Comment Period Extension for Volcker Rule

On December 23, the Fed, FDIC, OCC, and SEC extended the comment period on proposed regulations implementing the Volcker Rule to February 13. The Volcker Rule requires regulators to implement restrictions on the ability of banks and nonbank financial companies to engage in proprietary trading and to have certain interests in, or relationships with, hedge funds or private equity funds. Interagency Release.

SEC Amends Net Worth Standard for Accredited Investors

On December 21, pursuant to Section 413(a) of the Dodd-Frank Act, the SEC amended several rules under the Securities Act, the Investment Company Act, and the Investment Advisers Act to exclude the value of an individual's home from net worth calculations used to determine whether such individual qualifies as an accredited investor. The amendments also: (i) clarify the treatment of loans secured by a primary residence for purposes of this new net worth calculation and (ii) permit individuals who qualified as accredited investors under the prior definition of accredited investor to use the previous net worth standard for certain follow-on investments. The amendments will be effective on February 27. SEC Release. SEC Final Rule.

CFTC Final Order on Effective Date for Swap Regulation

On December 19, the CFTC issued a Final Order on swap regulation extending the potential latest expiration date of exemptive relief from certain provisions of the Commodity Exchange Act to July 16. CFTC Release.

CFTC Final Rules on Real-Time Reporting of Swap Transaction Data

On December 20, pursuant to Section 727 of the Dodd-Frank Act, the CFTC adopted final rules to implement a new framework for the real-time public reporting of swap transaction and pricing data for all swap transactions. The final rules will be effective 60 days after publication in the Federal Register. CFTC Fact Sheet. CFTC Final Rules.

CFTC Final Rules on Swap Data Recordkeeping and Reporting Requirements

On December 20, pursuant to Sections 727, 728, and 729 of the Dodd-Frank Act, the CFTC adopted final rules establishing swap data recordkeeping and reporting requirements for swap data repositories, derivatives clearing organizations, designated contract markets, swap execution facilities, swap dealers, major swap participants, and swap counterparties that are neither swap dealers nor major swap participants. The final rules will be effective 60 days after issuance. CFTC Fact Sheet. CFTC Final Rules.

Fed Proposed Rules on Large Banks and Systemically Important Nonbanks

On December 20, pursuant to Sections 165 and 166 of the Dodd-Frank Act, the Fed proposed rules implementing new requirements for bank holding companies with consolidated assets of $50 billion or more and systemically important nonbank financial firms. The proposed rules address several measures, including: (i) risk-based capital and leverage requirements; (ii) liquidity requirements; (iii) stress tests; (iv) single-counterparty credit limits; and (v) debt-to-equity limits for companies that pose a grave threat to financial stability. Comments must be submitted by March 31. Fed Release. Proposed Rule.

SEC Extension of Temporary Registration of Municipal Advisors

On December 21, the SEC extended interim final temporary Rule 15Ba2-6T, providing for temporary registration of municipal advisors under the Exchange Act, from December 31, 2011 to September 30, 2012. SEC Rule.

Fannie Mae Loan-Level Disclosure

On January 3, Fannie Mae announced that it will start to disclose loan-level data for its newly-issued Single-Family MBS in the first quarter of 2012. The initial release will provide at issuance loan-level data and subsequent releases will aim to include additional data elements and monthly updates to loan-level data. Fannie Mae Release.  

Fed Final Notice on SLHC Reporting

On December 23, 2011, the Fed issued a final notice providing a two-year phase-in period for most savings and loan holding companies (SLHCs) to submit regulatory reports similar to those collected from bank holding companies, and exempting certain SLHCs from having to file this new type of report. Fed Release. Fed Final Notice.

Fed Housing Market White Paper

On January 4, the Fed released a white paper entitled "The U.S. Housing Market: Current Conditions and Policy Considerations" which discusses proposals for housing market and mortgage servicing practices, including a pending federal agency proposal for an REO to Rental program, servicer modification and foreclosure practices, loan underwriting standards and issues related to loan put backs by the GSEs. Fed White Paper.

On December 28, S&P updated its methodology for analyzing corporate profitability when determining issuer credit ratings for global corporate issuers. S&P Release.

On December 27, S&P issued an advance notice of criteria change for its methodology for rating second-lien U.S. RMBS transactions. S&P Release.

On December 22, S&P released its outlook assumptions for the U.S. residential mortgage market. S&P Release.

On December 20, S&P updated its project finance construction and operations counterparty methodology. S&P Release.

On December 19, DBRS released its methodology for rating global structured finance CDO restructurings. DBRS Release.

On December 19, DBRS released its unified interest rate model for global structured finance CDO restructurings.  DBRS Release.

