• SEC-CFTC Roundtable on Credit Default Swaps.

On October 22nd, Business Week summarized some of the comments made at the SEC-CFTC joint roundtable on the clearing of credit default swaps. Comments.

• President's Working Group on Financial Markets Releases Money Market Funds Report.

On October 21st, the President's Working Group on Financial Markets released a report detailing a number of options for reforms related to money market funds. The PWG requested the Financial Stability Oversight Council to consider the options discussed in the report and pursue appropriate next steps. To assist the FSOC in any analysis, the SEC will solicit public comments, including the production of empirical data and other information in support of such comments. Treasury Department Press Release.

• Department of Labor Proposes New Definition for "Fiduciary" Under ERISA.

On October 21st, the Department of Labor's Employee Benefits Security Administration published for comment a proposed rule amending a 1975 regulation that defines when a person providing investment advice becomes a fiduciary under ERISA. The proposed rule is designed to remedy potential conflicts of interest and clarify when individuals providing investment advice are subject to ERISA's fiduciary standards. Comments should be submitted on or before January 20th, 2011. Department of Labor Press Release.

• Clearing Brokers' Obligations.

On October 21st, the New York Times reported that a court case challenging a $20.6 million arbitration award against Goldman Sachs asks whether clearing brokers have an obligation to alert regulators of a client's possible malfeasance. Clearing Brokers.

• Basel III.

On October 19th, the Basel Committee on Banking Supervision published a report on its regulatory reform program. The new Basel III standards raise the quality of capital; increase the risk coverage of the capital framework; raise minimum capital requirements, including an increase in the minimum common equity requirement from 2% to 4.5% and a capital conservation buffer of 2.5%, bringing the total common equity requirement to 7%; introduces an internationally harmonized leverage ratio; raises standards for the supervisory review process (Pillar 2) and public disclosures (Pillar 3); introduces minimum global liquidity standards; and promotes the accumulation of counter-cyclical capital buffers. After an observation period, the standards will be phased in, becoming fully effective in 2015. Bank of International Settlements Press Release. On October 21st, Reuters reported FDIC Chairman Sheila Bair said that U.S. capital requirements for banks will most likely be more stringent than those required by Basel III. Bair Remarks.

• New 401(k) Plan Participant Disclosures.

On October 20th, the Department of Labor published final regulations on the disclosures that must be provided to participants in 401(k) or similar plans regarding investment options available under such a plan. The regulations, which will be effective for most plans on January 1st, 2012, require disclosure to plan participants similar to mutual fund disclosures of expense and performance reporting. Final Regulations.

• Federal Housing Regulators Examining Foreclosure Practices.

On October 21st, the Boston Globe reported the remarks of Shaun Donovan, Secretary of Housing and Urban Development. Donovan said that federal housing agencies will fine banks whose foreclosure practices do not comply with federal regulations. Fines.

• New York State Courts Requiring Attorney Certifications in Foreclosures.

On October 20th, Bloomberg reported that New York state courts will require attorneys foreclosing on home mortgages to certify that reasonable steps have been taken to verify the accuracy of the information. Certification.

• Home Buyers Using 1968 Law to Rescind Purchases.

On October 20th, the New York Times reported that putative buyers of parcels in large real estate developments are using the Interstate Land Sales Full Disclosure Act of 1968 to rescind purchase and sale agreements. ILSFDA. See, e.g., Long v. Merrifield Town Center Ltd. Partnership.

• Federal Reserve Announces Final Rule Regarding Gift Card Rules.

On October 19th, the Federal Reserve Board announced a final rule implementing recent legislation modifying the effective date of certain disclosure requirements applicable to gift cards under the Credit Card Accountability Responsibility and Disclosure Act of 2009. The rule finalizes the previously published interim final rule. For gift certificates, store gift cards, and general-use prepaid cards produced prior to April 1st, 2010, the legislation and interim final rule delay the August 22nd, 2010 effective date of these disclosures until January 31st, 2011, provided that several specified conditions are met. Federal Reserve Press Release.

• Federal Reserve Board Issues Report on Credit Risk Retention Requirements.

On October 19th, the Federal Reserve Board issued a report on the potential impact of credit risk retention requirements on securitization markets. The report highlights the significant differences in market practices and performance across securitizations backed by different types of assets. The report recommends that the agencies take these differences into account when developing risk retention requirements. Federal Reserve Board Press Release.

