Orrick's Financial Industry Week In Review - June 11, 2012


Financial Industry Developments


Agencies Memorandum of Understanding on Supervisory Coordination

On June 4, pursuant to Section 1025 of the Dodd-Frank Act, the Fed, the CFPB, the FDIC, the NCUA and the OCC released a memorandum of understanding clarifying how the agencies will coordinate their supervision of insured depository institutions with over $10 billion in assets and their affiliates. Joint Release. Memorandum of Understanding. 

SEC Approves Proposals on Extraordinary Volatility in Stocks and Market

On June 1, the SEC approved two proposals submitted by the national securities exchanges and FINRA that are designed to address extraordinary volatility in individual securities and the broader U.S. stock market.  One initiative establishes a “limit up-limit down” mechanism to prevent trades in individual exchange-listed stocks outside of a specified price band.  The second initiative updates existing market-wide circuit breakers which halt trading in all exchange-listed securities throughout the U.S. markets when triggered.  The changes lower the percentage-decline threshold for triggering a trading halt and shorten the period of time that trading is halted.  Changes will be implemented by February 4, 2013, and have been approved for a one-year pilot period.  SEC Release.  National Market System Plan Approval Order.  Market-Wide Circuit Breaker Approval Order. 

Fed Final Market Risk Capital Rule

On June 7, pursuant to Section 939A of the Dodd-Frank Act, the Fed released a final rule revising its market risk capital requirements to incorporate certain changes the Basel Committee on Banking Supervision made to its international capital standards for market risk between 2005 and 2010.  The final rule is to be issued jointly with the FDIC and OCC, which are expected to adopt the rule next week.  The final rule will be effective on January 1, 2013.  Fed Memo.  Fed Final Rule. 

Fed Proposed Basel III Rules

On June 7, the Fed issued three notices of proposed rulemakings revising: (i) risk-based and leverage capital requirements; (ii) general risk-based capital requirements for determining risk-weighted assets; and (iii) the advanced approaches risk-based capital rule, each of which incorporate certain aspects of Basel III.  The proposed rules are to be issued jointly with the FDIC and OCC, which are expected to issue the rules next week.  Comments to the proposed rules must be submitted by September 7.  Fed Memo.  Fed Proposed Rule Risked-based and Leverage Capital Requirements.  Fed Proposed Rule Standardized Approach.  Fed Proposed Rule Advanced Approaches. 

FINRA Proposed Amendment to Deferred Compensation Rule

On June 6, FINRA proposed amendments to Rule 5110 that address current deferred compensation arrangements for financial industry advisory services in connection with public offerings, eliminate a filing requirement for exchange traded funds structured as statutory or grantor trusts, and new electronic filing requirements.  Comments to the proposed amendments must be submitted by July 23.

FSB Approves Global LEI System

On May 30, the Financial Stability Board (FSB) approved the establishment of a global legal entity identifier (LEI) system that will provide a unique global identifier for parties to financial transactions.  The LEI system was developed as part of the mandate of the Dodd-Frank Act directing the Treasury to collect financial transaction data from financial companies.  The FSB projects a launch of the global LEI system by March 2013.  FSB Release. 

Rating Agency Developments


On June 4, S&P issued two Requests for Comment articles on proposed changes to its CMBS criteria.  The purpose of the proposed criteria is to improve and simplify the agency’s approach to rating CMBS offerings and to harmonize S&P’S approach to evaluating commercial real estate. S&P Release.

On June 6, Moody’s updated its rating methodology for RMBS in Europe, the Middle East and Africa.   Moody’s Report.

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

Recent Orrick Alerts


China 20/20

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


New York, Delaware AGs Again Intervene in BofA-Countrywide MBS Settlement Proceeding

On Wednesday, June 6, 2012, Judge Barbara R. Kapnick granted the motions of the Attorneys General of the states of New York and Delaware to intervene in the proceeding to approve the $8.5 billion settlement between Bank of America and investors in certain Countrywide MBS.  Both Attorneys General previously had been allowed to intervene in related federal court proceedings.  The case was subsequently remanded to state court, where the New York and Delaware AGs again sought to intervene.  In granting the motions over the objection of the trustee for the MBS trusts and certain institutional investors, Judge Kapnick found that the Attorneys General had “identified legitimate quasi-sovereign interests at play in this Proceeding,” and that the intervention would not result in undue delay.  Order.

Deutsche Bank Affiliate Sued for Breach of MBS Warranties

On May 29, 2012, the Federal Housing Finance Agency (“FHFA”), acting as conservator for Freddie Mac, filed a summons with notice in New York state court against DB Structured Products.  The FHFA purports to sue derivatively on behalf of the Trustee of a particular RMBS trust that issued certificates purchased by Freddie Mac.  The FHFA alleges that DBSP breached its contractual representations and warranties concerning the underlying mortgage loan originators’ compliance with underwriting guidelines, the absence of errors or fraud in the origination process, the loans’ compliance with federal, state, and local laws, the accuracy of loan-level data provided to rating agencies, and other loan-related characteristics.  The FHFA seeks specific performance of DBSP’s repurchase obligations under the relevant contracts.  Summons.

European Financial Industry Developments


European Commission Proposes Measures to Avoid Future Bank Bailouts

On 6 June, the European Commission published a legislative proposal for a Directive designed to avoid future taxpayer bailouts of troubled banks.  The proposals aim to ensure authorities will have the means to intervene decisively before problems occur, or if they do occur, to intervene as early as possible.  Banks that have deteriorated beyond repair would be partly rescued by unsecured creditors rather than taxpayers.  Legislative Proposal.

