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| Insights from Winston & Strawn |
[Top] |
On December 13, 2012, Steven Maijoor, the Chair of the European Securities and Markets Authority (ESMA), issued a written statement to the U.S. House of Representatives Agriculture Committee on the Dodd-Frank derivatives reform and the challenges facing U.S. and international markets. In the statement, Mr. Maijoor outlined that the Dodd-Frank Act requirement that foreign entities such as swap dealers be registered under the U.S. rules could apply to entities that are already authorized as dealers under E.U. rules. As a result, the U.S. regime will therefore apply to entities and transactions that are also subject to E.U. rules.
Considering the fact that a number of conflicting, duplicative and inconsistent requirements have been identified (such as, for example, different applications of the clearing obligation, different bilateral margin requirement, different sets of exemptions, etc.), the application of two sets of rules to a single entity or transaction will lead to legal uncertainty and may also, in certain cases, impede a transaction from taking place or might impede an entity from operating with US counterparties. This would have serious consequences for global market liquidity and might even have financial stability consequences. Considering the similarity between the Dodd-Frank Act in the U.S. and the EMIR Regulation in the E.U., ESMA urged U.S. regulators to rely to the maximum extent on equivalent requirements enshrined in E.U. law, instead of imposing U.S. requirements when those non-U.S. entities are dealing with U.S. persons. The use of mechanisms such as "substituted compliance", while providing a workable solution, still does not appear to be fully satisfactory : even though U.S. - registered foreign swap dealers would be authorized to apply their home jurisdiction rules to the extent that they reach the same result as the corresponding U.S. rules, this would not be applicable to transactions in which one of the counterparties is a person established or domiciled in the U.S. Consequently, ESMA expressed its strong concerns about the deadline for the registration of foreign swap dealers. The CFTC reacted by issuing a no-action letter providing relief to foreign-owned U.S. banks (see. "Cross-Border Relief"). This illustrates the importance of assessing compliance requirements on a cross-border basis at a time when globalized issues and concern call for coordinated regulatory responses. Partners in our European and Asian offices will continue working with us to provide our clients global coverage on all of these issues. From us all at Winston & Strawn LLP, we wish you a Happy New Year.
Jérme Herbet, Paris, France
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| Feature: The Jumpstart Our Business Startups Act |
[Top] |
- Emerging Growth Companies: The On-Ramp Provisions.
The JOBS Act's emerging growth company or "on-ramp" provisions were meant to make it easier for smaller issuers to become publicly traded companies by relaxing the disclosure requirements with which they would have to comply. However, just four months after the Act was signed in to law the benefits of those provisions were being questioned. theRacetotheBottom discussed the downside to being considered an "emerging growth company," noting that in just one week in July, 13 companies warned that the JOBS Act's relaxed shareholder disclosure requirements may reduce investor interest. Downside. The Chicago Tribune noted that actual job creation is not a prerequisite for using the "on-ramp." The paper highlighted the number of foreign issuers which have taken advantage of the provision as well as the number of "blank check" companies formed under it. Job Creation. - Private-Public Trigger Levels: Increased Threshold for Exchange Act Registration.
The Harvard Law School Forum on Corporate Governance and Financial Regulation linked to a Georgetown Law Journal article by Georgetown University Law Center Professors Donald Langevoort and Robert Thompson. The article, "Publicness' in Contemporary Securities Regulation after the JOBS Act," discusses when a private company should be required to register with the SEC as a public company. The article questions whether the JOBS Act's revision, which raises from 500 to 2,000 the shareholder threshold at which companies must publicly register, has any real relevance in today's world. Publicness. Conglomerate contributor Erik Gerding echoes that theme. Musings. - Crowdfunding: Removing the Prohibition against General Solicitation.
The New York Times predicted the SEC will fail to issue rules implement the crowdfunding provisions before 2014. The departure of senior-level SEC officials and close judicial scrutiny of agency cost-benefit analysis have contributed to the delay. And the industry itself may be exacerbating the situation. The agency has asked crowdfunding sites to provide data so that the Commission can provide the quantitative cost-benefit analysis sought by the courts. But the sites have not cooperated. Delay. Meanwhile, The Securities Law Prof Blog noted that the North American Securities Administrators Association is closely monitoring the Internet, anticipating an increase in fraud as a result of the crowdfunding provisions. Monitors.
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| Banking Agency Developments |
[Top] |
- OCC Provides Derivatives Trading Transition Guidance.
On January 3rd, the OCC issued a notice providing guidance regarding requests for a transition period pursuant to Section 716(f) of the Dodd-Frank Act. The guidance advises insured federal depository institutions that are or may become swap dealers that the OCC is prepared to consider requests for a transition period in which they may divest or conform their swap transaction activities provided that such requests follow the procedures and conditions established in the notice. The guidance is effective immediately. Written requests for transition periods should be submitted to the OCC on or before January 31, 2013. OCC Press Release. See also Reuters. On December 31st, the OCC amended its lending limits rule to extend the rule's temporary exception for credit exposures arising from a derivative transaction or securities financing transaction from January 1, 2013 to July 1, 2013. 77 FR 76841. - OCC Bulletin on Stress Testing.