• Federal Reserve Board Proposes Amendments Clarifying Credit Card Rules.

On October 19th, the Federal Reserve published for comment proposed amendments to Regulation Z (Truth in Lending) to clarify the rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009. The proposal clarifies that promotional programs waiving interest charges for a specified period of time are subject to the same rules as promotional programs that apply a reduced rate for a specified period; application and similar fees that a consumer is required to pay before a credit card account is opened are covered by the same limitations as fees charged during the first year after the account is opened; and when evaluating a consumer's ability to make required payments before opening a new credit card account or increasing the credit limit on an existing account, card issuers must consider information regarding the consumer's independent income, rather than his or her household income. Comments should be submitted within 60 days after publication in the Federal Register, which is expected during the week of October 25th. Federal Reserve Board Press Release.

• Federal Reserve Board Issues Interim Final Rules on Real Estate Appraisals.

On October 18th, the Federal Reserve Board announced an interim final rule to ensure that real estate appraisers are free to use their independent professional judgment in assigning home values without influence or pressure from those with interests in the transactions. The rule also seeks to ensure that appraisers receive customary and reasonable payments for their services. Compliance will be mandatory on April 1st, 2011. Comments should be submitted within 60 days after publication in the Federal Register, which is expected during the week of October 25th. Federal Reserve Board Press Release.

• FDIC Proposes Depository Insurance Fund Management Plan.

On October 19th, the FDIC voted to propose a comprehensive, long-range plan for deposit insurance fund management. As part of the fund management plan, the Board adopted a new Restoration Plan to ensure that the fund reserve ratio reaches 1.35 percent by September 30th, 2020, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). The Restoration Plan also forgoes the uniform 3 basis point assessment rate increase previously scheduled to go into effect January 1st, 2011, and keeps the current rate schedule in effect. The Board's decision was informed by an updated FDIC analysis that forecasts somewhat lower losses from 2010 through 2014. The Board also adopted a notice of proposed rulemaking based upon an FDIC historical analysis of fund losses demonstrating that, to maintain a positive fund balance and steady, predictable assessment rates, the Deposit Insurance Fund reserve ratio must be at least 2 percent before a period of large fund losses, and average assessment rates over time must be approximately 8.5 basis points. FDIC Press Release; Board Summary.

• OCC Issues Bulletin on CRA Regulations.

On October 18th, the OCC issued a Bulletin on the recently revised Community Reinvestment Act regulations.

• FDIC and Federal Reserve System to Host Symposium on Mortgages and Mortgage Finance.

On October 20th, the FDIC and the Federal Reserve System announced they will host a two-day symposium on October 25th and 26th, 2010, on mortgages and the future of housing finance. Experts from the public, private and academic sectors will discuss mortgage finance, foreclosures, loan modifications, and securitizations. FDIC Press Release.

• Regulators Jointly Examine Foreclosure Practices.

On October 18th, Reuters reported the OCC, FDIC and Federal Reserve Board are jointly investigating mortgage servicers' home foreclosure practices. Joint Investigation.

• Treasury Department Designations.

On October 19th, the Treasury Department's Office of Foreign Assets Control designated Guillermo Leon Valencia Cossio, former Regional Director for the Colombian Prosecutor's office in Medellin, as a Specially Designated Narcotics Trafficker pursuant to the Foreign Narcotics Kingpin Designation Act. Separately, OFAC identified two U.S.-based companies, Running Brook, LLC (USA) and La Hacienda (USA) as blocked pursuant to the Kingpin Act for being owned or controlled by Fernando Melciades Zevallos Gonzales, a Peruvian national identified as a significant foreign narcotics trafficker. The designations prohibit U.S. persons from conducting financial or commercial transactions with the identified individuals and companies and freeze any assets they may have under U.S. jurisdiction. Treasury Department Press Release.

• FinCEN Releases Analysis of 2009 SARs.

On October 18th, the Financial Crimes Enforcement Network released a study analyzing Suspicious Activity Reports. While suspected cases of identity theft are on the rise, vigilant financial institution employees are reportedly rejecting over half of fraudulent vehicle or student loans facilitated by identity theft prior to funding. FinCEN Press Release.

• FinCEN Reorganizes BSA Regulations.

On October 18th, the Financial Crimes Enforcement Network announced the pending reorganization of its rules and regulations. The reorganized rules streamline the Bank Secrecy Act regulations into general and industry-specific Parts, so that a financial institution can identify its obligations under the BSA in a more organized and understandable manner. No substantive changes to the BSA rules have been made. FinCEN Press Release.

