• Constitutional Challenge.

On June 22nd, the Washington Post reported that the State National Bank of Big Spring, Texas, the Competitive Enterprise Institute, and the 60 Plus Association have filed suit, challenging the constitutionality of the Consumer Financial Protection Bureau. Constitutional Challenge.

• Exchange Breakdowns.

On June 22nd, the New York Times' DealBook reported the Securities and Exchange Commission (the "SEC") is investigating the NASDAQ Stock Market's breakdown of trading when Facebook Inc.'s initial public offering was launched. The SEC's examination extends to other unrelated trading problems at the New York Stock Exchange, BATS Global Markets, and the Chicago Board Options Exchange. Exchange Breakdowns.

• A Culture of Risk Management.

On June 21st, the Institute of International Finance released the results of a study it conducted with Ernst & Young LLP. The study found that financial firms are struggling to make risk management an integrated part of their culture. IIF Press Release.

• Systemic Lenders.

On June 20th, the Washington Post reported the Basel Committee on Banking Supervision has agreed on rules for systemic lenders consisting of any bank whose lending activities are so pervasive that its collapse would jeopardize the financial stability of a country. Systemic Lenders.

• Broader Tick Sizes Sought.

On June 20th, the Wall Street Journal summarized the testimony before the House Capital Markets subcommittee concerning market structure. Witnesses endorsed proposals broadening the range in which investors could offer to buy and sell shares. Tick Sizes.

• FHFA Preparing Repurchase Guidance.

On June 19th, Bloomberg reported that the Federal Housing Finance Agency is preparing guidance clarifying the conditions under which it will require lenders to repurchase mortgages. Guidance.

• FDIC and Treasury Issue Orderly Liquidation Rule.

On June 22nd, the Federal Deposit Insurance Corporation ("FDIC") and the Treasury Department issued a final rule on the calculation of the maximum obligation limitation ("MOL"), as specified in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). The MOL limits the aggregate amount of outstanding obligations that the FDIC may issue or incur in connection with the orderly liquidation of a covered financial company. The new rule is effective July 23, 2012. 77 FR 37554.

• OCC Publishes Quarterly Report on Trading and Derivatives Activities.

On June 22nd, the Office of the Comptroller of the Currency ("OCC") published its Quarterly Report on Bank Trading and Derivatives Activities. Commercial banks and savings associations reported trading revenues of $7.0 billion in the first quarter of 2012, 178 percent higher than in the fourth quarter of 2011, but 5 percent lower than in the first quarter of 2011. OCC Press Release.

• OCC and Federal Reserve Board Issue Financial Remediation Guidance and Extend Deadline for Requesting Foreclosure Review.

On June 21st, the OCC and the Federal Reserve Board (the "Board") released guidance that will be used in determining the compensation or other remedy borrowers will receive for financial injury identified during the Independent Foreclosure Review. The agencies also announced the extension to September 30, 2012, of the deadline for eligible borrowers to request a free review of their mortgage foreclosures under the Independent Foreclosure Review. Joint Press Release.

• OCC Releases Status Report on Actions to Correct Deficient Foreclosure Processes.

On June 21st, the OCC released its second interim report on the status of the Independent Foreclosure Review and actions required by consent orders issued in April 2011 to correct deficient mortgage servicing and foreclosure processes. Through May 24, 2012, the servicers reported completing 93 percent of the corrective actions required by the consent orders. OCC Press Release.

• Agencies Act to Assist Homeowners Serving in the Military.

On June 21st, the Consumer Financial Protection Bureau ("CFPB") along with the Board, FDIC, National Credit Union Administration, and the OCC issued joint guidance to address mortgage servicer practices that may pose risks to homeowners who are serving in the military. The guidance, which is intended to ensure compliance with applicable consumer laws and regulations, pertains to military homeowners who have received Permanent Change of Station orders, which occur when a service member is ordered by the military to relocate to a new installation. Joint Agency Press Release. In addition, the Federal Housing Finance Agency announced changes to short sale policies that will make it easier for military homeowners with Fannie Mae and Freddie Mac loans to honor their financial commitments when they are required to move as part of their duty. FHFA Press Release.

• OCC Issues Interim Final Lending Limit Rule.