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"As Soon As Practicable" Under the LSTA Standard Terms: Goldman Sachs Lending Partners v. High River Limited Partnership

Parties trading distressed debt typically agree "to transfer the purchase amount of the Debt as soon as practicable on or after the Trade Date." Although that phrase is a part of almost every LSTA distressed trade confirmation, the phrase is not defined under the LSTA Standard Terms and Conditions for Distressed Trade Confirmations, and until now the phrase has never been tested in court in this context. On December 22nd, the New York Supreme Court granted summary judgment to Goldman Sachs Lending Partners holding that "as soon as practicable" must be viewed in fact-specific context. Even though, in practice, distressed trades often take weeks or months to close, such trade practices do not alter the requirement that parties act speedily and in good faith under the circumstances.
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New York State Court Holds MBS Insurers Need Not Prove Causal Link Between Misstatements and Losses

On January 3, 2012, Justice Eileen Bransten of the Supreme Court of the State of New York granted partial summary judgment to two insurers suing Countrywide Financial Corporation concerning the insurance of securitizations of mortgages underwritten by Countrywide. In the two cases, the insurers, MBIA and Syncora Guarantee, have brought claims for fraud and breach of the insurance agreements at issue. The Court found that to establish a claim of fraud the insurers must show that representations by Countrywide induced the insurers to issue insurance policies on terms to which they otherwise would not have agreed and that they are not required to establish a direct causal link between Countrywide's misrepresentations and the insurers' claims payments made pursuant to the insurers' policies at issue. The Court further held that the insurers may seek rescissory damages upon proving all elements of its claims for fraud and breach of representation and/or warranty. MBIA Decision. Syncora Decision.

German Bank Sues Ally Financial, Bank of America, RBS Securities, and Financial Guaranty Insurance Co. for RMBS losses

On December 13, 2011, DZ Bank AG, a German lender, filed a summons with notice in the Supreme Court of the State of New York against Ally Financial, Bank of America, RBS Securities, and Financial Guaranty Insurance Company, and related entities. DZ Bank seeks to recover losses incurred on 11 RMBS certificates sold between 2005-2007, purchased for approximately $289.8 million. DZ Bank alleges that the defendants made misrepresentations and omissions in the offering materials regarding underwriting standards, key statistical characteristics of the mortgage loans underlying the certificates, and credit ratings. DZ Bank is pursuing claims based on common-law fraud, fraudulent inducement, negligent misrepresentation, and aiding and abetting fraud. Summons.

Federal District Court Signals Intention to Dismiss National Credit Union Authority Suit

On December 19, 2011, Judge George H. Wu of the Central District of California issued a tentative ruling that the National Credit Union Authority has failed to sufficiently allege that defendants, which include RBS, Wachovia and Nomura, systematically disregarded underwriting standards in connection with the offering and sale of RMBS. The complaint includes claims for violations of Sections 11 and 12(1)(2) of the Securities Act of 1933 and Sections 25401 and 25501 of the California Corporations Code. The court explained that the NCUA's reliance on post-purchase statistics and other public information is "conclusory" and, without additional information, would fail to satisfy the pleading standards. Judge Wu requested additional supplemental briefing and stated that he will review the additional information before making a final decision. Decision.

Federal District Court Remands Morgan Stanley MBS Suit to Ohio State Court

On December 20, 2011, Judge S. Arthur Spiegel of the Southern District of Ohio granted the plaintiffs' motion to remand and denied Morgan Stanley's motion to transfer to the Southern District of New York an RMBS suit based on the alleged failure to disclose claimed departures from underwriting guidelines. The court found that related-to bankruptcy jurisdiction did not exist given that Defendants had not filed indemnification claims in the bankruptcy of the sole bankrupt originator prior to the bar date. Plaintiffs, which include the Western and Southern Life Insurance Company, bring claims under Section 11 of the Securities Act and Ohio securities blue sky laws. Decision.

ESMA Publishes Final HTF Guidelines

On 22 December 2011, the European Securities and Markets Authority (ESMA) published its Final Report on Guidelines on systems and controls in an automated trading environment for trading platforms, investment firms and competent authorities. The guidelines will become effective one month after the publication by the relevant national competent authority. According to this schedule, market participants should ensure that they are compliant with the guidelines from 1 May 2012. ESMA Final Report 2011/465.

ESMA Launches Two New MiFID I Consultations

On 22 December 2011, ESMA published two new Consultation papers: one on the MiFID I suitability requirements (ESMA Consultation Paper 2011/445), the other on the MiFID I compliance function requirements (ESMA Consultation paper 2011/446). The draft guidelines on stability requirements focus on firm policies and procedures in relation to recommending suitable investment choices. The draft guidelines on the compliance function addresses the MiFID I organisational requirements and are also aimed at reinforcing the importance of the compliance function. Responses to the two consultation papers may be submitted for consideration by ESMA in Q1 2012. The final report and guidelines are expected in Q2 2012.

European Financial Transaction Tax Developments

On 3 January 2012, Denmark, who assumed the rotating EU presidency on 1 January 2012, initiated a technical review of the European Commission's proposal for a European financial transaction tax (FTT). Meanwhile, on 23 January France and Germany are expected to present a joint FTT proposal with a view of moving towards implementation across Europe in 2013. The proposed FTT is also on the agenda for the January 30 EU Summit. European Commission Proposal COM(2011) 594 final.

Cross-Border Implications of the Bounty and Whistleblower Protection Provisions of Dodd-Frank

January 26, 2012 – A panel of Orrick partners from its offices in Europe and Asia and leading cross-border investigation experts from the global consulting firm FTI Consulting will address the current environment on whistleblower reporting, best practices in internal investigations and what companies should be doing to encourage internal reporting. The program, to be held in Orrick's San Francisco office, will be followed by a cocktail reception. Click here to RSVP.

A New Era of Federal Prosecutions: Challenges for Main Street and Wall Street

February 2, 2012 – The Director's Roundtable will be presenting a panel discussion in New York on key issues related to the new wave of investigations launched by the Securities and Exchange Commission, Department of Justice, and FBI. At the center of the investigations are public companies and financial institutions, as well as so called "expert networking" firms that provide investment information.  Orrick partner Amy Ross will moderate. Click here to register.