Financial market reform proposal and action continued this week with two measures focused on the oil and gas markets. Legislation introduced by Senate Finance Committee member Ron Wyden (D-OR) is intended to “reduce excessive speculative trading in oil and natural gas” by changing the tax treatment for gains of noncommercial speculators trading in oil and gas. The bill applies to oil and gas commodities, index funds holding one or more of such commodities, notional principal contracts with respect to such commodities, and derivatives in such commodities (option, future, forward, short or similar instruments). Currently, gains on these contracts are taxed at a 60% long-term capital gain/40% short-term capital gain rate. The proposed bill would tax these contracts at a 100% short-term gain rate. Further, gains in specified commodities would also be treated as unrelated business income for tax-exempt investors, such as university endowments and pensions. Although many have blamed an increase in speculative trading for the surge in oil and gas prices last summer, it is unclear whether this tax increase would actually be effective in achieving its goal of limiting such speculation, or whether any such limitation would have the intended effect. The proposed bill also calls for a study of the tax treatment of all commodity futures, not just oil and gas. Currently, the bill has been referred to the Senate Finance Committee and we will continue to monitor its progress.

Additionally, the Federal Trade Commission issued a final rule that “prohibits any person, directly or indirectly, in connection with the purchase or sale of crude oil, gasoline, or petroleum distillates at wholesale, from (a) knowingly engaging in any act, practice, or course of business - including the making of any untrue statement of material fact - that operates or would operate as a fraud or deceit upon any person, or (b) intentionally failing to state a material fact that under the circumstances renders a statement made by such person misleading, provided that such omission distorts or is likely to distort market conditions for any such product.” While the FTC's aim was to address fraud or deceit in wholesale petroleum markets, and omissions of material information that could distort petroleum markets, there is a concern that the FTC's rule could reach participants in the futures markets subjecting them to conflicting fraud standards. Industry commenters had requested that the FTC include a safe harbor for futures market activities in its Final Rule, but the FTC declined to do so. Instead, the FTC indicated that it will “work cooperatively with the CFTC to execute the Commission's objective to prevent fraud or deceit in wholesale petroleum markets.” Futures market participants must be aware that there is a new “sheriff” in town playing by a new set of rules. Futures market participants now must take into account the rules and regulations of the CTFC, FERC and FTC.

• Fiduciary Duty.

On August 7th, Bloomberg reported on industry efforts to influence how "fiduciary duty" is defined under the Treasury Department's proposed legislation giving the SEC authority to impose a fiduciary duty on any broker, dealer, or investment adviser who gives investment advice about securities. Fiduciary Duty.

• Short Selling.

On August 6th, Bloomberg reported that the SEC may reopen the comment period on its proposed short sale price rules. Short Selling.

• Private Equity Council Submits Comments on Proposed Failed Bank Acquisition Guidelines.

On August 6th, Reuters reported on the comments submitted by the Private Equity Council to the FDIC in response to the regulator's Proposed Statement of Policy on Qualifications for Failed Bank Acquisitions. The proposed policy statement would provide guidance to private capital investors interested in acquiring or investing in the assets and liabilities of failed banks or thrifts regarding the terms and conditions of the investments or acquisitions. Comments.

• FTC Prohibits Petroleum Market Manipulation.

On August 6th, the Federal Trade Commission issued a final rule prohibiting market manipulation in the petroleum industry. The rule prohibits fraud or deceit in wholesale petroleum markets, and omissions of material information that are likely to distort petroleum markets. The new rule will be effective November 4, 2009. FTC Press Release.

• Fannie Mae and Freddie Mac.

On August 6th, the Washington Post reported that the Obama Administration may propose creation of a "bad bank" to assume the non-performing mortgage loans held by Fannie Mae and Freddie Mac. Bad Bank. On August 7th, the Post provided additional details concerning the Administration's internal discussions. Discussions.

• FASB Votes to Require Additional Fair Value Disclosures.