On December 20th, the OCC issued a Bulletin on its October 9, 2012 final rule implementing Section 165(i) of the Dodd-Frank Act, which requires certain companies to conduct annual stress tests pursuant to regulations prescribed by their respective primary financial regulatory agencies. Specifically, this rule requires national banks and federal savings associations with total consolidated assets over $10 billion to conduct an annual stress test as prescribed by the rule. - CRA Asset-Size Thresholds.
On December 19th, the federal bank regulatory agencies announced the annual adjustment to the asset-size thresholds used to define small bank, small savings association, intermediate small bank, and intermediate small savings association under the Community Reinvestment Act regulations. The asset-size threshold adjustments are effective January 1, 2013. FDIC Press Release. See also Financial Institution Letter. - FDIC Community Banking Study.
On December 18th, the FDIC released the results of a study on community banking in the U.S. The study explores the definition of a community bank, structural changes among community and non-community banks, the geography of community banking, the performance of community banks compared to non-community banks, the performance of community bank lending specialty groups, and capital formation at community banks. FDIC Press Release. - Federal Reserve Board Letter on Consolidated Supervision.
On December 17th, the Federal Reserve Board issued a Supervision and Regulation letter summarizing changes made in recent years to its program for consolidated supervision of large financial institutions. The updated approach incorporates a stronger focus on the stability of the financial system and broader economy as a whole, while making improvements to the Federal Reserve's program to promote resiliency of individual firms. Federal Reserve Board Press Release. - FDIC Discusses Mobile Payments.
On December 17th, the FDIC published its Winter 2012 edition of Supervisory Insights, which highlights developments in mobile payments. FDIC Press Release. - FDIC Designated Reserve Ratio.
On December 17th, the FDIC announced that the Designated Reserve Ratio for the Deposit Insurance Fund shall remain at 2 percent for 2013. 77 FR 74662. - FDIC Civil Money Penalties.
On December 17th, the FDIC published adjusted maximum civil money penalties. 77 FR 74573. - Federal Reserve Board Proposes Supervision Rules for Foreign Banks.
On December 14th, the Federal Reserve Board requested comment on proposed rules that would require foreign banking organizations to form an intermediate holding company for their U.S. subsidiaries to facilitate consistent and enhanced supervision and regulation. The proposal would also require foreign banks to maintain stronger capital and liquidity positions in the U.S. Comments should be submitted on or before March 31, 2013. Federal Reserve Board Press Release.
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| Treasury Department Developments |
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- Iranian Transactions and Sanctions Regulations.
On December 26th, the Treasury Department's Office of Foreign Asset Control published amendments to the Iranian Transactions and Sanctions Regulations to implement portions of the Iran Threat Reduction and Syria Human Rights Act of 2012 and related executive orders. Among other things, the amendments prohibit certain transactions by entities owned or controlled by a U.S. person and established or maintained outside the United States. They also expand the categories of persons whose property and interests in property are blocked to include any person determined by the Secretary of the Treasury, in consultation with the Secretary of State, to have provided material support for certain Government of Iran-related entities or certain activities by the Government of Iran. The amendments are effective immediately. 77 FR 75845. Consumer Financial Protection Bureau
- CFPB Announces HMDA Asset-Size Exemption Threshold.
On December 28th, the Consumer Financial Protection Bureau issued a final rule adjusting the asset-size exemption threshold for banks, savings associations, and credit unions under Regulation C, which implements the Home Mortgage Disclosure Act. The asset-size exemption for banks, savings associations, and credit unions will increase to $42 million. As a result, institutions with assets of $42 million or less as of December 31, 2012, are exempt from collecting HMDA data in 2013. CFPB Press Release. - CFPB Rulemaking Procedure Notice.
On December 28th, the Consumer Financial Protection Bureau published a notice in the Federal Register concerning the procedure for when it will consider its rules to be issued. Although most federal agencies consider publication in the Federal Register as public notice for rulemaking, the CFPB, citing case law, will consider posting on its website as constituting "issuance" for its rules. 77 FR 76353. - CFPB Proposes Amendments to Electronic Fund Transfers Rule.
On December 21st, the Consumer Financial Protection Bureau issued proposed revisions to its international remittance transfer rules. The proposed amendment addresses the disclosure of foreign taxes and institution fees; the disclosure of subnational taxes; and errors from incorrect account information. Comments should be submitted on or before February 7, 2013. CFPB Press Release. - CFPB Seeks Comment on the CARD Act.
On December 19th, the Consumer Financial Protection Bureau announced it is seeking public comment on how the Credit Card Accountability Responsibility and Disclosure Act of 2009 has affected consumers and the credit card market. CFPB Press Release. - Fair Credit Reporting Act Charges.
On December 18th, the Consumer Financial Protection Bureau announced that the ceiling on allowable charges under Section 612(f) of the Fair Credit Reporting Act will remain unchanged at $11.50 for 2013. 77 FR 74832. - CFPB Exam Procedures for Student Loans.