On June 20th, the OCC adopted an interim final rule amending its lending limit rule to apply to certain credit exposures arising from derivative transactions and securities financing transactions. Section 610 of the Dodd-Frank Act revises the statutory definition of loans and extensions of credit for purposes of the lending limit to include certain credit exposures arising from a derivative transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction. The interim final rule adopted by the OCC implements this statutory change which applies to both national banks and savings associations. National banks and savings associations have through January 1, 2013, to comply with the rule's requirements as to derivative transactions and securities financing transactions. Comments should be submitted on or before August 6, 2012. OCC Press Release.

• FDIC Proposes Revised Definition of "Financial Activities."

On June 18th, the FDIC published amendments to its definition of "financial activities" as set forth in Section 380.8 of the FDIC's March 23, 2011 notice of proposed rulemaking concerning its Orderly Liquidation Authority. The March 23rd notice proposed standards for determining if a company is predominantly engaged in financial activities for purposes of Title II of the Dodd-Frank Act. Provisions of the March 23rd notice other than Section 380.8 already have been finalized. Based on a number of factors, the FDIC believes that it is necessary to clarify the scope of the activities that would be considered to be financial activities. Comments should be submitted on or before August 17, 2012. 77 FR 36194.

• Designations.

On June 20th, the Treasury Department's Office of Foreign Assets Control designated Shah Mohammad Barakzai and Haji Baz Mohammad for their significant roles in international narcotics trafficking as Specially Designated Narcotics Traffickers pursuant to the Foreign Narcotics Kingpin Designation Act (the "Kingpin Act"). The Treasury Department also designated under the Kingpin Act two other individuals and two entities located in Afghanistan for their support to Shah Mohammad Barakzai and his organization. The Kingpin Act prohibits U.S. persons from conducting financial or commercial transactions with these individuals and entities, and it freezes any assets the designees may have under U.S. jurisdiction. Treasury Department Press Release.

• CFPB Launches Consumer Complaint Database.

On June 19th, the CFPB launched a public Consumer Complaint Database on credit cards. The CFPB also released a snapshot of the complaints it has received on credit cards, mortgages, private student loans, and bank products through June 1st, including six stories of success. The database contains certain individual-level field data collected by the CFPB, including the type of complaint, the date of submission, the consumer's zip code, and the company that the complaint concerns. The database also includes information about the actions taken on a complaint, whether the company's response was timely, how the company responded, and whether the consumer disputed the company's response. The database does not include confidential information about a consumer's identity. CFPB Press Release. The CFPB also issued a final policy statement on how it plans to exercise its discretion to publicly disclose certain credit card complaint data and a proposed policy statement on the disclosure of consumer complaints about financial products other than credit cards. Comments on the proposal should be submitted on or before July 19, 2012.

• CFTC's Technology Advisory Committee Meets.

On June 20th, the CFTC's Technology Advisory Committee met to discuss automated and high frequency trading ("HFT") and the aggregation of liquidity across designated contract markets and swap execution facilities. See Meeting Webpage (with links to opening statements and working group presentations). Bloomberg summarized the conclusions of two of the working groups. One called for a broad definition of HFT while another counseled against mandatory registration and audits of HFT. Summary Conclusions.

• New Rules Require Listing Standards for Compensation Committees and Compensation Advisors.

On June 20th, the SEC published the adopting release and text of new final rules required by the Dodd-Frank Act. The rules require exchange listing standards to address the independence of the members on a listed company's compensation committee; the compensation committee's authority to retain compensation advisers; the compensation committee's consideration of the independence of any compensation advisers; and the compensation committee's responsibility for the appointment, compensation, and oversight of the work of any compensation adviser. Once an exchange's new listing standards are in effect, a listed company must meet the standards in order for its shares to continue trading on that exchange. The SEC also amended its proxy disclosure rules to require new disclosures from companies about their use of compensation consultants and conflicts of interest. The new rule and rule amendments will take effect 30 days after publication in the Federal Register, which is expected during the week of June 25. No later than 90 days after effectiveness, each exchange that lists equity securities must propose listing standards that comply with the new rule. The new listing standards must be approved by the Commission within one year of the new rule becoming effective. SEC Press Release.

• Congressman Asks Whether IPO Rules Need Rewrite.

On June 21st, The Hill reported that Representative Darrell Issa, Chairman of the House Oversight Committee, has asked the SEC whether its regulations governing initial public offerings need revision in light of the difficulties encountered during the launch of public trading in Facebook Inc. IPO Regulations.

• Money Fund Bailout.