On August 6th, CFO.com reported on FASB's vote to update its fair value accounting rule, FAS 157. Against the recommendations of staff, the FASB voted to require companies to disclose the vulnerability of their valuations to changes in the assumptions upon which the valuations are based. Disclosure.

• Tax Treatment of Speculative Trading

On August 6, Bloomberg reported that Senator Ron Wyden introduced the Stop Tax-breaks for Oil Profiteering (STOP) Act, legislation that would require speculative commodities traders to pay taxes on profits at the same rates at commercial users. Tax Treatment. See also STOP Act.

• House Passes Executive Compensation Bill.

On July 31st, the House passed H.R. 3269, the Corporate and Financial Institution Compensation Fairness Act of 2009. The bill provides for a shareholder advisory vote on executive compensation, requires the SEC to promulgate rules relating to compensation committees, and requires additional executive compensation disclosures. See also New York Times.

• FFIEC Issues Statement on Support for Responsible Loss Mitigation Activities.

On August 6th, the Federal Financial Institutions Examination Council issued a statement on Support for Responsible Loss Mitigation Activities. The statement reiterates the FFIEC members' continued support for responsible loss mitigation activities designed to preserve homeownership. This support extends to programs designed to achieve sustainable mortgage obligations regardless of lien position. FFIEC Press Release.

• OCC Issues Community Developments Insights Report on the FHA's Home Rehabilitation Mortgage Insurance Program.

On August 6th, the OCC published a Community Developments Insights report that provides bankers with an overview of the FHA's 203(k) Home Rehabilitation Mortgage Insurance Program. The 203(k) Program provides FHA mortgage insurance on loans that combine home purchase and rehabilitation financing. Loans to rehabilitate and refinance a borrower's current resident area also are available under the 203(k) Program. The 203(k) Program is a tool for FHA-approved lenders to originate loans for individuals, nonprofits and government development agencies interested in purchasing foreclosed properties in need of repair. OCC Press Release.

• Federal Reserve Approves Final Amendments to Regulation Z.

On July 30th, the Federal Reserve Board approved final amendments to Regulation Z (Truth in Lending) that revise the disclosure requirements for private education loans. Under the amendments, creditors that extend private education loans must provide disclosures about loan terms and features on or with the loan application and also must disclose information about federal student loan programs that may offer less costly alternatives. Federal Reserve Press Release.

• OCC Issues Bulletin on Credit CARD Act.

On July 30th, the OCC issued a Bulletin on the Credit Card Accountability Responsibility and Disclosure Act of 2009. The law amends the Truth in Lending Act to impose certain requirements on credit card issuers that raise cardholders' annual percentage rates based on factors including the credit risk of the cardholder, market conditions, and other factors. Because the requirements of the CARD Act will apply to APR increases made on or after January 1, 2009, the OCC reminds national banks that, effective August 22, 2010, they must conduct the periodic reviews required by the Credit CARD Act on any accounts on which the APRs were increased as described above on or after January 1, 2009. Accordingly, national banks must maintain and have available such information concerning APR increases for such accounts as needed to enable them to conduct the required reviews. OCC Bulletin 2009-25.

• Treasury Designates North Korean Entity Tied to Weapons of Mass Destruction Development.

On July 30th, the Treasury Department designated a North Korean entity, the Korea Hyoksin Trading Corporation, for being owned or controlled by a North Korean entity, the Korea Ryonbong General Corporation, that was identified in the Annex to E.O. 13382, which freezes the assets of proliferators of weapons of mass destruction and their supporters, and prohibits U.S. persons from engaging in any transactions with them. Treasury Department Press Release.

• CFTC to Examine Firms' Firewalls.

On August 5th, Reuters reported that CFTC Commissioner Michael Dunn has asked CFTC staff to examine whether financial firms have adopted adequate practices to prevent inappropriate disclosures between research, trading and reporting units. Firewalls.

• CFTC Hearings on Speculative Position Limits in Energy Futures Markets.

