Orrick Derivatives Month in Review - May 2012

Dodd-Frank Act Implementation Update

Title VII of the Dodd-Frank Act, titled the “Wall Street Transparency and Accountability Act of 2010”, was enacted on July 21, 2010 and is generally intended to bring the $700 trillion over-the-counter derivatives market under greater regulation.  For a summary of certain noteworthy developments in the implementation of Title VII since our last update, please click here.

City of Milan Settles with Banks in Derivatives Fraud Case

The City of Milan, Italy, has reached a settlement relating to a dispute involving fees charged by four foreign banks relating to the sale of derivatives.  For a complete summary, please click here.

Greece Triggers Credit Event and Raises Questions for Sovereign CDS

On March 9th, the ISDA Determinations Committee for Europe unanimously concluded that The Hellenic Republic (Greece) had triggered a restructuring “credit event” under credit default swap contracts in connection with the exchange of its debt with private creditors.  The committee’s determination was based in large part on the imposition and use by Greece of retroactive “collective action clauses” on bonds governed by Greek law which bound all holders of such debt to the decisions of a supermajority.  The market's experience in connection with Greece's credit event, and other developments, have raised several questions regarding the future of the sovereign CDS market.  For a complete summary, please click here.

Investment Management Industry Challenges CPO Registration Requirement

The fund industry has filed suit challenging the CFTC's modification of its Rule 4.5 to require the advisers of an investment company registered under the Investment Company Act of 1940, such as mutual funds and exchange-traded funds, to register as commodity pool operators (“CPOs”) if, generally, the fund invests a material amount of its assets in speculative commodity futures, options and swaps.  For a complete summary, please click here.

Standardization of Muni CDS

On March 5th, ISDA published the 2012 ISDA U.S. Municipal Reference Entity Supplement to the 2003 ISDA Credit Derivatives Definitions, which is intended to standardize credit default swaps referencing U.S. municipal issuers or obligations as the reference entity or reference obligation with credit default swaps referencing corporate and sovereign CDS.  For a complete summary, please click here.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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