On December 17th, the Consumer Financial Protection Bureau published the procedures it will use in examining student lenders. The Student Lending Examination Procedures are an extension of the CFPB's General Supervision and Examination Manual and will be used as a field guide by CFPB examiners to ensure that private student lenders comply with federal consumer financial laws. CFPB Press Release. Financial Crimes Enforcement Network
- FinCEN Extends FBAR Deadline for Certain Professionals.
On December 26th, the Financial Crimes Enforcement Network issued Notice 2012-2 which extends to June 30, 2014, the Report of Foreign Bank and Financial Accounts ("FBAR") filing deadline for a small subset of individuals with only signature authority over certain foreign financial accounts. All other U.S. persons required to file an FBAR must meet the June 30, 2013 filing date. FinCEN Notice.
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| Securities and Exchange Commission |
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New Final Rules
- SEC Votes to Adopt Rules for Lost Holders of Securities.
On December 21st, the SEC approved new rules requiring broker-dealers to conduct searches for holders of securities with whom they have lost contact. A similar rule already applied to recordkeeping transfer agents. The new rules also require broker-dealers and other securities market participants to provide notifications to persons who have not processed checks that they have received in connection with their securities holdings. SEC Press Release; Draft Rule. - Extension of Temporary Rule Regarding Principal Trades with Certain Advisory Clients.
On December 20th, the SEC amended rule 206(3)-3T under the Investment Advisers Act of 1940, a temporary rule that establishes an alternative means for investment advisers who are registered with the Commission as broker-dealers to meet the requirements of Section 206(3) of the Investment Advisers Act when they act in a principal capacity in transactions with certain of their advisory clients. The amendment extends the date on which rule 206(3)-3T will sunset from December 31, 2012 to December 31, 2014. SEC Release No. IA-3522. Other Developments
- SEC Defends its the Resource Extractor Disclosure Rules.
On January 3rd, the SEC posted its brief in response to the American Petroleum Institute's petition challenging the Commission's resource extractor disclosure rules. On December 28th, the Council of Institutional Investors wrote the SEC to voice its concerns over the possible misuse of Rule 10b5-1 trading plans. CII suggests the adoption of interpretive guidance which would, among other things, prohibit the adoption of duplicative or overlapping plans, require a mandatory delay, and limit modifications. Letter. On December 26th, the SEC issued an Investor Bulletin on municipal bonds. The bulletin provides several factors for investors to consider including the type of the bond, the purpose and nature of the financing, the overall financial condition of the issuer, and the sources of funds to pay both principal and interest. The bulletin also urges investors to undertake their own independent review of municipal bonds' credit risk and not rely solely on a credit rating or a short-hand label such as "general obligation" or "revenue" bond when deciding whether to purchase a municipal bond. SEC Press Release. - Agenda for Decimalization Roundtable.
The SEC has announced the agenda for its February 5, 2013 staff roundtable on the impact of tick sizes on the securities markets. The roundtable will be divided into three panels. Participants on the first panel will address the impact of tick sizes on small and mid-sized companies, the economic consequences (including costs and benefits) of increasing or decreasing minimum tick sizes, and whether other policy alternatives might better address concerns related to Section 106(b) of the JOBS Act. Participants on the second panel will address the impact of tick sizes on the securities market in general, including what benefits may have been achieved and what, if any, negative effects have resulted. Participants on the third panel will address potential methods for analysis of the issues, including whether and how to conduct a pilot for alternative minimum tick sizes. SEC Press Release.
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| Commodity Futures Trading Commission |
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New Final Rules
- Compliance Date Extended for Certain Business Conduct and Documentation Rules.
On December 18th, the CFTC approved interim final rules for swap dealers and major swap participants who would otherwise have been required to comply with certain business conduct and documentation requirements by January 1, 2013. The interim final rules extend the compliance date for some of those rules from between four and six months. Comments on the interim final rules should be submitted on or before February 1, 2013. CFTC Press Release. - Adaptation of Regulations to Incorporate Swaps: Records of Transactions.
On December 17th, the CFTC approved a final rule amending CFTC Regulations 1.35(a) and 1.31 to conform them to recordkeeping requirements for swap dealers and major swap participants under the Dodd-Frank Act. As originally proposed, the rule would have included in the reporting requirements oral communications that lead to the execution of a transaction in a commodity interest or a cash commodity. In response to public comments, the final rule has been modified for the proposed rule so that only those oral communications that lead to a transaction in a commodity interest will have to be recorded and oral communications are required only from certain market participants who are registered or required to be registered with the CFTC. The new rule is effective February 19, 2013. CFTC Press Release. Regulatory Orders
- CFTC Extends Compliance Dates for Certain Swaps Business Conduct Standards.