On August 5th, the CFTC held its third hearing on speculative position limits in energy futures markets. Links to the prepared statements made at the hearing as well as to CFTC releases concerning the hearing may be found at http://www.cftc.gov/newsroom/cftcevents/2009/oeaevent080509.html.

• Eurex Permitted to Operate MCO in the U.S.

On July 31st, the CFTC issued an order stating that the supervision provided by BaFin, in conjunction with the Bundesbank, with respect to the clearing activities of Eurex satisfies appropriate standards. The Order will permit Eurex to operate a multilateral clearing organization in the United States for any over-the-counter derivative instrument. The Order is effective July 31, 2009. CFTC Release No. 5686-09.

• CFTC Finds That the ICE Henry Financial LD1 Fixed Price Contract Performs a Significant Price Discovery Function.

On July 30th, the CFTC issued a final order finding that the ICE Henry Financial LD1 Fixed Price contract performs a significant price discovery function. The effective date is July 30, 2009. 74 FR 37988.

• CFTC Exercises Authority to Apply Regulations to Exempt Commercial Markets with Significant Price Discovery Contracts.

On July 24th, the CFTC exercised its authority to apply CFTC regulatory and reporting requirements to exempt commercial markets with significant price discovery contracts. CFTC Release No. 5683-09.

• SEC Delegates Subpoena Authority to the Director of the Division of Enforcement.

On August 5th, the SEC amended its rules to delegate to the Director of the Division of Enforcement, the authority to issue formal orders of investigation. The action is intended to expedite the investigative process by removing the need for enforcement staff to seek Commissioner approval prior to performing routine functions. The SEC is adopting the delegation for a one-year period, and at the end of that period will evaluate whether to extend the delegation (though any formal orders issued during this period will remain in effect). The delegation is effective August 11, 2009. SEC Release No. 34-60448. Robert Khuzami, the Director of the Division of Enforcement, intends to "delegate that authority to senior officers throughout the Division. . . . This means that if defense counsel resist the voluntary production of documents or witnesses, or fail to be complete and timely in responses or engage in dilatory tactics, there will very likely be a subpoena on your desk the next morning." Khuzami Remarks (see also below).

• SEC Adopts New Regulation S-AM.

On August 4th, the SEC adopted Regulation S-AM, which limits use of certain information received from an affiliate to solicit a consumer for marketing purposes, unless the consumer has been given notice and a reasonable opportunity and a reasonable and simple method to opt out of such solicitations. The final rules implement the requirements of Section 624 with respect to investment advisers and transfer agents registered with the SEC, as well as brokers, dealers and investment companies. The new rule is effective September 10, 2009. SEC Release No. 34-60423.

• Political Contribution by Certain Investment Advisers.

On August 3rd, the SEC published for comment a proposed new rule under the Investment Advisers Act of 1940 that would prohibit an investment adviser from providing advisory services for compensation to a government client for two years after the adviser or certain of its executives or employees make a contribution to certain elected officials or candidates. The new rule also would prohibit an adviser from providing or agreeing to provide, directly or indirectly, payment to any third party for a solicitation of advisory business from any government entity on behalf of such adviser. Additionally, the new rule would prevent an adviser from soliciting from others, or coordinating, contributions to certain elected officials or candidates or payments to political parties where the adviser is providing or seeking government business. The SEC also is proposing rule amendments that would require a registered adviser to maintain certain records of the political contributions made by the adviser or certain of its executives or employees. Comments should be submitted on or before October 6, 2009. SEC Release No. IA-2910.

• NRSRO Disclosure Requirements.

On August 5th, the SEC provided notice that an NRSRO subject to the disclosure provisions of paragraph (d) of Rule 17g-2 can satisfy the requirement to make ratings history information publicly available in an XBRL format by using an XBRL format or any other machine-readable format, until such time as the SEC provides further notice. The compliance date for Rule 17g-2(d) is August 10, 2009. SEC Release No. 34-60451.

• SEC Director of SEC Division of Enforcement Addresses New York City Bar Association.