On June 20th, the Wall Street Journal reported that SEC Chairman Mary Schapiro is using the results of a new study to support her efforts to revise rules governing money market mutual funds. The study found that in order to avoid falling below a $1 net asset value ("NAV"), money market funds required assistance from their parent companies over 300 times since the investment vehicle was created. Breaking the Buck. In her June 21st testimony before the Senate Banking Committee, Schapiro said that more than 100 funds required assistance from their sponsors in 2008 and the instability continued until the Treasury Department guaranteed money funds' $1 NAV. Schapiro Testimony. Bloomberg reported Schapiro told Senators that an International Organization of Securities Commissions ("IOSCO") report on money market reforms was a "screw-up" and had been prematurely published. On May 11, 2012, three SEC commissioners took the unusual step of dissenting from the IOSCO report, stating that the report did not reflect the view of all commissioners. Dissent. MarketWatch reported that the SEC will soon publish for comment proposed rule amendments for money market funds. Acknowledging Congressional skepticism of the proposal, Schapiro said that most of the commissioners have "open minds" and would like to weigh the costs and benefits of possible reforms. Proposal.

• SEC Denies ETF Conversion Request.

On June 20th, Reuters reported that the SEC has denied Huntington Asset Advisors' request to convert an existing mutual fund into an actively managed exchange-traded fund. ETFs.

• Dual Regulators Means Dueling Regulation.

On June 18th, Investment News discussed the different approaches the SEC and the Department of Labor have taken in defining the fiduciary duty owed to retirement plans. It cites a Department of Labor official as saying that although the two agencies are coordinating their efforts, their different regulatory mandates mean that a single definition is not possible. Dual Regulators.

• CBOE Proposes Amendment to the Distribution of Auction Messages.

On June 18th, the SEC provided notice of the Chicago Board Options Exchange's ("CBOE") filing of a proposed rule relating to the distribution of auction messages. The proposal would make more consistent the provisions in CBOE's rules regarding who is eligible to respond to auction messages. It would allow all Trading Permit Holders to respond to SAL, HAL2 and COA auction messages in certain classes designated by the CBOE and that Trading Permit Holders may redistribute auction messages in these classes. Comments should be submitted on or before July 13, 2012. SEC Release No. 34-67209.

• Additional FCM Reporting Requirements Receive Accelerated Approval.

On June 15th, the SEC granted accelerated approval to the Chicago Mercantile Exchange's ("CME") proposed amendment of CME Rule 971 reporting requirements for futures commission merchant ("FCM") clearing members. The enhanced reporting requirements are designed to further safeguard customer funds held at the FCM level. SEC Release No. 34-67207.

• SEC Approves Proposed FINRA Arbitration Rule Amendments.

On June 22nd, the Financial Industry Regulatory Authority ("FINRA") announced SEC approval of FINRA Rules 12800 and 13800 (Simplified Arbitration) of the Customer and Industry Codes of Arbitration Procedure. The amended rules provide streamlined arbitration procedures for claimants seeking damages of $50,000 or less. The amendments are effective July 23, 2012 for all cases filed on or after the effective date. FINRA Regulatory Notice 12-30.

• FINRA's review of NASDAQ.

On June 19th, Reuters discussed the role FINRA will play in reviewing NASDAQ OMX Group Inc's May 18, 2012 handling of Facebook Inc's initial public offering and whether that role is appropriate. Role Playing.

• Amendments to OTC Equity Securities Rules Receive Accelerated Approval.

On June 15th, the SEC granted accelerated approval to FINRA's proposed amendment of FINRA Rule 6433 (Minimum Quotation Size Requirements for OTC Equity Securities). The proposal change is intended to simplify the Rule's price and size tiers, facilitate the display of customer limit orders under FINRA Rule 6460 (Display of Customer Limit Orders), and expand the scope of the Rule. SEC Release No. 34-67208.

• Proceedings Instituted Regarding Proposed Index Option Product.

On June 20th, the SEC instituted proceedings to approve or disapprove the International Securities Exchange's ("ISE") proposal to list and trade options, including long-term options, on the ISE Max SPY Index, which is "designed to represent 10 times the value of the published share prices in the SPDR S&P 500 ETF [("SPY")] Trust." Options on the ISE Max SPY Index would be European-style and p.m. cash-settled, and they would be quoted and traded in U.S. dollars. Comments should be submitted within 45 days after publication in the Federal Register, which is expected during the week of June 25. Rebuttal comments should be submitted within 60 days after publication in the Federal Register. SEC Release No. 34-67225.

• Amendment Regarding Competitive Market Makers is Filed.