• Position Reporting.

On October 19th, the CFTC voted to propose for comment a rule requiring traders to file position reports on certain physical commodity swaps and swap options. See CFTC Fact Sheet.

• Privacy Rules.

On October 19th, the CFTC voted to propose for comment a rule expanding the scope of privacy protections for consumer financial information under the Gramm-Leach-Bliley Act. See CFTC Fact Sheet; Questions and Answers.

• Business Affiliate Marketing Rules.

On October 19th, the CFTC voted to propose for comment business affiliate marketing and disposal of consumer information rules under the Fair Credit Reporting Act. See CFTC Fact Sheet; Questions and Answers.

• Conflicts of Interest Rules.

On October 18th, the CFTC published for comment proposed conflicts of interest rules for derivatives clearing organizations, designated contract markets, and swap execution facilities. Comments should be submitted on or before November 17th, 2010. 75 FR 63732.

• Chairman Gensler Addresses the Institute of International Bankers.

On October 21st, CFTC Chairman Gary Gensler discussed the regulation of credit default swaps, noting that in accordance with the Dodd-Frank Act, the CFTC will have regulatory jurisdiction over swap activities having "a direct and significant connection with the activities in, or effect on, commerce in the United States." Gensler Remarks.

• CFTC May Consider Phased-In Position Limits.

On October 19th, Reuters reported the CFTC may consider a phase-in period for commodity position limits mandated by the Dodd-Frank Act. Position Limits.

• CFTC Releases New Public Comment Submission Form.

On October 18th, the CFTC announced the release of an improved process for submitting public comments for Federal Register Releases and Industry Filings. CFTC Release No. PR5925-10.

• Open Meeting.

The CFTC will hold an open meeting on October 26th, 2010 to consider the issuance of the following proposed rulemakings under the Dodd-Frank Act: prohibition of market manipulation and disruptive trading practices; provisions common to registered entities; removing any reference to or reliance on credit ratings in Commission regulations and proposing alternatives; and process of review of swaps for mandatory clearing. In addition, the CFTC will consider one non-Dodd-Frank Act proposed rule, investment of customer funds and funds held in an account for foreign futures and foreign options transactions. CFTC Release No. PR5926-10.

• "Say on Pay" and Proxy Vote Reporting.

On October 18th, the SEC proposed rules that would enable shareholders to cast advisory votes on executive compensation and "golden parachute" arrangements. If approved the proposed rule would require companies to conduct a separate shareholder advisory vote to approve the compensation of executives. In addition, the proposed rule would require companies soliciting votes to approve merger or acquisition transactions to provide disclosure of certain "golden parachute" compensation arrangements and, in certain circumstances, to conduct a separate shareholder advisory vote to approve the golden parachute compensation arrangements. The SEC also proposed rules requiring institutional investment managers to annually file with the SEC their votes on say-on-pay, frequency of say-on-pay votes, and "golden parachute" arrangements. Comments on either proposal should be submitted on or before November 18th, 2010. SEC Press Release.

• Reporting of Proxy Votes on Executive Compensation.

On October 18th, the SEC proposed rule and form amendments under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 that, if adopted, would require institutional investment managers that are required to report holdings on a quarterly basis pursuant to Section 13(f) of the Exchange Act to report annually how they voted proxies relating to certain executive compensation matters. The proposal is in response to a requirement set forth in the Dodd-Frank Act. The proposal also would amend Form N-PX, which currently is used by registered management investment companies to file their proxy voting records with the SEC, to accommodate the new filings by institutional investment managers. Comments should be submitted on or before November 18th, 2010. Release Nos. 34-63123; IC-29463.

• Chairman Schapiro Addresses the NACD Annual Corporate Governance Conference.

On October 19th, SEC Chairman Mary L. Schapiro discussed recent SEC corporate governance initiatives as well as its planned proposals concerning compensation committee independence and conflicts of interest, and its "voting infrastructure" project. Schapiro Remarks.

• Commissioner Aguilar Addresses the Berkeley Center for Law, Business and the Economy.

On October 15th, SEC Commissioner Luis A. Aguilar discussed the principles which should guide regulatory reform. He warned against the creation of two-tiered markets or separate standards of protection which might vary depending upon the investor, the intermediary, or the investment. He also called upon the Commission to vigorously enforce the clawback provisions of the Sarbanes-Oxley Act. Aguilar Remarks.

