Orrick's Derivatives in Review - January 2014

Volcker Rule: An Overview and Highlights of Certain Key Provisions

On December 10, 2013, the OCC, Board of Governors of the Federal Reserve System, FDIC and SEC promulgated the final rule implementing the prohibitions and limitations imposed on banking entities by the Volcker Rule. 
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Financial Transaction Tax Developments

Since 2011, we have tracked initiatives and developments regarding a possible European financial tax that would apply to derivatives, among other types of financial transactions.  Despite the publication of a European Commission directive in February 2013, the scope and implementation of a financial transaction tax continues to be fiercely debated.  Recently, it has been reported that the participating member-states have been discussing the implementation of a more narrow and modest tax, including one with more robust exemptions.
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CFTC Substituted Compliance Determinations and No-Action Letters

On December 20, 2013, the CFTC approved substituted compliance in the European Union and five other jurisdictions for a range of "entity-level" and "transaction-level" requirements of Dodd-Frank.  Pursuant to a substituted compliance determination, certain swap counterparties generally may comply with the requirements of a jurisdiction in lieu of comparable Dodd-Frank requirements.  
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Further Delay of Advisory Regarding Application of CFTC Regulations to U.S. Activities of Non-U.S. Swap Dealers

On January 3, 2014, the CFTC issued a no-action letter further delaying the effectiveness of a November 14, 2013 advisory regarding the applicability of certain Dodd-Frank requirements to activities that occur in the United States.
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IRS Issues Final Regulations and New Proposed Regulations Regarding Withholding on Derivatives on U.S. Stocks

On December 5, 2013, the IRS issued final regulations and proposed regulations under section 871(m), which address withholding on certain equity-linked notional principal contracts and other financial instruments.  These regulations are targeted at derivatives referencing U.S. stocks in which non-U.S. persons receive a "dividend equivalent" while arguably avoiding U.S. withholding tax but will impact many common corporate transactions, including merger and acquisition transactions and equity based compensation arrangements.   
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Industry Groups File Lawsuit Challenging Cross-Border Guidance  

On December 4, 2013, the Securities Industry and Financial Markets Association, the International Swaps and Derivatives Association, Inc., and the Institute of International Bankers filed a lawsuit challenging the CFTC's final cross-border guidance issued in July of 2013. 
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Commodity Pool Status of a Certain Companies Entering into Swaps

Recent CFTC provisions and guidance suggest that an entity that is a wholly owned subsidiary of a commodity pool and enters into a swap may itself constitute a "commodity pool" and, therefore, would not be eligible to use the end-user exception to clearing.  However, the CFTC has indicated at various times that an operating company should not be considered a commodity pool.
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Topics:  Banks, CFTC, Cross-Border, Derivatives, FDIC, Foreign Banks, OCC, Proprietary Trading, SEC, Swap Dealers, Swaps, Volcker Rule

Published In: General Business Updates, Finance & Banking Updates, International Trade Updates, Securities Updates, Tax Updates

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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