SEC Approves IEX Proposal to Launch National Exchange, Issues Interpretation on Automated Securities Prices

On June 17, 2016, the Securities and Exchange Commission ("SEC") approved the application of Investors' Exchange LLC ("IEX") to register as a national securities exchange. Prior to transitioning its operation to a national securities exchange, IEX must satisfy certain standard conditions specified in the SEC's order, such as "participating in a variety of national market system plans and joining the Intermarket Surveillance Group."

Additionally, the SEC issued an updated interpretation to the Order Protection Rule under Regulation NMS. The SEC's updated interpretation determined that a small delay or "speed bump" when accessing automated securities prices will not "prevent investors from accessing stock prices in a fair and efficient manner consistent with the goals of the Order Protection Rule." Release.

SEC Proposes Rules to Modernize Property Disclosures for Mining Registrants

On June 16, 2016, the Securities and Exchange Commission ("SEC") announced that it had proposed rules to update the disclosure requirements for mining properties. The proposed revisions are meant to align disclosure requirements with "current industry and global regulatory practices and standards." The proposed rules would, among other updates, revise Regulation S-K to include in a new subpart the SEC's mining property disclosure requirements. The proposed rules would also rescind Industry Guide 7. Release. 

US Supreme Court Issues Two Significant Cases on Puerto Rico's Sovereignty

In the first decision, on June 9, 2016, the United States Supreme Court affirmed the judgment of the Supreme Court of Puerto Rico that Puerto Rico and the United States are not separate sovereigns for purposes of the Double Jeopardy Clause contained in the Fifth Amendment of the U.S. Constitution in the appeal styled under the caption Commonwealth of Puerto Rico v. Sanchez Valle, No. 15-108. Opinion. Sanchez Valle was the first of two appeals heard by the U.S. Supreme Court this term involving Puerto Rico.

On June 13, 2016, the US Supreme Court also confirmed the decisions by the Court of Appeals for the First Circuit and by the United States District Court for the District of Puerto Rico that Puerto Rico's Debt Enforcement & Recovery Act (DERA) was unconstitutional in the appeals styled under the caption Puerto Rico v. Franklin California Tax-Free Trust, 15-233, and Acosta-Febo v. Franklin California Tax-Free Trust, 15-255 (the "Franklin Fund Appeals"). Opinion. We previously covered the First Circuit's decision here. To read more about the details of the Supreme Court's rulings, click here. 

Monoline Insurer Challenges Puerto Rico's Moratorium Law

On June 15, 2016, National Public Finance Guarantee Corporation, an indirect subsidiary of MBIA Inc. ("NPFG") commenced an action in the United States District Court for the District of Puerto Rico against the Governor of Puerto Rico and certain other officials in an action styled under the caption National Public Finance Guarantee Corporation v. Alejandro Gracia Padilla et. al, No. 16-CV-2101 (FAB), seeking a declaratory judgment that Puerto Rico's Emergency Moratorium and Financial Rehabilitation Act (the "Moratorium Act") adopted by Puerto Rico is preempted by the Bankruptcy Code and violates the United States Constitution.

Puerto Rico enacted the Moratorium Act on April 6, 2016, and empowers the Governor to issue executive orders declaring a state of emergency with respect to the Commonwealth or any other government entity in the Commonwealth. The Governor is also authorized to suspend payment of covered obligations of the covered entities. As previously reported, Governor Padilla issued Executive Order OE-2015-046, instructing the retention or transfer of revenues pledged by the Puerto Rico Highways and Transportation Authority (PRHTA), the Puerto Rico Infrastructure Financing Authority (PRIFA), the Metropolitan Bus Authority (AMA), the Integrated Transport Authority (ITA) and the Puerto Rico Convention Center District Authority (PRCCDA) as security for bonds previously issued by those agencies. In this action, NPFG is challenging the constitutionality of the Governor's executive orders authorizing the clawback of certain revenues pledged by PRHTA, PRCCDA and PRIFA.