On August 5th, Robert Khuzami, Director, SEC Division of Enforcement, discussed the initiatives that he has introduced including the introduction of specialized units focused on asset management, market abuse, structured and new products, foreign corrupt practices and municipal securities and public pensions. Khuzami also has changed Enforcement Division policy regarding tolling agreements making them the exception rather than the rule. Khuzami Remarks.

• Flash Orders.

On August 4th the Boston Globe reported that the SEC is drafting rules banning flash orders. Draft. On August 6th, Bloomberg reported that Nasdaq OMX Group and BATS Global Market will voluntarily cease offering flash orders. Flash Orders. On August 7th, Reuters described the controversy surrounding flash orders which some have likened to front-running. Controversy.

• SEC Waiving Investment Adviser Registration Depository Fees.

On July 31st, the SEC announced that for five months beginning August 1, 2009, it is waiving Investment Adviser Registration Depository annual and initial filing fees for investment advisers. SEC Release No. IA-2909.

• NYSE and NYSE Amex Extend Customer Protection Rules

On July 30th, the SEC granted immediate effectiveness to proposals by the New York Stock Exchange and NYSE Amex to extend to December 31, 2009, their respective Rules 92(c)(3) (Limitations on Members' Trading Because of Customers' Orders) to provide time for the exchanges and FINRA to harmonize their rules concerning customer order protection to achieve a standardized industry practice.

• NYSE and NYSE Amex Amend Exchange Selection Panel Rules.

On August 4th, the SEC granted immediate effectiveness to separately proposed amendments by NYSE Amex's and the New York Stock Exchange's to their respective Rules 103B modifying the composition of their respective Exchange Selection Panels and prohibiting any ex parte communications between DMM units and the Panel during and regarding the selection process. Comments should be submitted within 21 days after publication in the Federal Register which is expected during the week of August 10.

• CBOE Proposes Changes to Hybrid Matching Algorithms.

On August 3rd, the SEC provided notice of the Chicago Board Options Exchange's proposed rule change related to its hybrid matching algorithms. The CBOE proposes a modified participation entitlement priority overlay. Comments should be submitted within 21 days after publication in the Federal Register which is expected during the week of August 10. SEC Release No. 34-60420.

• New Large Options Positions Report (LOPR) Requirements.

On August 6th, the Financial Industry Regulatory Authority advised member firms that the Options Clearing Corporation and its participant exchanges have begun implementation of the Options Symbology Initiative, which will affect reporting of positions to the Large Options Positions Report (LOPR) system. This Notice highlights changes to LOPR reporting as a result of the implementation. FINRA Regulatory Notice 09-47.

• FINRA Proposes Margin Disclosure Statement Rule.

On August 5th, the SEC provided notice of the Financial Industry Regulatory Authority's proposed FINRA Rule 2264 (Margin Disclosure Statement) in the Consolidated FINRA Rulebook. Comments should be submitted within 21 days after publication in the Federal Register which is expected during the week of August 10. SEC Release No. 34-60437.

• FINRA Reminds Alternative Trading Systems of Reporting Obligations.

On August 5th, the Financial Industry Regulatory Authority reminded member firms that are or that operate alternative trading systems that, in addition to filing with the SEC all reports required by Regulation ATS with the SEC, such firms also must simultaneously file duplicate copies of most such reports with FINRA. FINRA Regulatory Notice 09-46.

• FINRA Proposes New Fixed Price Offerings Rule.

On August 4th, the Financial Industry Regulatory Authority requested comment on a proposed new rule governing fixed price offerings. Proposed FINRA Rule 5141 (Sale of Securities in a Fixed Price Offering) would simplify the provisions of current NASD Rules 2730, 2740 and 2750 and their associated Interpretive Materials and eliminates outdated requirements. Comments should be submitted on or before September 18, 2009. FINRA Regulatory Notice 09-45.

• Series 79 Examination Program Selection Specifications and Study Outline Are Effective.