• New Options Series Approved for Listing.

On October 13th, the SEC approved the Chicago Board Options Exchange's proposal to permit the Exchange to list series with up to 12 expiration months for broad-based security index options upon which the Exchange calculates a volatility index. SEC Release No. 34-63096.

• Sales Material Rules Apply to Free Writing Prospectuses.

On October 21st, the Financial Industry Regulatory Authority partially withdrew previous interpretive guidance that excluded free writing prospectuses from the requirements of NASD Rules 2210 and 2211. The content standards, the principal review requirements and applicable filing requirements in NASD Rules 2210 (Communications with the Public) and 2211 (Institutional Sales Material and Correspondence) will apply to free writing prospectuses distributed by broker-dealers in a manner reasonably designed to lead to their broad unrestricted dissemination, as described in Securities Act Rule 433. FINRA Regulatory Notice 10-52.

• FINRA Issues Regulatory Notice on Commodity Futures-Linked Securities.

On October 20th, the Financial Industry Regulatory Authority issued a Regulatory Notice concerning commodity futures-linked securities. Firms offering commodity futures-linked securities are reminded of their obligation to ensure that their communications with the public about these securities are fair and balanced, that recommendations to customers are suitable, and that their registered representatives adequately understand and are able to inform their customers about these securities before they recommend them. FINRA Regulatory Notice 10-51.

• Firm Element Advisory.

On October 15th, the Financial Industry Regulatory Authority announced that the Securities Industry Regulatory Council on Continuing Education has released its Fall 2010 Firm Element Advisory. FINRA Regulatory Notice 10-50.

• New Consolidated FINRA Rules.

On October 15th, the Financial Industry Regulatory Authority announced that the SEC has approved three rule filings relating to the Consolidated FINRA Rulebook. FINRA Rule 5121 (Public Offerings of Securities With Conflicts of Interest) and the FINRA Rule 11000 Series (Uniform Practice Code) will take effect on December 15th, 2010. FINRA Rule 3270 (Outside Business Activities of Registered Persons) is also effective December 15th, 2010; however, for registered persons who are actively engaged in an outside business activity prior to December 15th, 2010, firms have until June 15th, 2011, to review such pre-existing activities under the standards set forth in FINRA Rule 3270, including the requirement that firms keep a record of their compliance with such standards. FINRA Regulatory Notice 10-49.

• SEC Approves Pilot Program to List Additional Expiration Months for Each Class of Options.

On October 14th, the SEC approved the International Securities Exchange's proposed pilot program to list additional expiration months for each class of options opened for trading on the exchange. SEC Release No. 34-63104.

• MSRB Proposes New Assessments and Fees for Municipal Securities Transactions.

On October 13th, the SEC provided notice of the Municipal Securities Rulemaking Board's proposal relating to assessments for brokers, dealers, and municipal securities dealers under MSRB Rule A-13. The proposal would amend Rule A-13 to increase transaction assessments for certain municipal securities transactions reported to the Board and institute a new technology fee on reported sales transactions. The proposed amendment to Rule A-13 would increase the existing transaction assessments for inter-dealer and customer sales from .0005% to .001% of the total par value of inter-dealer sales and sales to customers that are reported by dealers to the MSRB; and impose a technology fee of $1.00 per transaction for inter-dealer and customer sales reported to the Board. The technology fee would be transitional in nature and would be reviewed by the Board periodically to determine whether it should continue to be assessed. The MSRB proposes an effective date of January 1st, 2011. Comments should be submitted on or before November 9th, 2010. SEC Release No. 34-63095.

• SEC to Take Additional Time to Consider Proposed Listing Market.

On October 14th, the SEC provided notice that it designated a longer period, until December 7th, 2010, for Commission action on NASDAQ OMX BX's proposed creation of a listing market. SEC Release No. 34-63105.

• SEC Approves Expansion of $0.50 Strike Price Program.

On October 19th, the SEC approved NASDAQ OMX PHLX's proposal to amend Commentary .05 to Exchange Rule 1012, Series of Options Open for Trading, regarding the $.50 Strike Program to expand the permitted price range of the $.50 Strike Program from $1.00 - $3.50 to $0.50 - $5.50; raise the threshold of the previous day's closing price of the underlying security from $3.00 to $5.00; and expand the number of options classes permitted under the Program from 5 to 20. SEC Release No. 34-63132.

• SEC Approves Liability Insurance Requirement.