On January 2nd, the CFTC extended the compliance dates for certain business conduct rules for swap dealers and major swap participants, and certain rules requiring SDs and MSPs to engage in portfolio reconciliation and to have certain documentation with their swap counterparties. 78 FR 17. On December 21st, the CFTC approved an exemptive order providing time-limited relief from certain cross-border applications of the swaps provisions of Title VII of the Dodd-Frank Act. Under the exemptive order, a non-U.S. person that registers with the Commission as a swap dealer ("SD") or major swap participant ("MSP") may delay compliance with certain entity-level requirements adopted under the Dodd-Frank Act, and non-U.S. SDs and MSPs and foreign branches of U.S. SDs and MSPs may delay compliance with certain transaction-level requirements adopted under the Dodd-Frank Act (subject to specified conditions). The order also includes a definition of the term "U.S. person" which will apply for purposes of the order. The exemptive order expires on July 12, 2013. The CFTC also requested further comments on cross-border issues related to the aggregation requirement in the swap dealer determination, the definition of U.S. person, and foreign branches. Comments should be submitted within 30 days after publication in the Federal Register. CFTC Exemptive Order Press Release. Separately, on December 20th, the CFTC's Division of Swap Dealer and Intermediary Oversight issued a no-action letter that provides relief for certain U.S. banks that are wholly owned by non-U.S. swap dealers. The letter states that the Division will not recommend enforcement action against any U.S. bank that is wholly owned by a foreign entity for failure to consider the swap dealing activities of its foreign affiliates, or the U.S. branches of such affiliates, with respect to swap positions executed from and after October 12, 2012, when determining whether such U.S. bank satisfies the de minimis exception to the swap dealer definition and registration requirements, so long as the U.S. bank meets certain conditions specified in the letter. To rely on the relief provided in the no-action letter, a person must file a claim with DSIO. CFTC No-Action Press Release. See also CFTC Letter No. 12-71. Division of Swap Dealer and Intermediary Oversight Regulatory Relief
- Registration Relief for Certain IBs and CTAs.
On December 31st, DSIO announced a no-action position which provides relief, under certain conditions, from the requirement to register as an introducing broker or commodity trading advisor for certain affiliates of a swap dealer or swap counterparty that is within the de minimis exception to the swap dealer definition. The relief also extends to the affiliates' employees where the employees engage in certain activity in support of and on behalf of the swap dealer or swap counterparty. DSIO also announced an interpretive position that an employee of a swap counterparty that is within the de minimis exception to the swap dealer definition who engages in certain activity on behalf of its employer in connection with the employer entering into a swap would not be considered by DSIO to be an IB. CFTC Press Release. - Extension of Registration Relief for Certain Associated Persons.
On December 28th, DSIO extended the temporary no-action registration relief previously granted under CFTC Letter No. 12-15 for associated persons of a futures commission merchant, introducing broker, commodity pool operator or commodity trading advisor who are required to register as APs solely by virtue of their involvement with swaps or as a result of the transition of certain contracts by the Intercontinental Exchange, Inc. and the New York Mercantile Exchange to clearing as commodity futures and options transactions. The temporary registration relief is subject to conditions, and does not extend any other relief previously granted under CFTC Letter No. 12-15. CFTC Letter No. 12-69. - Aggregation of Swap Transactions Arising from Multilateral Portfolio Compression Exercises.
On December 21st, DSIO issued a no-action letter that provides relief for persons engaging in multilateral portfolio compression exercises. The Division will not recommend enforcement action against any person for failure to include in its calculation of the aggregate gross notional amount of swaps connected with its swap dealing activity for purposes of Commission Regulation 1.3(ggg)(4), terminations of swaps (in whole or in part) or swaps entered into as replacement swaps as part of a multilateral portfolio compression exercise (as defined in Commission Regulation 23.500). CFTC Letter No. 12-62. - Registration Relief for Certain Investors in Legacy Securitizations.
On December 21st, DSIO advised it will not recommend enforcement action against the commodity pool operators of investment pools that invest in securitization vehicles that comply with the terms of the no-action relief set forth in CFTC Letter No. 12-45. CFTC Letter No. 12-45 only provided no-action relief to the operators of legacy securitization vehicles but did not address whether investment in such vehicles would result in the operator of the investor fund being required to register as a commodity pool operator. The Division believes that the operator of a fund that invests in a legacy securitization vehicle that satisfies the criteria of the no-action relief provided in the CFTC Letter No. 12-45 should be entitled to relief comparable to that of the underlying legacy securitization vehicle. Accordingly, the Division will not recommend that the Commission take enforcement action against the operator of a fund that invests in a legacy securitization vehicle whose operator is entitled to no-action relief under the terms of CFTC Letter No. 12-45, and who otherwise would not be required to register as a commodity pool operator, for failure to register as a commodity pool operator with the Commission. CFTC Letter No. 12-67. - Swaps Reporting Relief for Floor Traders.
On December 19th, the DSIO issued a time-limited no-action letter for persons engaging in floor trader activities. Until July 1, 2013, the Division will not recommend enforcement action against an entity for failure to include, in its calculation of the aggregate gross notional amount of swaps connected with its swap dealing activity for purposes of Commission Regulation 1.3(ggg)(4), a swap that is submitted for clearing to a registered derivatives clearing organization, provided that: (1) the entity does not have a registered swap dealer affiliate; (2) the entity entered into the swap using proprietary funds for its own account; and (3) the entity complies with the requirements set forth in CFTC Regulations 1.3(ggg)(6)(iv)(D)-(H). CFTC Press Release. - Pre-Trade Mid-Market Reporting Relief.
