Joint Proposal on Risk Retention

On August 28, the FDIC, Fed, FHFA, OCC, SEC and HUD issued a notice of revised proposed rulemaking relating to required risk retention by sponsors in securitization transactions.  The proposed rule would define "qualified residential mortgage" (QRM) in the same way that the CFPB has defined qualified mortgages (QMs) and would exempt securitizations of QRMs from the risk retention requirements.  Comments on the revised proposed rule must be submitted by October 30.  Joint Release.  Proposed Rule.  

Orrick Alert: IRS Issues Changes to the Mixed Straddle Regulations

On August 2, the IRS issued temporary regulations relating to accrued gain or loss associated with a position that becomes part of a section 1092(b)(2) identified mixed straddle.  The temporary regulations segregate pre-identification gain and loss on a mixed straddle position from post-identification gain and loss, preventing taxpayers from using identified mixed straddles as an alternative to selling assets to accelerate gain or loss.  For the complete Orrick alert, please click here.

On August 28, DBRS issued a request for comment on its methodology for rating CLOs backed by loans to European small- and medium-sized enterprises.  Comments must be submitted by September 30.  DBRS Report. 

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

Bankruptcy Court Enforces "No Action" Clause and Rules that Bondholders Lack Standing in Chapter 11 Case

On August 28, Judge Burton R. Lifland of the Bankruptcy Court for the Southern District of New York held that an ad hoc group of bondholders did not have standing to object American Roads LCC's plan or otherwise participate in its chapter 11 proceedings because the bondholders had delegated their rights to pursue remedies and take certain other actions under the applicable agreements to Syncora as bond insurer.  In re American Roads LLC., Case No. 13-12412 (BRL) (Bankr. S.D.N.Y. August 28, 2013).  The case involved what Judge Lifland described as a "unique financing structure known as an 'insured unitranche,'" whereby all the secured claims are secured by the same lien under the same agreement with Syncora Guarantee as insurer.  Judge Lifland reasoned that bankruptcy courts have routinely held that a party lacks standing to take action where, as here, the party is subject to a "no action" clause pursuant to which that party delegated its rights to a third party.  Therefore, because the Court found that the prepetition intercreditor agreement that contained the no action clause was enforceable, the Court held that the bondholders did not have standing to participate in the debtors' chapter 11 cases and overruled the bondholders' objections to the debtors' plan and disclosure statement.  Judge Lifland's decision demonstrates that courts will continue to enforce strictly prepetition no action clauses in bankruptcy, and that creditors cannot participate in bankruptcy cases solely on account of their status as a parties-in-interest where they are subject to a no action clause.  Opinion. 

SEC Issues a Risk Alert on Investment Advisers' Business Continuity and Disaster Recovery Planning

On August 27, the Securities and Exchange Commission's Office of Compliance Inspections and Examinations (OCIE) issued a Risk Alert regarding business continuity and disaster recovery planning for investment advisers.  The alert was prompted by a review of responses to Hurricane Sandy, which caused widespread damage to Northeastern states and closed U.S. equity and options markets for two days in October 2012.  Risk Alert.

Central District of California Dismisses FDIC's Federal and State Securities Claims In Connection With RMBS Purchases

On August 26, Judge Mariana R. Pfaelzer of the U.S. District Court for the Central District Court of California dismissed with prejudice a suit brought by the Federal Deposit Insurance Corporation (FDIC) against Countrywide Securities Corporation, Countrywide Financial Corporation, Bank of America Corporation, Deutsche Bank Securities, Inc. and Goldman, Sachs & Co.  In its amended complaint, the FDIC alleged that the offering documents for eight RMBS certificates that Guaranty Bank purchased between July 2005 and April 2006 contained material misstatements in violation of Sections 11 and 12(a)(2) of the Securities Act of 1933 and Article 581-33 of the Texas Securities Act.  It also brought claims under Section 15 of the 33 Act against Countrywide.  The FDIC was appointed as receiver for Guaranty Bank in August 2009 and filed suit on August 17, 2012.  The court followed its earlier decisions in dismissing the FDIC's claims as time-barred by the three year statute of repose under the '33 Act.  The court also held that the extender provision of FIRREA does not toll or pre-empt state statutes of repose, and therefore dismissed the FDIC's claims under the Texas Securities Act as time-barred.  Decision.