The proposals include: 

  • Preparatory and preventative measures – including recovery plans, resolution plans, powers to address or remove resolvability impediments and intra-group support agreements;
  • Early supervisory intervention;
  • Resolution tools – including selling all or part of a failing firm to another firm, separating "good" assets into a new firm, putting "bad assets" into an asset management vehicle and a "bail-in" tool which involves a firm being recapitalised with creditors having their claims reduced or converted to shares; and
  • Enhanced co-operation between national authorities.

The European Commission intends Member States to finalise their implementing measures for the proposed Directive by 31 December 2014 and apply the measures from 1 January 2015.  The bail-in tool should be applied from 1 January 2018.  A Law-360 article, with comments from Orrick's Partner Sam Millar, a regulatory partner in the London office, can be found here.    

Treasury Committee Publishes Report on the Financial Services Bill

On 8 June, the Treasury Select Committee published a report setting out its main concerns on the Financial Services Bill. Report.   

In particular, it called for amendments to the Bill which would:

  • Oblige the Court of the Bank of England to undertake retrospective reviews of the Bank of England's performance;
  • Give a general power to the Chancellor of the Exchequer to direct the bank of England when public funds are at risk;
  • Make competition an objective of the Prudential Regulation Authority;
  • Ensure Parliament, through the Treasury Committee, may request retrospective reviews of the work of the Financial Conduct Authority's ("FCA").

It also considered whether the Treasury Committee should have a role in the appointment and dismissal of the Governor of the Bank of England and whether there is a way of requiring the FCA to publish board minutes.  It welcomed the House of Lords to re-examine these issues.  The second reading of the Bill in the House of Lords will take place on 11 June 2012.  

ESMA Publishes Responses to Call for Evidence on Transaction Reporting

The European Securities and Markets Authority (ESMA) has published the responses it has received to its May 2012 call for evidence on transaction reporting.  On 7 May 2012, ESMA published a call for evidence on transaction reporting. The purpose of the call for evidence was to gather initial views on ESMA's work to develop guidelines on harmonised transaction reporting under the Markets in Financial Instruments Directive (2004/39/EC) (MiFID). This followed the commitment made by ESMA's predecessor, the Committee of European Securities Regulators (CESR), to review its May 2007 Level 3 guidelines on MiFID transaction reporting.

On the basis of responses received, ESMA intends to launch a full public consultation on guidelines on harmonised transaction reporting. Call for Evidence.  Responses.   

European Parliament to Consider Solvency II Amending Directive at Plenary Session

On 7 June 2012, the European Parliament updated its procedure file on the proposed Directive amending the transposition and application dates for the Solvency II Directive (2009/138/EC). The procedure file indicates that the Parliament will consider the proposed Directive during its plenary session on 3 July 2012. Procedure File.

The European Commission published its legislative proposal for this Directive in May 2012.  Legislative Proposal.    

FSA Issues Final Notices to an Investment Banker and His Wife for Insider Dealing

On 31 May 2012, the FSA issued Christian Littlewood and his wife, Angie, with final notices prohibiting them from performing any function in relation to any regulated activity.  Between 1998 and 2008, Mr. Littlewood was employed by the investment bank Dresdner Kleinwort Wasserstein Ltd. As a result of his employment he had access to inside information relating to securities. Mr. and Mrs. Littlewood used the inside information obtained through his employment to facilitate the placing of trades in eight separate stocks just prior to announcements to the market. As a result of these trades, Mr. and Mrs. Littlewood, together with a third party friend of Mrs. Littlewood (Mr. Sa’aid), made profits of around £590,000.

The FSA's action follows the conviction of Mr. and Mrs. Littlewood for criminal offences of insider dealing in February 2011. Final Notice for Christian Littlewood.   Final Notice for Angie Littlewood.



AD&Co’s 20th Annual Conference: Innovation Amid Uncertainty

Andrew Davidson & Co. will be hosting their 20th Annual Conference - Innovation Amid Uncertainty, on June 13 in the Graduate Center of City University of New York.  Partner Howard Altarescu will participate as a panelist in the session Securitization and Risk Sharing: Restoring the Role of Private Capital in the Housing Finance System. For more information about the event, and to register, please click here.

Global ABS 2012 Conference

Orrick is an exhibitor sponsor of Global ABS 2012 Conference, which will be hosted by Information Management Network (IMN) at Square Brussels Meeting Center in Brussels, Belgium on June 12-14. More than 3,500 structured finance professionals are expected to attend. The agenda will include, among others, topics such as global regulatory changes that impact securitization; restoring confidence in the ABS markets; and CMBS, RMBS, and real estate and market fundamentals.  For more information, please click here. 

PLI’s Internal Investigations 2012: How to Protect Your Clients or Companies in the Global, Post-Dodd Frank World

Mike Delikat, chair of Orrick's Employment Law practice, will be speaking at PLI's Internal Investigation program on June 26 in New York. This program will discuss how to conduct an internal investigation, in-house or outside; considerations at the outset: nature and scope of the investigation; how to conduct the investigation: considerations, processes and procedures; the government's use, evaluation and weighing of internal investigations; how to conclude the investigation: when and how to prepare a report, alternatives, corrective actions; and ethical issues and how to deal with them. For more information, please click here.


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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