On December 18th, DSIO provided swap dealers and major swap participants with relief from the requirement to disclose the pre-trade mid-market mark to counterparties in certain credit default swaps and interest rate swaps. CFTC Press Release. On December 18th, DSIO granted limited relief for certain swaps transacted on the Natural Gas Exchange. Enforcement action will not be recommended against those who fail to include a swap executed on NGX prior to the earlier of March 31, 2013 or the granting or denial of NGX's application for registration as a foreign board of trade, when they calculate their aggregate gross notional amount of swaps activity. CFTC Letter No. 12-57. - CCO Annual Report Relief.
On December 14th, DSIO issued a no-action letter providing certain swap dealers with limited relief surrounding the requirement that chief compliance officers of such swap dealers prepare and submit an Annual Report, pursuant to CFTC Regulation 3.3. CFTC Press Release. Division of Market Oversight Regulatory Relief
On December 21st, DMO provided additional information pertaining to CFTC Letter No. 12-46, which concerns legal entity identifier ("LEI") reporting requirements. The CFTC specifies that reporting parties eligible for relief pursuant to CFTC Letter No. 12-46 may meet the Letter's requirement for a "written opinion of outside legal counsel" through a legal memorandum from outside legal counsel that includes the following attestation:
"We confirm that the rigor of the analysis we provided in our memorandum was no less extensive or involved than if we were to provide the same analysis in the form of a written, legal opinion. We confirm that we consider our memorandum to represent advice for which our firm takes full responsibility. We would, therefore, be obliged to stand behind such advice equally as we would for advice delivered in the form of a legal opinion."
Reporting parties may also continue to provide a written opinion of outside legal counsel as a means of satisfying the relevant conditions for no-action in CFTC Letter No. 12-46. Separately, the Division also announced that reporting parties may use more than one Privacy Law Identifier ("PLI") to meet the PLI requirements in CFTC Letter No. 12-46. CFTC Press Release. - Counterparty Reporting Relief.
On December 21st, DMO issued a letter providing reporting parties under Parts 45 and 46 of the CFTC's regulations with time-limited no-action relief from requirements to report certain identifying information regarding their non-reporting counterparties. To avail themselves of the relief, reporting parties must first meet specific criteria set forth in the no-action letter, and must also comply with certain conditions attached to the relief. The relief expires no later than April 10, 2013. CFTC Letter No. 12-65. - SD Execution, Pricing, and Post-Trade Reporting Relief.
On December 21st, DMO provided swap dealers with time-limited no-action relief from certain swap data reporting obligations under Parts 43, 45, and 46 of the CFTC's. The no-action letter provides that DMO will not recommend an enforcement action against a swap dealer with respect to the following: (1) a delay in reporting swaps executed by branches in emerging market jurisdictions; (2) a delay in reporting aggregate pricing data for exotic/multi-leg swap transactions; (3) a delay in linking the report made for post-trade allocations, compressions, or novations to the unique swap identifier of the previously reported initial swap; and (4) withholding or incorrect reporting of certain life cycle events. To avail themselves of the relief, a swap dealer must meet specific criteria and comply with certain conditions. The Division will extend this relief until the earlier of: (1) resolution of the technological issues preventing timely compliance; or (2) 12:01 a.m. (EDT) on April 30, 2013. CFTC Press Release. - Swap Data Reporting Relief for Cleared CDS.
On December 19th, DMO provided time-limited relief to reporting counterparties that are swap dealers and major swap participants from the obligation to report swap data under Part 45 of the CFTC's regulations for certain cleared credit default swaps that are entered into pursuant to a derivatives clearing organization's rules related to its price submission process for determining end-of-day settlement prices for cleared CDS. The no-action relief expires on June 30, 2013. CFTC Letter No. 12-59. - SD and MSP Valuation Data Relief.
On December 17th, DMO issued a no-action letter providing time-limited relief to certain swap dealers and major swap participants from the obligation to report valuation data for cleared swaps as required by Section 45.4(b)(2)(ii) of the CFTC's regulations. The no action relief expires on June 30, 2013. - Prime Brokerage Reporting Relief.
On December 17th, DMO provided swap dealers with time-limited no-action relief from Parts 43 and 45 reporting for certain prime brokerage transactions, and reporting of unique swap identifiers in related trades under Part 45 by prime brokers. The relief expires no later than June 30, 2013. CFTC Letter No. 12-53. - Deadline Extended for Complying with Large Swap Trader Reporting Requirement.
On December 14th, DMO issued a letter addressing the timeline within which non-clearing member swap dealers must come into compliance with the large swap trader reporting requirements of Part 20 of the CFTC's regulations. The letter extends until March 1, 2013, no-action relief from Part 20 reporting requirements that was granted to non-clearing member swap dealers in CFTC Letter No. 12-04. The letter also extends, until September 1, 2013, the additional period of reporting relief that was granted to non-clearing member swap dealers that satisfy the conditions of Section 20.10(e) of the CFTC's regulations. CFTC Press Release. Office of the General Counsel Regulatory Relief
- Compo Equity Total Return Swaps.
