Financial Industry Developments

CFTC Comparability Determination on EU Margin Requirements and a Common Approach on Trading Venues

On October 13, 2017, the U.S. Commodity Futures Trading Commission ("CFTC") announced determinations by the CFTC and the European Commission ("EC") on comparability and equivalence of margin requirements for uncleared swaps. CFTC Commissioners unanimously approved a comparability determination finding the margin requirements for uncleared swaps under the laws and regulations of the European Union ("EU") comparable in outcome to those under the Commodity Exchange Act (CEA) and CFTC regulations. This determination is effective immediately. This announcement coincides with the EC’s announcement of an equivalence decision which similarly finds that the CFTC’s uncleared swap margin rules are comparable in outcome to the EU’s corresponding margin requirements for uncleared OTC derivatives. Additionally, the CFTC and EC announced a common approach regarding certain CFTC and EU authorized derivatives trading venues. Press Release. Rule. Common Approach.

Department of Treasury Releases Second Report on Administration's Core Principles of Financial Regulation

On October 6, 2017, the Department of the Treasury released its Second Report on the Administration’s Core Principles of Financial Regulation which details how to streamline and reform the U.S. regulatory system for the capital markets. The Report is titled A Financial System that Creates Economic Opportunities and is in response to Executive Order 13772 issued by President Trump on February 3rd, which calls on the Treasury to identify laws and regulations that are inconsistent with a set of Core Principles of financial regulation.

The Treasury found that the federal financial regulatory framework and processes could be improved, among other things, by:

• Evaluating the regulatory overlaps and opportunities for harmonization of SEC and CFTC regulation;
• Incorporating more robust economic analysis and public input into the rulemaking process in order to make the rulemaking process more transparent; and
• Opening up private markets to more investors through proposals to facilitate pooled investments in private or less liquid offerings, and revisit the "accredited investor" definition;
• Limiting imposing new regulations through informal guidance, no-action letters or interpretation, instead of through notice and comment rulemaking; and
• Reviewing the roles, responsibilities and capabilities of self-regulatory organizations (SROs) and making recommendations for improvements; and
• Creating an appropriate regulatory structure for finders.

Click here to view the full text Report. Click here to view the fact sheet for the Report.

Rating Agency Developments

On October 16, 2017, KBRA published a report entitled: Container Leasing ABS Rating Methodology. Report

On October 16, 2017, KBRA published a report entitled: General Rating Methodology for Asset-Backed Securities. Report

On October 16, 2017, KBRA published a report entitled: Auto Loan Rating Methodology. Report

On October 16, 2017, KBRA published a report entitled: Credit Card ABS Rating Methodology. Report

On October 16, 2017, KBRA published a report entitled: Consumer Loan ABS Rating Methodology. Report

On October 12, 2017, KBRA published a report entitled: Aviation ABS Rating Methodology. Report

On October 12, 2017, DBRS published a report entitled: Rating Canadian Wholesale Securitizations. Report

On October 12, 2017, DBRS published a report entitled: Rating Canadian Equipment Finance Securitization Transactions. Report

On October 12, 2017, DBRS published a report entitled: Rating Canadian Auto Retail Loan and Lease Securitizations. Report

On October 12, 2017, DBRS published a report entitled: Rating Canadian Auto Fleet Lease Transactions. Report

On October 12, 2017, DBRS published a report entitled: Global Methodology for Rating Finance Companies. Report

On October 12, 2017, DBRS published a report entitled: Operational Risk Assessment for European Structured Finance Originators. Report

On October 12, 2017, DBRS published a report entitled: Operational Risk Assessment for European Structured Finance Servicers. Report

Distressed Debt and Restructuring Developments

Second Circuit Overturns Ruling on Cram-Down Interest Rates in Momentive

• Adopts Sixth Circuit Test for Selecting Interest Rate
• Affirms District and Bankruptcy Court Determinations Regarding Senior Debt Status and Disallowing Make-Whole Payments
• Rejects Debtor's Equitable Mootness Argument

On October 20, 2017, the Second Circuit issued its long awaited ruling on several appeals from a U.S. District Court (Bricetti, J.) determination affirming the United States Bankruptcy Court (Drain, J.) in the MPM Silicones, L.L.C. ("Momentive") bankruptcy case. The Second Circuit rejected the lower court rulings applying a "formula rate" of interest to cram-down paper issued to senior secured lenders under the Momentive plan of reorganization and remanded the case to the bankruptcy court with instructions to apply an "efficient market rate" of interest if one could be ascertained.

If you would like to read the full article, please click here.

European Financial Industry Developments

European Commission Request to ESAS to Issue Recurrent Reports on Cost and Performance of the Main Categories of Pension, Insurance and Pension Products

On October 17, 2017, the European Commission published a request to the European Supervisory Authorities ("ESAs") to issue recurrent reports on the past performance and cost of the main categories of insurance, pension and retail investment products.

In its request, the Commission states that the reporting should be based on information originating from disclosures and reporting required under the MiFID Directive, the Insurance Distribution Directive, the Regulation on key information documents for packaged retail and insurance-based investment products and other EU and national legislation.

The Commission outlines a tentative timetable for the reports, indicating that the first report on data availability, costs and performances should be available in the third and fourth quarter of 2018.

Regulation Amending EMIR: ECB Opinion

On October 17, 2017, the European Central Bank ("ECB") published an opinion on the proposed Regulation amending EMIR (Regulation 648/2012) in relation to the clearing obligation, its suspension, the reporting requirements, the risk-mitigation techniques and the registration and supervision of trade repositories.

The European Commission adopted the legislative proposal, which is aimed at introducing a number of changes to EMIR in order to simplify the applicable rules and eliminate disproportionate burdens.

In its opinion, the European Commission generally supports the Commission’s initiative and makes specific observations on the following topics:

Exemption of central bank transactions.

• Amendments to ensure the quality of data.
• Reporting obligation.
• CCPs' transparency.
• Credit institutions' compliance with risk-management procedures, intragroup exemptions and capital requirements.
• Classification of securitization special purpose entities as financial counterparties.
• Changes to methodology for calculating counterparties' positions in OTC derivative contracts.
• The ECB's advisory role regarding draft-delegated and implementing acts.

The opinion is available here.

Mitigating Risks Associated with SFTs: European Commission Publishes Report

The European Commission has published a report to both the European Parliament and the Council of the EU under Article 29(3) of the Regulation on reporting and transparency of securities financing transactions ((EU) 2015/2365), (the "SFTR").

Pursuant to Article 29(3) of the SFTR, the Commission is required to report on progress in international efforts to mitigate the risks linked with securities financing transactions.

The report provides a brief assessment of European securities financing transaction markets as well as discusses the Financial Stabilities Board’s (the "FSB") recommendations aimed at mitigating securities financing transaction risks.

The report concludes that the FSB’s recommendations have been addressed in the EU through specific provisions within various financial services legislation and guidelines and the adoption of the SFTR.

To view the report, click here.