On October 18th, the SEC approved NASDAQ OMX PHLX's proposed amendment of Exchange Rule 652 (Limitation of Exchange Liability and Reimbursement of Certain Expenses) to require member organizations on the Exchange's trading floor to procure and maintain liability insurance. SEC Release No. 34-63121.

• Modification of Certain Listing Criteria on the Nasdaq Capital Market Approved.

On October 14th, the SEC approved the NASDAQ Stock Market's proposed modification of the eligibility criteria concerning market value of publicly held shares. The modification affects the eligibility criteria for a listed company to qualify for the second compliance period for a bid price deficiency on the Nasdaq Capital Market. SEC Release No. 34-63110.

• NSCC Proposes to Enhance Reconfirmation and Pricing Service.

On October 18th, the SEC provided notice of the National Securities Clearing Corporation's proposal to enhance the Reconfirmation and Pricing Service process, to modify RECAPS to run on a more frequent basis, and to rename RECAPS as the Obligation Warehouse service. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of October 25th. SEC Release No. 34-63126.

• Amendment of Rule Regarding the Trading of Trust Units Immediately Effective.

On October 19th, the SEC granted immediate effectiveness to NYSE Arca's proposed amendment of NYSE Arca Equities Rule 8.500 ("Trust Units") to provide that the issuers of Trust Units listed or traded pursuant to unlisted trading privileges may invest directly in investments comprising or otherwise based on any combination of futures contracts, options on futures contracts, forward contracts, swap contracts, commodities and/or securities rather than solely in the assets of a trust, partnership, limited liability company, corporation or other similar entity constituted as a commodity pool that holds such investments. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of October 25th. SEC Release No. 34-63129.

• Amendment to Order Execution Rule Immediately Effective.

On October 15th, the SEC granted immediate effectiveness to NYSE Arca's proposed amendment of Rule 7.37, Order Execution, to clarify Users' ability to instruct NYSE Arca to bypass non-Regulation NMS protected market centers when routing away. Comments should be submitted on or before November 12th, 2010. SEC Release No. 34-63116.

• Indemnification.

On October 22nd, the D.C. Circuit addressed the Office of Thrift Supervision's director indemnification rules. Shareholders of a savings and loan filed a securities lawsuit against the S&L and its directors and obtained a preliminary injunction in which they gained control of the S&L and ousted the directors. The now former directors sought indemnification from the S&L under OTS regulations. The Court held that the ex-directors were not entitled to indemnification under either OTS's mandatory or permissive indemnification rules. Bender v. Jordan.

• Shared Investment Plans.

On October 18th, the Seventh Circuit affirmed in part and vacated in part a trial court's entry of summary judgment in favor of a bank that sued petitioners, former senior executives of Comdisco, Inc., who participated in their employer's shared investment plan. The executives had borrowed money from the bank in order to purchase the SIP stock posting no collateral, and in at least one instance, stating no income, to support the loans. After the employer went bankrupt, the bank sought repayment. The Court held that petitioners lacked standing to assert affirmative defenses under Federal Reserve Board Regulations G and U because the Securities Exchange Act does not create a private right of action for violations of margin loan regulations. However, petitioners should be allowed to assert affirmative defenses based on illegality under Section 10(b) of the Exchange Act and Section 17(a) of the Securities Act; and set-off for fraud, set-off for negligent misrepresentation, and excuse of nonperformance. Costello v. Grundon.

• SEC Proposes New Family Office Exemption from IA Registration.

On October 12th, the Securities and Exchange Commission proposed a new rule, based on requirements under the Dodd-Frank Act, that would enable "family offices" to be exempt from investment adviser registration under the Investment Advisers Act of 1940, as amended. Briefing.

• UK Government Consultation Begins on Guidance for the Corporate Defense Under the Bribery Act.

The UK has published draft guidance in relation to the defense of "Adequate Procedures" under the new Bribery Act, which will enter into force in April 2011. Briefing.

• Kreindler Co-Chair of Pension & Investments West Coast Defined Contribution Conference.

Chicago-based financial services partner Marla Kreindler is serving as co-chair of the Pension & Investments West Coast Defined Contribution Conference taking place October 24th through 26th in San Francisco. Kreindler is also presenting at the conference on risk management for defined contribution plans. Conference Agenda.

• Contact Us.

If you have any questions about the information in this Update, or about any financial services matters generally, please click here to see a list of Winston & Strawn professionals.