On December 21st, the CFTC's Office of the General Counsel issued a no-action letter providing time-limited relief from requirements arising from the CFTC's joint interpretation with the SEC that compo equity total return swaps are mixed swaps. The no-action letter provides that OGC will not recommend enforcement action against any person in connection with any failure of such person to comply with any provision of the Dodd-Frank Act or the rules promulgated thereunder to the extent such failure arises solely because such person treats a compo equity total return swap solely as a security-based swap and not as a mixed swap if certain conditions are met. CFTC Press Release. Division of Clearing and Risk Regulatory Relief
- Registration Relief for Singapore Exchange Derivatives Clearing Ltd.
On December 21st, DCR issued a letter stating it will not recommend enforcement action against Singapore Exchange Derivatives Clearing Limited ("SGX-DC") for failing to register as a derivatives clearing organization; and will not recommend enforcement action against SGX-DC's clearing members for failing to register as futures commission merchants, in relation to the clearing and carrying of existing or new positions in certain commodity swaps for U.S. customers. The relief is effective until the earlier of December 31, 2013 or the date upon which SGX-DC registers as a DCO, such date by which the positions of U.S. customers must be held only by clearing members that are registered FCMs. CFTC Press Release. - Registration Relief for Japan Securities Clearing Corporation.
On December 18th, DCR issued a no-action letter allowing Japan Securities Clearing Corporation to clear credit default swaps based on an iTraxx Japan index and yen-denominated interest rate swaps referencing either LIBOR or the Tokyo Interbank Offered Rate provided that JSCC will not accept, and no JSCC qualified clearing participant will offer, swaps for clearing on behalf of a U.S. customer. The relief is effective until the earlier of December 31, 2013, or the date upon which JSCC registers as a DCO. CFTC Press Release. Other Developments
- Real-Time Swaps Reporting.
On December 31st, real-time public reporting of swap transactions in interest rate and credit index swap transactions began. In February, swap dealer reporting will begin for foreign exchange, equity and physical commodity swaps (including agricultural and energy swaps). All other market participants that are required to report their transactions are due to begin reporting in April. In addition, real-time reporting of swap dealer registration has also begun. CFTC Press Release. See also Fact Sheet.
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| Federal Rules Effective Dates |
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Jan 2013 - Feb 2013
- Joint Final Rule - Office of the Comptroller of the Currency; Federal Reserve System; Federal Deposit Insurance Corporation
January 1, 2013 - Risk-Based Capital Guidelines: Market Risk. 77 FR 53059. January 1, 2013 - Community Reinvestment Act Regulations (Technical Amendment)
77 FR 75521. - Commodity Futures Trading Commission
January 2, 2013 - Adaptation of Regulations to Incorporate Swaps. 77 FR 66288. February 11, 2013 - Clearing Requirement Determination Under Section 2(h) of the CEA 77 FR 74283. - Consumer Financial Protection Bureau
*December 28, 2012 - Procedure Relating to Rulemaking 77 FR 76353. January 1, 2013 - Consumer Leasing (Regulation M) 77 FR 68735. January 1, 2013 - Truth in Lending (Regulation Z) 77 FR 69736. January 2, 2013 - Defining Larger Participants of the Consumer Debt Collection Market. 77 FR 65775. 77 FR 72913. (Correction) - Pension Benefit Guaranty Corporation
January 1, 2013 - Allocation of Assets in Single-Employer Plans; Valuation of Benefits and Assets; Expected Retirement Age. 77 FR 71321. - Securities and Exchange Commission
January 2, 2013 - Clearing Agency Standards. 77 FR 66220. *did not appear in previous issue
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| Exchanges and Self-Regulatory Organizations |
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Financial Industry Regulatory Authority
- FINRA Final Renewal Statements.
On January 2nd, the Financial Industry Regulatory Authority issued a notice to help firms review, reconcile and respond to their Final Renewal Statements as well as view the reports that are currently available in Web CRD/IARD for the annual registration renewal process. The payment deadline is February 1, 2013. FINRA Regulatory Notice 13-1. - SEC No-Action Guidance on the Definition of "Ready Market" for Foreign Equities.
On December 27th, the Financial Industry Regulatory Authority announced that the staff of the SEC's Division of Trading and Markets has issued a no-action letter setting forth conditions under which broker-dealers may treat certain foreign equity securities as having a "ready market" under Securities Exchange Act Rule 15c3-1(c)(11)(i) and subject to the haircuts under Exchange Act Rule 15c3-1(c)(2)(vi)(J). The relief expands the number of foreign securities eligible as foreign margin stock under Regulation T of the Board of Governors of the Federal Reserve System. FINRA Regulatory Notice 12-58. - SEC Approves Amendments Regarding Mediators.
