Financial Industry Developments

Janet Yellen Sworn in as the Fed's Chair

 On February 3, Jannet L. Yellen took the oath of office as Chair of the Board of Governors of the Federal Reserve SystemRelease.


Extension of Exemptions for Security-Based Swaps

On February 5, the SEC extended interim final rules that exempt security-based swaps that were security-based swap agreements  prior to July 16, 2011, and are defined as "securities" under the Securities Act and the Exchange Act as of July 16, 2011, due solely to the provisions of Title VII of Dodd-Frank. Under the extension, the expiration dates in the interim final rules will change from February 11, 2014, to February 11, 2017.   ReleasePolicy Statement.

Rating Agency Developments

On February 5, DBRS released its methodology for analyzing commercial paper liquidity support for non-bank issuers. DBRS Report.

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

Asset Management

No-Action Letter Provides Guidance Regarding "Knowledgeable Employees" of Private Fund Advisers

On February 6, the staff of the SEC's Division of Investment Management issued a no-action letter with respect to Rule 3c-5 of the Investment Company Act of 1940 (the Company Act) that represents a substantial improvement over the existing guidance regarding the definition of "knowledgeable employees" thereunder, i.e., persons who are not required to be "qualified purchasers" under Section 3(c)(7) of the Company Act, or to be counted for purposes of the 100 beneficial owner limit under Section 3(c)(1) of the Company Act.  Response.

No-Action Letter Provides Relief to M&A Brokers

On January 31, in a significant no-action letter (Letter), the Staff of the Division of Trading and Markets provided assurances that it would not recommend enforcement action to the Commission under Section 15(a) of the Securities Exchange Act of 1934 if an "M&A Broker" (as defined in the Letter) were to engage in enumerated activities in connection with the purchase or sale of a privately-held company without registering as a broker-dealer pursuant to Section 15(b) of the Exchange Act.

The Letter is the culmination of years of effort (both political and regulatory) and provides significant relief to a broad range of activities heretofore restricted to registered broker-dealers.  Letter.

RMBS and Other Securities Litigation

Morgan Stanley and FHFA Reach RMBS Settlement

On February 4, Morgan Stanley disclosed in a regulatory filing that it has agreed, in principle, to a settlement for US$1.25 billion with the Federal Housing Finance Agency to resolve claims pending in the United States District Court for the Southern District of New York related to the sale of US$10.58 billion in RMBS between 2005 and 2007.  The FHFA, as conservator for Fannie Mae and Freddie Mac, asserted claims for violations of federal and state securities laws on the basis of allegedly false and misleading statements and omissions in the registration statements and prospectuses of securities sold to Freddie Mac and Fannie Mae.  Form 8-K. Complaint.

Bank of America's US$8.5 Billion RMBS Settlement Approved

On January 31, Justice Barbara R. Kapnick of the Supreme Court of New York for New York County approved, with one exception, an US$8.5 billion settlement between Bank of America and a group of RMBS investors.  The Bank of New York Mellon, acting as the trustee for trusts that in the aggregate issued US$424 billion in RMBS backed by mortgages originated by Countrywide, entered into an agreement with Bank of America in 2011 to resolve claims alleging breaches of representations and warranties and alleged violations of prudent servicing obligations.  After more than two years of State and Federal Court proceedings, Justice Kapnick approved the settlement, and found that BNY Mellon as Trustee did not abuse its discretion or act in bad faith or outside the bounds of reasonable judgment in reaching the settlement, except to agree to the settlement of certain loan modification claims, which the Court did not approve.  The Court declined to approve the compromise of the loan modification claims based on its conclusion that BNY Mellon settled those claims "without investigating their potential worth or strength." Order.  

European Financial Industry Developments

LIBOR Code of Conduct and Whistleblowing Procedure Released by ICE Benchmark Administration

On February 3, The ICE Benchmark Administration (IBA) revised and published the London Interbank Offered Rate (LIBOR) code of conduct for contributing banks and a LIBOR whistleblowing procedure. These documents relate to IBA's role as the administrator of LIBOR.

The LIBOR Code of Conduct sets out practice standards for contributing banks and covers a number of issues including governance arrangements, submission methodology, conflicts of interest, record-keeping and compliance. The UK Financial Conduct Authority (FCA) has confirmed that the Code is industry guidance.

The whistleblowing procedure explains how an individual can alert the IBA, on an anonymous basis, of any conduct that may involve manipulation, or attempted manipulation, of LIBOR.  LIBOR Code of ConductConfirmed Industry Guidance.  Whistleblowing Procedure.

The European Parliament Votes to Adopt CSMAD

On February 4, the European Parliament published a press release reporting that it had voted at its plenary session to adopt the proposed directive on criminal sanctions for insider dealing and market manipulation (CSMAD). The CSMAD, together with the proposed regulation on insider dealing and market manipulation (MAR), make up the MAD II legislative proposals that will replace the Market Abuse Directive (2003/6/EC) (MAD).

The European Commission has welcomed the Parliament's adoption of the rules in a press release and has published a set of frequently asked questions on CSMAD.

Following adoption by the Council of the EU and publication (expected in June 2014), member states will have two years to implement the CSMAD. Press Release EU ParliamentPress Release EU CommissionCSMAD FAQs

Events

Orrick's Annual Financial Services Employment Law Roundtable

On March 4, please join us in the New York Office for Orrick's Annual Financial Services Employment Law Roundtable, which will include a special presentation by EEOC General Counsel, David Lopez, on EEOC Enforcement Initiatives for 2014.  Roundtable discussion topics include wage-and-hour cases impacting the financial services industry and NLRB regulation of the non-union environment, among other topics.  For more information and to register for this event, please click here.