Autorité Des Marchés Financiers (“AMF”) extended the ban until November 11, but will determine whether to lift the ban by the end of September.  The AMF press release can be found here.

Italy.  The Commissione Nazionale per le Società e la Borsa (“Consob”) extended the ban until September 30.  The Consob press release can be found here.

Spain.  The Comisión Nacional del Mercado de Valores (“CNMV”) also extended the ban until September 30.  The CNMV press release can be found here.

Belgium.  The Financial Services and Markets Authority (FSMA) is continuing its indefinite ban on short selling.

In addition, Greece’s Hellenic Capital Market Commission (“HCMC”) will reassess before the end of September its current short selling ban that is in effect until October 7.  The HCMC press release can be found here.

Other European countries have not implemented a short selling ban.

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Written by Michael Wu

Foreign Account Tax Compliance Act (FATCA), comprising of sections 1471 through 1474 of the Internal Revenue Code, was enacted in March 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act.  FATCA imposes information reporting requirements on foreign financial institutions (FFIs) and withholding, documentation, and reporting requirements with respect to certain payments made to certain foreign entities.  IRS Notice 2010-60 was released on August 29, 2010 to provide preliminary guidance regarding the implementation of FATCA.  IRS Notice 2011-34 was released on April 8, 2011 which modified and supplemented Notice 2010-60.  On July 14, 2011, the IRS released IRS Notice 2011-53 (the “Notice”).  This Notice provides and describes the timeline for FFIs and U.S. withholding agents to implement the various FATCA requirements.

Phased Implementation

The IRS anticipates issuing proposed regulations incorporating guidance provided in all three notices by December 31, 2011 and final regulations along with final form of FFI Agreement and reporting forms in the summer of 2012.

In summary, the phased implementation of FATCA is as follows:

January 1, 2013:  IRS will begin accepting FFI Applications no later than this date.

June 30, 2013:  FFIs must register with the IRS and enter into FFI Agreement by this date to avoid the 30% withholding tax.

  • By entering into FFI Agreements by June 30, 2013, withholding agents are given sufficient time to refrain from withholding on those participating FFIs by January 1, 2014.
  • The effective date of FFI Agreements entered into on or before June 30, 2013 will be July 1, 2013.
  • The effective date of FFI Agreements entered into after June 30, 2013 will be the date the FFIs entered into such agreements.
  • FFIs who enter into FFI Agreements after June 30, 2013 but before January 1, 2014 will be considered FFIs for 2014 but might not be identified as FFIs in time to prevent withholding beginning January 1, 2014.

January 1, 2014:  IRS begins 30% withholding tax on certain payments by non-participating FFIs and account holders who are unwilling to provide the required information.

January 1, 2015:  Withholding on all withholdable payments will be fully phased in.

Due Diligence

Due diligence procedures are required in order for FFIs to identify U.S. accounts.  These procedures were prescribed in the prior IRS notices and will be finalized in forthcoming regulations.  The Notice provides phased implementation of these due diligence procedures.  A participating FFI with pre-existing private banking accounts with a balance or value equal to or greater than $500,000 on the FFI Agreement’s effective date has one year from its FFI Agreement’s effective date to complete its due diligence procedures.  Those with pre-existing private banking accounts with a balance or value of less than $500,000 must have completed their due diligence procedures by December 31, 2014 or within one year following their FFI Agreements’ effective date.  For all other pre-existing accounts, a participating FFI has two years from its FFI Agreement’s effective date to complete due diligence procedures.

Reporting

FATCA requires a participating FFI to annually report to the IRS certain information regarding its U.S. accounts.  An account for which a participating FFI has received a Form W-9 from the account holder (or if the account is held by a U.S. owned foreign entity, from the substantial owner of such entity) by June 30, 2014, must report the account to the IRS as a U.S. account by September 30, 2014.  By this first reporting deadline, a participating FFI needs to report only: i) the name, address and TIN of the U.S. account holder, ii) the account balance as of December 31, 2013, or if the account was closed after the effective date of the FFI’s FFI Agreement, the account balance immediately before such account closure, and iii) the account number.

Additional information will be required in subsequent reporting years.

Withholding

The Notice provides delayed implementation of the 30% withholding requirement.  For withholdable payments made on or after January 1, 2014, withholding agents will be obligated to withhold the 30% tax only on U.S. source FDAP payments.  (FDAP means fixed, determinable, annual or periodical income or payments and includes interest and dividends.)  For payments made on or after January 1, 2015, withholding agents will be obligated to withhold the 30% tax on all withholdable payments, including gross proceeds.

The Notice also provides that a participating FFI is not obligated to withhold with respect to passthru payments made before January 1, 2015.  (A passthru payment is a withholdable payment or other payment to the extent attributable to a withholdable payment.)  FATCA requires a participating FFI to withhold the 30% tax on passthru payments made to a recalcitrant account holder or non-participating FFI.

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Written by Michael Wu

The SEC has adopted a new rule pursuant to Section 13(h) of the Securities Exchange Act of 1934 requiring large traders to register with the SEC and imposing reporting requirements on their broker-dealers.

In her speech on July 26, 2011, SEC Chairman Mary L. Shapiro said, “[t]his new rule…would significantly bolster our ability to oversee the U.S. securities markets by allowing the Commission to promptly and efficiently identify significant market participants on a cross-market basis, collect data on their trading activity, reconstruct market events, conduct investigations and, as appropriate, bring enforcement matters.”

Under the rule, large traders are required to register with the SEC using a new form, Form 13H.  Upon registration, each large trader is issued a unique large trader identification number (LTID).  Large traders are required to provide such LTID to their broker-dealers.  In addition, the rule imposes recordkeeping, reporting and limited monitoring requirements on certain registered broker-dealers through whom large traders execute their transactions.

A large trader is defined as a person whose transactions in exchange-listed securities equal or exceed 2 million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month.

A full text of the final rule is available here.