On December 21st, the Financial Industry Regulatory Authority announced that the SEC has approved amendments to the FINRA Dispute Resolution, Inc. By-Laws to clarify that services provided by mediators, when acting in such capacity and not representing parties in mediation, should not cause the individuals to be classified as industry members under the By-Laws. The amendments are effective on January 22, 2013 and apply to nominations of mediators by the FINRA Dispute Resolution, Inc. Board for membership on the National Arbitration and Mediation Committee submitted on or after this date. FINRA Regulatory Notice 12-57. - FINRA TRACE Amendments Approved.
On December 20th, the Financial Industry Regulatory Authority announced that the SEC has approved amendments to FINRA Rule 6700 Series and TRACE dissemination protocols that provide for the dissemination of transactions that are agency pass-through mortgage-backed securities traded in specified pool transactions and asset-backed securities backed by loans guaranteed as to principal and interest by the Small Business Administration and traded in specified pool transactions or to be announced, and reduce the time to report such transactions. The amendments are effective July 22, 2013. FINRA Regulatory Notice 12-56. ICE Clear Europe
- Enhanced Margin Methodology Proposed.
On January 2nd, the SEC provided notice of ICE Clear Europe's filing of a proposal to implement an enhanced margin methodology that addresses the risk of both index and single-name credit default swaps cleared by ICE Clear Europe and permits appropriate portfolio margining between related index and single-name CDS positions. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of January 7. SEC Release No. 34-68563. International Securities Exchange
- Amendment Shortening Response Times is Proposed.
On December 20th, the SEC provided notice of the International Securities Exchange's filing of a proposal amending ISE Rules 716 (Block Trades) and 723 (Price Improvement Mechanism for Crossing Transactions) to reduce the response times in the Block Mechanism, Facilitation Mechanism, Solicited Order Mechanism and PIM from one second to 500 millisecond (1/2 of one second). Comments should be submitted on or before January 17, 2013. SEC Release No. 34-68492. NASDAQ OMX Group
- Market Quality Program Proposed.
On December 21st, the SEC provided notice of NASDAQ Stock Market's filing of a proposal to add new Rule 5950 (Market Quality Program) to enable market makers that voluntarily commit to and do in fact enhance the market quality (quoted spread and liquidity) of certain securities listed on the Exchange to qualify for a fee credit pursuant to the Exchange's Market Quality Program and to exempt the Market Quality Program from Rule 2460 (Payment for Market Making). Comments should be submitted on or before January 22, 2013. SEC Release No. 34-68515. National Futures Association
- Member Obligations Under NFA Bylaw 1101 with Respect to Certain IBs Afforded Temporary Registration No-Action Relief.
On December 27th, the National Futures Association issued a notice concerning the application of NFA Bylaw 1101, which prohibits an NFA Member from carrying an account, accepting an order or handling a transaction in commodity futures contracts for or on behalf of any non-Member of NFA that is required to be registered with the Commodity Futures Trading Commission as an FCM, IB, CPO, CTA or LT, in light of the CFTC's October 11, 2012 provision of temporary registration relief for certain introducing brokers. NFA Notice I-12-37. On December 19th, the National Futures Association issued a notice concerning the application of NFA Bylaw 1101 in light of the CFTC's rescission of CFTC Regulation 4.13(a)(4). NFA Notice I-12-35. - NFA Assessment Fee and Proprietary Trading Firms.
On December 19th, the National Futures Association provided guidance on the application of NFA assessment fees on proprietary trading firms that may be subject to CPO registration. NFA Notice I-12-33. NYSE Euronext
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| Judicial Developments |
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- SLUSA Doesn't Preclude Variable Annuitants' Breach of Contract Claims.
On January 2nd, the Ninth Circuit partially reinstated contract claims asserted by purchasers of variable universal life insurance policies. Plaintiffs asserted breach of contract and fraudulent misrepresentation claims against the insurance policy issuer alleging that it overcharged plaintiffs for the "cost of insurance." Partially reversing the trial court's dismissal of the case, the Ninth Circuit holds that the cost of insurance claims can be construed as sounding in contract and are therefore not precluded by the Securities Litigation Uniform Standards Act. The dismissal of the state law unfair competition claims, however, is affirmed. Freeman Investments, L.P. v. Pacific Life Insurance Co.- Bare Bones Securities Act Allegations are Insufficient.
On January 2nd, the Ninth Circuit held that plaintiffs failed to allege they have statutory standing to sue for a violation of Section 11 of the Securities Act. Plaintiffs did not adequately allege that their aftermarket shares were traceable to a secondary offering made in connection with an allegedly false or misleading prospectus supplement. From plaintiffs' allegations it could be reasonably inferred that their shares were traceable to the secondary offering or from the previously existing pool of issued shares. Without additional factual support, plaintiffs' claims are therefore insufficient. In re Century Aluminum Company Securities Litigation. - Only the FDIC Can Sue Failed Bank's Directors for Breaches of Duty.
On December 28th, the Eleventh Circuit partially affirmed the dismissal of a bankruptcy trustee's breach of fiduciary duty lawsuit against the directors of a bank holding company and its failed bank. The FDIC succeeded to the bank's rights and only the FDIC can sue the bank's officers for breaches of duties owed to the bank. The claims that do not plead a distinct harm to the holding company were therefore properly dismissed. The trustee's claim that the directors caused the holding company to improperly subordinate its equity interest in a separate subsidiary, however, does support a direct claim against the directors, and dismissal of that claim is reversed. In re Beach First National Bancshares, Inc.- Activist Hedge Fund May Challenge Merger.
