Orrick's Financial Industry Week in Review - November 5, 2012


Financial Industry Developments


FHFA Statement on REO Pilot Transactions

On November 1, the FHFA announced that it was encouraged by Fannie Mae’s first Real Estate Owned (REO) pilot transactions and it made available additional details about the transactions.  FHFA Release.    

SEC JOBS Act Amendments to NASD Rule 2711 and Incorporated NYSE Rule 472

On November 1, the SEC approved amendments to NASD Rule 2711 and Incorporated NYSE Rule 472 to conform to the requirements of the JOBS Act and make certain additional changes to quiet period restrictions consistent with the policies underlying the JOBS Act.  Most amendments are effective retroactively on April 5.  However, amendments to rules regarding quiet periods after secondary offers and after the expiration, termination or waiver of a lock-up agreement are effective retroactively on October 11.  FINRA Notice.  FINRA Amendments.   

CFTC Staff Interpretation Regarding Part 22

On November 1, the CFTC Division of Clearing and Risk issued a staff interpretation letter which clarifies certain operational issues regarding the implementation of Part 22.  Under Part 22, Futures Commissions Merchants and Derivatives Clearing Organizations must legally segregate each Cleared Swaps Customer’s collateral, but are permitted to operationally commingle the collateral of their Cleared Swaps Customers.  CFTC Interpretation.   

OCC Retail Foreign Exchange Proposed Rule

On October 31, the OCC proposed to amend its retail foreign exchange rule for transactions with collective investment funds and insurance company separate accounts by treating them as if they were not retail customers under the retail forex rule because they are prudentially regulated, have prudentially regulated sponsors, and do not cater to retail investors.  OCC Release.

Rating Agency Developments


On October 31, DBRS released its methodology for collateralized fund obligations backed by private equity.  DBRS Report.

On October 29, DBRS released its methodology for wind power projects.  DBRS Report.

Note: Free registration is required for rating agency releases and reports.

Recent Orrick Alerts


China 20/20: Legal & Regulatory Developments

China 20/20 is a monthly Orrick newsletter which covers legal and regulatory developments in China. To view the latest edition, please click here.


RMBS Litigation


Goldman Sachs Asks Supreme Court to Address RMBS Class Standing

On October 29, 2012, Goldman Sachs filed a petition for a writ of certiorari to the United States Supreme Court to review the recent Second Circuit Court of Appeals decision on RMBS class standing.  The Second Circuit held that plaintiffs have standing to represent classes of investors who purchased mortgage-backed securities from the same shelf offering but from different tranches than those purchased by the named plaintiff, or even under different prospectus supplements, as long as the securities were backed by mortgages originated by the same lenders and the claims are based on “similar or identical misrepresentations in the Offering Documents.”  The case was filed in 2007 by NECA-IBEW Health & Welfare Fund alleging misrepresentations of the risks of RMBS sold by Goldman.  Petition.

European Financial Industry Developments


FSA Rules on Data Collection on Remuneration Policies

On November 1, the FSA published policy statement 12/18 ‘Data collection on remuneration policies’ (PS12/18). PS12/18 sets out the FSA’s rules in line with the requirements in the capital requirements directive CRD3 and the EBA’s guidelines on a Benchmarking Information Report and the High Earners Report to be submitted by firms annually, and follows the FSA’s consultation CP12/18.  

The Benchmarking Information Report requires firms to provide certain information in respect of Remuneration Code Staff in their group, including the number of Code Staff in each business division and total remuneration for Code Staff in each business division broken down by fixed and variable remuneration in cash and shares.

The High Earner Report requires firms to submit data on all employees in their group (excluding subsidiaries and branches established outside the EEA) with total annual remuneration of EUR 1 million or more, and the total number of High Earners split between Code Staff and non-Code Staff in each business division.

Both reports apply to banks, building societies and investment firms, but not to BIPRU limited licence and BIPRU limited activity firms (unless these firms are part of a group that does fall in scope). Firms should file two versions of each report by December 31 – one for each of the last two complete financial years. Thereafter firms required to submit a report annually, within four months of their accounting year end.

OTC Derivative Market Reforms – Financial Stability Board Progress Report

On November 1, the Financial Stability Board (FSB) published the fourth in a series of progress reports on implementing OTC derivative market reforms. The report looks particularly at OTC market infrastructure across the FSB’s member countries, reviewing the ability to provide clearing services, collect and disseminate data and provide organised trading platforms.

The key messages contained in the report are:

  • market structure is already in place and can be scaled up without impeding progress in meeting G20 commitments for OTC derivatives trading, central clearing and reporting;
  • international  policy work on the four safeguards for global clearing is completed and implementation is proceeding at a national level; and
  • regulatory uncertainty remains the most significant impediment to further progress and to comprehensive use of market infrastructure.

The deadline for submitting feedback on the report is November 30.

Approach to Implementing CRD IV Transitional Provisions – FSA Announcement

On October 30, the FSA announced its approach to implementing the transitional provisions in the proposed Capital Requirements Directive IV framework (CRD IV). The announcement, published on an FSA webpage, was made in advance of political agreement having been reached on the final CRD IV legislation, highlighting the FSA’s recognition of the importance of these measures to firms’ capital planning.

The FSA confirmed that it expects to exceed the minimum transitional standards relating to the following deductions from Common Equity Tier 1 capital:

  • deductions of interim losses in respect of firms regulated by the new Prudential Regulation Authority;
  • investment in own shares not previously removed to meet accounting standards; and
  • deferred tax assets not arising from timing differences.

A formal consultation on the proposals will be undertaken by the FSA once the final CRD IV legislation has been adopted.


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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