On August 4th, the SEC granted immediate effectiveness to the Financial Industry Regulatory Authority's proposed selection specifications and study outline for the Limited Representative - Investment Banking ("Series 79") Examination Program, a new limited representative registration category for persons whose activities are limited to investment banking and principals who supervise such activities. Comments should be submitted within 21 days after publication in the Federal Register which is expected during the week of August 10. SEC Release No. 34-60424.

• FINRA Proposes the Adoption of FINRA Rule 5230.

On August 3rd, the SEC provided notice of the Financial Industry Regulatory Authority's proposed FINRA Rule 5230 (Payments Involving Publications that Influence the Market Price of a Security) in the consolidated FINRA rulebook. The Rule continues the current prohibition on giving or offering anything of value to any person to influence or reward them for publishing or circulating any matter that has, or is intended to have, an effect on the market price of a security, and makes certain changes to modernize the rule's terms and clarify its scope. Comments should be submitted on or before August 28, 2009. SEC Release No. 34-60422.

• SEC Approves Multiple Market Participant Symbols for OTC Security Equities.

On July 31st, the SEC granted immediate effectiveness to the Financial Industry Regulatory Authority's proposed pilot program for the use of multiple market participant symbols when quoting or trading OTC Equity Securities. Comments should be submitted on or before August 28, 2009. SEC Release No. 34-60414.

• Proposed Rule Change to Modify Haircuts Is Immediately Effective.

On August 3rd, the SEC granted immediate effectiveness to the Fixed Income Clearing Corporation's proposal to modify the haircuts applied to Eligible Clearing Fund Securities and Eligible Participant Fund Securities. Comments should be submitted on or before August 28, 2009. SEC Release No. 34-60421.

• NYSE Provides Guidance on Large Orders.

On August 6th, NYSE Regulation provided guidance, based on the results of a survey of large and medium member organizations, which may be useful in designing and/or enhancing supervision the handling of large orders. NYSE Regulation Information Memo 09-40.

• NYSE Regulation Advises on Interim Procedures for Orders Incompatible with Entry in NYSE Order Management Systems.

On August 5th, NYSE Regulation advised of interim procedures for members and member organizations to handle orders in amounts larger than 6.5 million shares, which currently are incompatible for entry into the NYSE order management systems. NYSE Regulation Information Memo 09-39.

• Court Addresses SLUSA's Delaware Carve-Out Provisions.

On August 7th, the Ninth Circuit addressed the Delaware carve-out provisions of the Securities Litigation Uniform Standards Act ("SLUSA"). Shareholders had brought state-law action against an investment bank for allegedly misleading them during the sale of their private company to a public company. Vacating the district court's order removing the case under SLUSA, the Ninth Circuit held that SLUSA allows a shareholder to bring a covered class action under state law against an "issuer" that has made certain communications regarding the sale of its "securities" which need not be the "covered securities" referred to in Sec. 77p(b) of SLUSA. The Ninth Circuit then remanded the case to the district court for a determination of whether the defendant investment bank's allegedly misleading communication was made on behalf of the issuer to the issuer's shareholders. Madden v. Cowen & Company.

• The Depository Institutions Deregulation and Monetary Control Act's Preemptive Effect Is Limited.

On August 7th, the Eighth Circuit, disagreeing with the Fourth Circuit, held that the Depository Institutions Deregulation and Monetary Control Act does not preempt state law usury claims against a federally-insured state-chartered bank. According to the Eighth Circuit, Congress very clearly intended the preemptive scope of DIDA to be limited to particular circumstances. The Eighth Circuit therefore reversed the trial court and ordered the case remanded to state court for consideration under state usury laws. Thomas v. US Bank National Association ND.

• CFTC Lacks Jurisdiction over Foreign Exchange Discretionary Trading Accounts.

On August 3rd, the Ninth Circuit held that the CFTC lacks jurisdiction over discretionary trading accounts in foreign currency options and therefore dismissed the CFTC's action against a defendant who conceded that he violated the Commodity Exchange Act. CFTC v. White Pine Trust Corporation.

• Dismissal of Securities Fraud Case Is Vacated Because Amended Complaint Would Not Be Futile.