On December 27th, the Delaware Supreme Court addressed shareholder class representation issues in the corporate merger context. Hedge fund BVF, a significant shareholder of Celera, appealed the appointment of NOERS as class representative in a suit challenging Quest's acquisition of Celera. Although NOERS sold its Celera shares before the merger was completed, the Delaware Supreme Court holds that NOERS met state law standing requirements and therefore affirmed the appointment of NOERS as class representative. The Court, however, reversed the order prohibiting BVF from opting out of the class. NOERS was a barely adequate representative and BVF was prepared independently to prosecute a clearly identified and supportable claim for monetary damages. Under these circumstances, the Court of Chancery had to provide an opt-out right. In re Celera Corporation Shareholder Litigation. - The National Bank Act and State Consumer Protection Laws.
On December 26th, the Ninth Circuit addressed the extent to which the National Bank Act preempts state laws. Plaintiffs challenged Wells Fargo's high-to-low check posting policy claiming that it, and the bank's description of that policy, violates state consumer protection laws. After finding that arbitration should not be ordered, the Court held that a bank's check posting decision is a federally authorized pricing decision. The National Bank Act thus preempts the application of state unfair business practices law on that issue as well as the imposition of affirmative disclosure requirements and liability based on failure to make disclosures concerning the policy. The National Bank Act, however, does not preempt the claim for affirmative misrepresentations. Gutierrez v. Wells Fargo Bank, N.A.- FDIC Unsafe and Unsound Order Affirmed.
On December 26th, the Tenth Circuit affirmed a FDIC order requiring a bank to make certain capital, liquidity, and management changes. Frontier Bank challenged a FDIC cease-and-desist order requiring Frontier to take various steps to mitigate risks associated with its use of short-term borrowing to finance long term investments. The Court held that the FDIC Board's capital level requirement is not subject to judicial review. Congress left the setting of capital levels exclusively to the FDIC's discretion because there is no meaningful standard against which to judge the agency's exercise of discretion. And the FDIC's order regarding interest rate, liquidity, and management risk was reasonable. Frontier State Bank Oklahoma City, Oklahoma v. FDIC. - Backwardation, Contango and Moving Markets.
On December 21st, the U.S. District Court denied a motion to dismiss plaintiffs' Sherman Act and Commodities Exchange Act claims stemming from defendants' alleged manipulation of crude oil prices. The Court holds that plaintiffs detailed allegations regarding the scheme, including defendants' acquisition of up to 92 percent of the next month's deliverable crude oil supply and the future market's pricing change from backwardation to contango, states an antitrust claim. And because of their fact-based nature, plaintiffs' commodity fraud claims cannot be dismissed as time-barred or for failure to plead loss causation. In re Crude Oil Commodity Futures Litigation. - Angry Judge Demands More Information.
On December 21st, Bloomberg summarized U.S. District Court Judge Richard Leon's remarks at a hearing on whether to approve a proposal settling the SEC's Foreign Corrupt Practices Act charges against IBM. Judge Leon wants IBM to annually report on all possible accounting violations, not just those related to specific bribery allegations. IBM, with the SEC's support, objects to that request. FCPA Hearings.
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| Industry News |
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- Basel Committee to Relax LCR Implementation.
On January 4th, Reuters reported the Basel Committee will likely relax the timeline by which banks must comply with new liquidity coverage ratio rules. LCR. On January 4th, Reuters noted the Justice Department's increasing use of civil administrative subpoenas pursuant to its authority under the Financial Institutions Reform, Recovery, and Enforcement Act. FIRREA. On January 2nd, Bloomberg reviewed the state of global financial industry regulation, noting the shortcomings and inconsistencies. Review. On January 2nd, the Washington Post discussed the likelihood of meaningful financial reform in 2013. It cites the Senate's easy passage of a bipartisan bill asking the General Accountability Office to research "too big to fail" issues as evidence that at least some fine tuning of the Dodd-Frank Act will occur. The Future. - Dinosaurs and Ponzi Schemes.
On January 1st, DealBook noted the historic (and unusual) recoveries made by the asset forfeiture unit of the U.S. Attorney's Manhattan office. However, while most recovered proceeds are returned to victims, the aggressive tactics of the unit are called abusive by some. Recoveries. - Basel Committee Guidance on Central Counterparties.
On December 28th, the Basel Committee on Banking Supervision issued its fourth set of frequently asked questions on Basel III's counterparty credit risk rules and the interim framework for bank exposures to central counterparties ("CCPs"). The FAQs address the default counterparty credit risk charge, the credit valuation adjustment capital charge and asset value correlations. It also included FAQs relating to the interim framework for bank exposures to CCPs. BIS Press Release. On December 26th, Corporate Counsel made a list of the top ten issues for public company general counsels. Top Ten.
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