FDIC Extension of Comment Period on Stress Test Rule

On March 21, the FDIC extended the comment period on its proposed rule to require state, non-member banks and savings associations with more than $10 billion in consolidated assets to conduct annual stress tests, pursuant to Section 165 of the Dodd-Frank Act.  Comments must now be submitted by April 30.  FDIC Release.  Proposed Rule Extension.

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FDIC Proposed Rule on Receivership Powers

On March 20, the FDIC proposed a rule, pursuant to section 210(c)(16) of the Dodd-Frank Act, that would permit the FDIC as receiver for a failed systemically important financial institution to enforce and prevent termination of the contracts of the institution's subsidiaries or affiliates.  Comments must be submitted within 60 days of publication in the Federal Register.  FDIC Release.  FDIC Rule on Receivership.

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FDIC Proposed Rule on Assessment Rates

On March 20, the FDIC proposed a rule to modify the deposit insurance assessment system for insured depository institutions with more than $10 billion of assets.  The proposed rule would amend the definitions of leveraged loans and subprime loans used to identify concentrations of higher-risk assets, without materially affecting the overall assessments that large institutions pay.  Comments must be submitted within 60 days of publication in the Federal Register.  FDIC Release. FDIC Rule on Assessment Rates.

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CFTC No-Action Letter on Reporting

On March 22, the CFTC issued a letter to market participants providing temporary and conditional no-action relief for less than fully compliant reporting under the CFTC's large trader reporting system for physical commodity swaps and swaptions.  This relief is intended to give sufficient time for the industry and the CFTC to have fully compliant reporting by July 2.  CFTC Release.

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OCC Testimony on Foreclosure Enforcement Orders

On March 19, the OCC's Deputy Comptroller for Large Bank Supervision Morris Morgan testified before the House Committee on Oversight and Government Reform about the comprehensive enforcement orders about mortgage servicing and foreclosure deficiencies.  Oral Statement.  Written Testimony.

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SEC Risk Alert for Municipal Securities

On March 19, the SEC issued a Risk Alert on compliance measures to help broker-dealers fulfill their due-diligence duties when underwriting offerings of municipal securities.  The SEC also issued an Investor Bulletin to help educate investors about municipal bonds.  Risk Alert.  Investor Bulletin.  SEC Release.

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SEC Oversight Cooperation Arrangements with Foreign Regulators

On March 23, the SEC issued two memoranda of understanding ("MOUs"), agreed to with each of the Cayman Islands Monetary Authority ("CIMA") and the European Securities Markets Authority ("ESMA") as part of its long-term strategy to improve the oversight of regulated cross-border entities.  The memoranda seek to foster better information sharing among the regulators about investment advisers, investment fund managers, broker-dealers and credit rating agencies.  SEC Release.  EMSA MOU. CIMA MOU.

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MSRB Publication of Inter-Dealer Yield Data for Municipal Securities Transactions

On March 21, the MSRB received approval from the SEC to display price and yield data from inter-dealer municipal securities transactions on the EMMA website, which currently only displays yield data for municipal securities transactions between dealers and customers.  Data from inter-dealer municipal securities transactions will be published on the EMMA website beginning April 30.  MSRB Release.

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On March 22, S&P released its methodology for Canadian credit card ABS.  S&P Release.

On March 20, Fitch updated its criteria for stressing interest rate risk in structured finance transactions.  Fitch Report.

On March 19, S&P  released its U.S. public finance long-term municipal pool methodology.  S&P Methodology.

On March 19, Fitch updated its rating guidelines for CP programs issued with external support.  Fitch Report.

On March 19, Moody's released its finance company global rating methodology.  Moody's Report.

Note: Free registration is required for Fitch, Moody's and S&P releases and reports.

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OCIE Issues National Exam Program Overview

On March 13, the Office of Compliance Inspections and Examinations (OCIE) of the SEC issued a National Exam Program Overview setting forth OCIE's examination results for 2011 as well as detailing the strategic areas upon which the OCIE will focus its 2012 examination efforts for investment companies, investment advisers, broker-dealers, self-regulatory organizations, credit rating agencies, clearance and settlement programs, and coordination with other regulators.  National Exam Program Overview.

