SEC Finalizes Regulation AB II
On August 27, the SEC adopted new and amended rules for asset-backed securities, commonly referred to as “Regulation AB II,” that include (i) new disclosure requirements, including new asset-level data requirements for asset-backed securities backed by residential mortgages, commercial mortgages, auto loans and leases and debt securities, including resecuritizations, (ii) revisions to the shelf offering process, shelf eligibility criteria and prospectus delivery requirements, and (iii) changes to ongoing reporting requirements. The new rules will become effective 60 days after publication in the Federal Register. Compliance with the new and amended rules (other than the asset-level disclosure requirements) is required one year after effectiveness, while compliance with the asset-level disclosure requirements is required two years after effectiveness. A number of notable provisions originally proposed as part of Regulation AB II were not adopted and remain outstanding, including the proposal to require public-style disclosure in private Rule 144A transactions. Press Release. Draft Final Rules.
SEC Adopts New Credit Rating Rules
On August 27, the SEC adopted new rules governing credit rating agencies to protect against conflict of interest and increase transparency. The new rules also impose new disclosure and filing requirements on the issuers and underwriters with respect to third-party due diligence conducted in connection with asset-backed securities issuances. Release. Final Rule.
SEC Announces Plan to Assess Stock Market Tick Size for Smaller Companies
On August 26, the SEC announced the proposal to establish a national market system plan to implement a 12-month pilot program that will widen minimum quoting and trading increments (tick sizes) for certain stocks with smaller capitalization. The pilot program will include stocks with a market capitalization of US$5 billion or less; an average daily trading volume of one million shares or less; and a closing share price of at least US$2 per share. Release. Proposed Plan.
On August 28, Fitch released its revised country ceilings for foreign-currency ratings. Report.
On August 27, DBRS released a set of rating criteria related to Canadian structured finance. Legal. ABCP. Derivatives.
On August 27, DBRS released rating criteria related to project finance. Criteria.
On August 27, DBRS released rating criteria related to corporate governance. Criteria.
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District Court Holds FHFA’s Claims Against HSBC and Nomura Timely Under HERA
On August 28, 2014, Judge Denise Cote of the U.S. District Court for the Southern District of New York denied motions to dismiss a suit by the Federal Housing Finance Agency against HSBC and Nomura. HSBC and Nomura argued that the U.S. Supreme Court’s recent decision in CTS v. Waldburger restricted the statute of limitations extender provision in the Housing and Economic Recovery Act of 2008 (“HERA”), and that FHFA’s claims were untimely as a result. The Court held that the Supreme Court’s decision applied narrowly to CERCLA, an unrelated environmental statute with language different from HERA. Under Second Circuit precedent regarding HERA, the Court held FHFA’s claims were timely brought. Order.
Former Moody’s Analyst Claims Billions in Damages on behalf of U.S. in False Claims Act Suit
On June 29, 2014, the U.S. District Court for the Southern District of New York unsealed a complaint filed in February 2012 against Moody’s by Ilya Eric Kolchinsky, a former analyst employed by Moody’s who was terminated in 2009. Kolchinsky brought his suit on behalf of the United States under the False Claims Act, alleging that ratings given to RMBS certificates were not objective and caused the United States losses. The complaint also alleges investors relied on the inaccurate ratings. In light of the fact that the government has declined to intervene in the case, Kolchinsky may proceed with the suit and will be entitled to a portion of any recovery. Complaint.
No Intervention for Class of Homeowners in Suit Against HSBC
On August 25, 2014, Judge Denise Cote of the U.S. District Court for the Southern District of New York denied a motion brought by a class of putative homeowners to intervene in a suit brought by the Federal Housing Finance Agency against HSBC. The proposed intervenors were homeowners whose mortgages backed the RMBS at issue. The Court denied the motion for intervention as untimely, noting that the complaint was filed in 2011 and that the intervenors had waited until the eve of trial to bring their motion. Judge Cote further stated that even if the motion were timely, the homeowners lacked a “direct, substantial, and legally protectable” interest in the RMBS at issue in the case. Order.