On June 19th, the SEC provided notice of the ISE's filing of a proposal allowing Competitive Market Makers to use their membership points to enter multiple quotes in an options class. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of June 25. SEC Release No. 34-67216.

• New Market Maker Peg Proposed.

On June 14th, the SEC provided notice of NASDAQ Stock Market's filing of a proposed rule change to adopt a new market maker peg for exchange market makers. The new Market Maker Peg Order would provide similar functionality as the automated functionality provided to market makers under Rules 4613(a)(2)(F) and (G). Comments should be submitted on or before July 11, 2012. SEC Release No. 34-67203.

• Guidance to CPOs and CTAs Regarding CFTC Exemption Rescission.

On June 22nd, the NFA advised members that on February 24, 2012, the CFTC issued final rules amending CFTC Part 4 Regulations to rescind the exemption from registration available to CPOs offering certain qualifying pools under CFTC Regulation 4.13(a)(4). Although Member CPOs that currently operate a pool(s) pursuant to a 4.13(a)(4) exemption may continue to operate the pool pursuant to that exemption until December 31, 2012, those CPOs must determine whether the 4.13(a)(4) exempt pool qualifies for an exemption from registration under CFTC Regulation 4.13(a)(3) or whether the CPO will become subject to CFTC Part 4 reporting and disclosure requirements for that pool subsequent to December 31, 2012. Similarly, any CTA that advises a 4.13(a)(4) exempt pool pursuant to an exemption under CFTC Regulation 4.14(a)(8)(D) may only continue to advise that pool after December 31st if the CTA continues to be eligible for that exemption because the CPO has filed a 4.13(a)(3) exemption for that pool. Otherwise, the CTA must comply with the applicable Part 4 requirements with respect to that pool. NFA Notice I-12-09.

• NFA Updates Forex Regulatory Guide.

On June 19th, the NFA published an updated regulatory guide to foreign exchange transactions.

• Longer Period Designated for Consideration of Proposed Pilot Program.

On June 20th, the SEC designated August 15, 2012 as the date by which it will approve, disapprove, or institute disapproval proceedings regarding NYSE Arca's proposed pilot for a Lead Market Maker Issuer Incentive Program. SEC Release No. 34-67222.

• Potential Authority is Sufficient to Compel FINRA Arbitration.

On June 21st, the Court of Appeals for the Fourth Circuit addressed what appears to be a novel question, whether a person who is not in a contractual relationship with a member firm nevertheless can be an "associated person" of that firm for purposes of FINRA arbitration. Waterford Investment Services, Inc. ("Waterford") claimed it should not be required to arbitrate an investor dispute because the advisor who allegedly gave the bad advice was an associated person with CBS, not Waterford. Applying the federal presumption in favor of arbitration, the Court held that to have indirect control of a person, such that he is an "associated person" under FINRA Rule 12200, a member firm need only have the potential power to influence the person, rather than exercise any actual control over him. Here, a significant degree of overlap existed between Waterford and CBS, with a common majority owner, officers and directors, and shared resources. As a result, Waterford had the potential power to control the advisor at issue and can be compelled to arbitrate the investor dispute. Waterford Investment Services, Inc. v. Bosco.

• Claims Alleging Unauthorized Transfers of Customer Collateral Collapse.

On June 20th, the Court of Appeals for the Second Circuit affirmed the dismissal of plaintiffs' state law breach of fiduciary duty claims arising from the collapse of Refco and the alleged transfer of segregated customer funds to unsegregated accounts. Plaintiffs alleged that defendant, a Refco officer, owed a fiduciary duty to them. Plaintiffs, however, failed to indicate that defendant had any kind of personal relationship of trust and confidence with plaintiffs other than that as a corporate official. The aiding and abetting claims similarly fall for failing to allege defendant knew that the transfers were unauthorized. Krys v. Butt (Summary Order).

• SEC Must Interpret its Procedural Rules Consistently.

On June 19th, the Court of Appeals for the D.C. Circuit held that the SEC arbitrarily applied Rule 155(b) of the Securities Exchange Act when it refused to set aside an administrative default order entered against petitioner Dan Rapoport, who allegedly acted as an unregistered broker-dealer. In doing so, the SEC departed from its own precedent and left its Rule 155(b) interpretation "vague and indecisive" with regard to which requirements the SEC must consider in rendering a decision under Rule 155(b) and with regard to the Rule's timing requirement. The default order is vacated and remanded. Rapoport v. SEC.

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