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As Volcker Rule Implementation Lumbers On – Some Practical Considerations

The "Volcker Rule," enacted into law on July 21, 2010 as Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, subject to certain exceptions, prohibits a "Banking Entity" from engaging in proprietary trading activities or acquiring or retaining any equity, partnership, or other ownership interest in, or sponsoring an issuer that would be, an investment company under the Investment Company Act of 1940, but for Section 3(c)(1) or 3(c)(7) thereof, or such similar funds as determined by the appropriate regulatory agency. By its terms, the Volcker Rule will become effective on July 21, 2012. However, it is now acknowledged that the regulators will not be able to provide advance guidance, as required by the law, regarding the myriad interpretative issues raised.  Click here to read more.

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Federal Court Permits Suit Concerning Goldman CDOs to Proceed

On March 21, Judge Victor Marrero of the Southern District of New York denied a motion to dismiss as to most claims in a putative class action involving $2 billion of Goldman Sachs synthetic CDOs referencing subprime mortgages.  Plaintiff Dodona I LLC alleged that Goldman had failed to disclose that it had created the CDOs to serve as a hedge against the firm's increasingly volatile subprime exposure.  The Court permitted plaintiffs to proceed with Section 10b-5 claims alleging that Goldman knowingly misrepresented the securities' investment risk and Goldman's intended short position.  The Court dismissed market manipulation allegations because the novel financial product carried no assumption of an efficient market, and struck allegations concerning the nondisclosure of Goldman's hedging strategy, which the Court found was not an actionable omission.  Decision.

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Federal Court Applies Janus in Dismissing Federal Securities Fraud Claim in SEC Action

On March 1, the U.S. District Court for the Middle District of Florida dismissed a claim against Robert A. DiGiorgio, CEO of Radius Capital Group, under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, concerning allegedly false statements made in an RMBS prospectus.  The court applied the rule articulated by the Supreme Court in Janus Capital Group., Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011), that the maker of a false statement for purposes of Rule 10b-5 is the person with "ultimate authority over the statement."  The Court concluded that the complaint failed to plead adequately that defendant was the maker of the statements of issue, but granted leave to amend.  Decision.

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FSA Business Plan

On 22 March 2012, the FSA published its Business Plan for 2012/13.  It sets out the key priorities and identifies implications for the FSA's budget.  The plan covers:

• delivering the regulatory reform programme (including the introduction of a twin-peaks model operating within the FSA from 2 April 2012 – the objectives to be closely aligned with those of the Prudential Regulation Authority ("PRA") and the Financial Conduct Authority ("FCA"));
• influencing the international & European policy agendas;
• delivering financial stability (including the implementation of CRD IV and Solvency II in the UK);
• delivering market confidence (including work on the EU markets legislative proposals and strengthening the FSA's client assets regime);
• delivering consumer protection and combating financial crime;

The FSA will hand over responsibility for prudential regulation to the PRA and conduct regulation to the FCA in the first half of 2013. 

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Eurozone Crisis Continued - Second Greek Bailout package, etc.

The Eurozone crisis continues to dominate the headlines with the IMF approving its €28 Billion contribution to a second bailout package for Greece on 15 March 2012.  Click here to read the IMF Press Release. 

As suggested in our December 2011 Client Briefing Eurozone Crisis: Will Europe Win the Battle? – Practical Advice to Address Your Redenomination Risks, we are now seeing a subtle shift in the position of market participants towards the consideration of the implications of either the exit of one or more of the member states or alternatively, albeit more unlikely, the complete collapse of the Euro.  It is not surprising given the current news backdrop that a number of counterparties are considering their financial and legal redenomination risks, including a consideration of their LMA-based facility agreements and change of currency clauses and the knock-on effects of an amendment to such clauses within loan arrangements.