On July 31st, the Fourth Circuit agreed with a district court's conclusion that plaintiffs failed to adequately plead scienter under the Private Securities Litigation Reform Act. The Court, however, reversed the district court's order denying plaintiffs' Rule 59(e) motion to alter or amend the judgment to permit amendment of the complaint. According to the Fourth Circuit, because the plaintiffs did not act in bad faith, because the filing of an amended complaint would not prejudice defendants, and because the amendment would not be futile, the district court abused its discretion in denying plaintiffs' Rule 59(e) motion to alter the judgment in order to allow an amended complaint. Matrix Capital Management v. Bearing Point Inc.

• Former Qwest CEO's Insider Trading Sentence Reversed and Remanded.

On July 31st, the Tenth Circuit reversed and remanded the sentence imposed against Joseph Nacchio, the former CEO of Qwest Communications International, Inc. for insider trading. The trial court erred in its calculation of the "gain resulting from the offense" under U.S. Sentencing Guidelines Manual and the amount to be forfeited. U.S. v. Nacchio.

• Amendments to Regulation SHO - Effective July 31, 2009.

The SEC finalized amendments to Regulation SHO under the Securities Exchange Act of 1934 by making permanent amendments contained in Interim Final Temporary Rule 204T of Regulation SHO, with some modifications to address commenters' concerns. Rule 204T is intended to help further the goal of reducing fails to deliver and addressing abusive "naked" short selling in all equity securities. 74 FR 38265.

• Winston & Strawn Partners Tom Fitzgerald and Ray Perkins Among Speakers at 48th Annual Corporate Counsel Institute.

Winston & Strawn firm managing partner Tom Fitzgerald and litigation partner Ray Perkins will be among the speakers at the 48th Annual Corporate Counsel Institute to be held October 1-2, 2009 in Chicago. The firm is also serving as a sponsor of this event. Event Information

• Paul Pilecki to Speak at Institute of International Bankers Bank Supervision Conference.

Winston & Strawn bank regulatory partner Paul S. Pilecki will speak on a panel concerning credit risk management at the Annual Institute Seminar on Risk Management and Regulatory Examination/Compliance Issues Affecting International Banks to be held on October 19-20, 2009 in New York City. Event Information.

• Winston & Strawn Sponsors LSTA 14th Annual Conference.

Winston & Strawn will serve as a sponsor for The Loan Syndications and Trading Association, Inc. 14th Annual Conference to held on October 29, 2009. Event Information

• Marla Kreindler Co-Chairs and Speaks During 12th Annual West Cost Pensions and Investments Defined Contribution Conference.

Winston & Strawn financial services and employee benefits partner Marla Kreindler, based in the firm's Chicago office, will participate as a panel participant and serve as co-chair of The 12th Annual West Cost Pensions and Investments Defined Contribution Conference to be held November 1-3, 2009 in San Francisco. Event Information

• The Cuban Case and Confidential Disclosures by Public Companies.

The recent U.S. district court opinion in SEC v. Cuban, although unlikely to significantly alter corporate practices, is a useful reminder of best practices for corporations and their advisors and shareholders when giving and receiving confidential information. Briefing

• SEC Makes Naked Short Sale Rule Permanent - Eliminates Form SH.

On July 27, 2009, the Securities and Exchange Commission announced several actions designed to protect against "abusive" short sales and to make more short sale information available to the public, including making permanent Interim Final Temporary Rule 204T of Regulation SHO. Briefing

• SEC Charges Investment Adviser With Violations of 13D Filing Requirement.

On July 21, 2009, the Securities and Exchange Commission announced that it had charged an investment adviser with violating Section 13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-1 thereunder, for failing to properly report that it had purchased a significant holding in the stock of a public company. Briefing.

• SEC Approves NYSE Rule Eliminating Broker Discretionary Voting in Uncontested Elections of Directors.

On July 1, 2009, the Securities and Exchange Commission approved an amendment to NYSE Rule 452 to eliminate broker discretionary voting for the uncontested election of directors. Briefing

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