Alternative Investment Industry Technical Update: SEC, CFTC, FASB & AICPA

We are pleased to share this Technical Update on recent changes impacting the alternative investment industry. This month you will find a brief summary of the following:

  • Approves Plan to Create Consolidated Audit Trail
    • A national market system (NMS) approved a plan to create a single, comprehensive database known as the consolidated audit trail (CAT) that will enable regulators to more efficiently and thoroughly track all trading activity in the U.S. equity and options markets.
    • The NMS plan details the methods by which self-regulatory organizations and broker-dealers will record and report information, including the identity of the customer, resulting in a range of data elements that together provide the complete lifecycle of all orders and transactions in the U.S. equity and options markets.
  • Staff Provides Economic Analysis on Derivatives Rule
    • The rule proposed by the Commission in December 2015 that is designed to enhance the regulation of the use of derivatives by registered investment companies, including mutual funds, exchange-traded funds and closed-end funds, as well as business development companies. The proposed rule would limit funds’ use of derivatives and require them to put risk management measures in place, which would result in stronger investor protections.
  • Approves Final Rule Amendments to its Regulations Regarding CPO Financial Reports
    • Provisions include the use of certain additional alternative generally accepted accounting principles, practices or standards in Annual Reports and periodic Account Statements.
    • The amendments also provide for “stub period” relief from the Annual Report audit requirement where the pool’s first fiscal year is four months or less and where, excluding insiders, the pool has had 15 or fewer participants who have contributed no more than $3 million.
    • Provisions include an exemption from the Annual Report audit requirement for the CPO of a pool whose participants during a fiscal year are exclusively specified insiders who have a close relationship with the pool’s operations (eg the CPO).
    • The amendments clarify that notwithstanding relief from the Annual Report audit requirement, a CPO must distribute an audited Annual Report at least once during the life of the pool.
  • Approves Final Rule Amending Timing for Filing CCO Annual Reports by Certain Registrants
    • Future commission merchants, swap dealers, and major swap participants now have 90 days following their fiscal year-end to file the CCO annual reports. Previously they were required to be furnished within 60 days following a registrant’s fiscal year-end.
  • Consolidates Risk Disclosure Statement for Non-institutional Customers
    • The CFTC’s division of swap dealer and intermediary oversight issues no-action relief relating to the use of a consolidated risk disclosure statement for non-institutional customers.
    • The use of a single, combined risk disclosure statement containing the same material information currently required in several risk disclosure statements will provide greater efficiency to the marketplace and potentially less confusion to customers.
  • Issues ASU 2016-18, Restricted Cash
    • The update will require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
  • Proposes Accounting Standards Update – Stock Compensation (Topic 718)
    • The update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification.
    • An entity would account for the effects of a modification unless all the following are the same immediately before and after the modification:
      • The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the award
      • The vesting conditions of the award
      • The classification of the award as an entity instrument or a liability instrument.
  • Issues Revenue Recognition Working Drafts
    • New working drafts 3-1 and No. 3-1A were issued in order to clarify issues that broker-dealers and depository and lending institutions face related to FASB’s new revenue recognition standard ASU No. 2014-09, Revenue From Contracts with Customers.
IRS Reminder:
  • All Forms 1099-MISC must be furnished to the recipients and filed with the IRS by January 31, 2017. Forms 1099-MISC are required for those taxpayers that are engaged in a trade or business. Certain exceptions to the reporting do apply. Form 1099-MISC is required for each person or unincorporated entity to whom the taxpayer has paid:
    • At least $600 for rents or services including:
      • Payments to service providers
      • Accounting/Tax preparation fees
      • Management Fees not already reported on Schedule K-1 as guaranteed payments.
    • At least $600 for legal services

We welcome your suggestions for future topics that you would like to see included in this Technical Update. Also, for further information regarding these updates and how you may be affected by these changes, please contact your Arthur Bell representative at 855-787-0001 or via email at

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