Prudential Regulation Authority Statement on Liquidity

On August 28, Mark Carney, Governor of the Bank of England, confirmed that the Prudential Regulation Authority (PRA) Board will implement the June 2013 recommendation of the Financial Policy Committee (FPC) regarding the amount of liquidity held by banks and building societies.

Governor Carney said: "for major banks and building societies meeting the minimum 7% capital threshold, the Bank of England will reduce the level of required liquid asset holdings. The effect will be to lower total required holdings by £90 billion, once all eight major banks and building societies meet the capital threshold. That will help to underpin the supply of credit, since every pound currently held in liquid assets is a pound that could be lent to the real economy."

The PRA will amend its current liquidity framework such that firms should hold highly liquid assets broadly equivalent to 80% of the 'Liquidity Coverage Ratio' (LCR) agreed by the Basel Committee on Banking Supervision (BCBS) in January 2013.  The LCR requires internationally active banks to hold sufficient liquid assets to cover their expected net cash outflows under a 30-day liquidity stress scenario.  News Release.

FCA Publishes FAQs on Passporting Under AIFMD

On August 27, the FCA published a new webpage setting out frequently asked questions (FAQs) on passporting arrangements under the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD).

The FAQs are designed to help firms and their advisers with the passporting process.  The questions discuss: (i) identification of the competent authority; (ii) authorization as a manager of an AIF; and (iii) continuation of use of UCITS passports in relation to UCITS business.  Webpage.

Anti-Money Laundering: Italian Competent Authorities Issue Clarification on the Duty of Restitution of Money/Securities to Customers for Whom the Due Diligence Cannot be Carried Out

New paragraph 1-bis of article 23 of Legislative Decree 21 November 2007, no. 231 (the Italian anti-money laundering law), introduced by article 18 of Legislative Decree 19 September 2012, no. 169, provides that, in the event the addressees of anti-money laundering law are unable to comply with the customer due diligence obligation, they must return money, securities and other financial means to the customer at issue on account(s) indicated by the latter.  The effectiveness of such provision was suspended until the issue of implementing measures, which were published by the Ministry of Economy and Finance and the Financial Intelligence Unit on July 30 and August 6, respectively.  In particular, while the Ministry's provision lays down the procedure to be followed by intermediaries (and other AML law addressees) for the restitution of money/securities to the relevant customer, the Unit's communication specifies the contents of the information to supply to and obtain from the customer itself, which must be kept in relation to each return transaction.  In light of the foregoing, it is foreseeable that banks and financial intermediaries will in the next weeks, inter alia, be sending a communication to their clients aimed at: (i) informing them on the duty to return any financial means received in case they are unable to perform (or finalize) the AML customer due diligence; as well as (ii) requesting information from them on the account(s) where the return transaction is to be carried out.  Ministry of Economy and Finance's Provision.  Financial Intelligence Unit's Communication.  

Financial Industry Breakfast Briefing: Derivatives Market Update – Where Things Stand

On September 10, Orrick will host a Financial Industry Breakfast Briefing in our New York office.  The briefing will cover the current state of the derivatives market with specific updates on the implementation of Dodd-Frank and recent litigation involving derivatives.  Speakers include partners Nikiforos Mathews, Steven Fink and Thomas Mitchell.  This course has been approved in accordance with the requirements of the Continuing Legal Education Board for a maximum of 1.0 credit hour.  To register for this event, please click here.   

Association of Asian American Investment Managers (AAAIM) New York Regional Event

On September 12, Orrick's New York office will host the Association of Asian American Investment Managers' regional event.  Jimmy Yan, board member of the New York City Employees Retirement System (NYCERS), will moderate a panel discussion covering the current state of the economy and potential for future investment opportunities, and Orrick Partner Quinn Moss will speak at this event.  The Orrick guest attendance fee will be waived, using the promotional code "Orrick."  To register for this event, please click here.    

Orrick's Women's Initiative: Advancing the Conversation

Orrick's Women's Initiative invites you to participate in a thought-provoking conversation about the critical role that leaders can play in promoting the professional advancement of women and how women can maximize their success by leaning in to their careers.  Panelists include Lisa Beeson, Head of Real Estate Mergers & Acquisitions, Barclays Capital; Elisabeth DeMarse, Chair, President and CEO, TheStreet, Inc., Sheila Smith, Principal, Deloitte Financial Advisory Services LLP; and Leah Sanzari (Moderator), Partner, Orrick Herrington & Sutcliffe LLP and Co-Chair of Orrick's Women's Initiative.  The event will take place on September 18 in Orrick's New York office.  To register for this event, please click here.