NPFG alleges that the Moratorium Act permits the Governor to restructure the debts of Puerto Rican governmental instrumentalities and, as a consequence, is preempted by the Bankruptcy Clause of the United States Constitution and the Bankruptcy Code. NPFG also asserts that the executive orders violate the Takings Clause and the Contracts Clause and violates access to federal courts.

On June 21, 2016, Fitch issued a report titled: Rating Non-Financial Corporates Above the Country Ceiling. Press release.

On June 20, 2016, Fitch issued a report titled: Canadian RMBS Loan Loss Model Criteria. Press release.

On June 17, 2016, Fitch issued a report titled: U.S. RMBS Surveillance and Re-REMIC Criteria. Press release.

On June 16, 2016, Fitch issued a report titled: Criteria for Rating U.S. Timeshare Loan ABS. Press release.

On June 16, 2016, Fitch issued a report titled: Criteria for Rating Caps and Limitations in Global Structured Finance Transactions. Press release. 

Financial Stability Board Issues Asset Management-Related Policy Recommendations

On June 22, 2016, the Financial Stability Board (FSB) published for public consultation Proposed Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities. The document sets out 14 proposed policy recommendations to address the following structural vulnerabilities from asset management activities that could potentially present financial stability risks:

1. Liquidity mismatch between fund investments and redemption terms and conditions for fund units;

2. Leverage within investment funds;

3. Operational risk and challenges in transferring investment mandates in stressed conditions; and

4. Securities lending activities of asset managers and funds.

The key recommendations for liquidity mismatch and leverage focus on both public and private funds.

The FSB reported that it "intends to finali[z]e the policy recommendations by the end of 2016, some of which will be operationalized by the International Organization of Securities Commissions (IOSCO)." 

New York Appellate Court Holds Repurchase Demand Analysis Is Not Protected Work Product

On June 23, 2016, the First Department of the Appellate Division of the Supreme Court of the State of New York decided an appeal in an action brought by Bank of New York Mellon, as RMBS Trustee, against WMC Mortgage and JP Morgan. In its decision, the Court held that originator WMC's repurchase demand analysis is not protected work product because it was not primarily prepared in anticipation of litigation and was a regular part of the loan originator's business. The court therefore affirmed the decision of the trial court, Justice Shirley Werner Kornreich, ordering WMC Mortgage to produce the repurchase demand analysis. Order.

RMBS Suit to Proceed Against Morgan Stanley

On June 16, 2016, Justice Marcy S. Friedman of the Supreme Court of the State of New York largely denied Morgan Stanley's motion to dismiss a breach of contract action brought by RMBS trustee Wilmington Trust Company. The court dismissed the trustee's claim for indemnification of attorney's fees, finding that the contracts did not unmistakably contemplate such indemnification. The court denied without prejudice defendant's motion to dismiss the trustee's claim as to non-Morgan Stanley loans in the offering at issue, as the parties did not have the opportunity to address the import of recent RMBS precedent or whether the repurchase demand in this case included any such loans. The court will receive further briefing on the import of a 2015 intermediate appellate court decision, previously covered here, on plaintiff's claim that the bank improperly failed to notify the trustee of breaches Morgan Stanley discovered. The court denied the remainder of Morgan Stanley's motion to dismiss. Following her prior decisions (such as her decision in ACE on remand from the Court of Appeals, covered here), Justice Friedman held that the trustee's claims for breach of contract were timely filed within the statute of limitations, and that its claim for damages was not precluded by the repurchase protocol. Order. 

European Commission Adopts Delegated Regulation on RTS Relating to Maintenance of Relevant Data Relating to Orders in Financial Instruments under MiFIR

On June 24, 2016, the European Commission adopted a Delegated Regulation and annex supplementing the Markets in Financial Instruments Regulation (Regulation 600/2014) ("MiFIR") with regard to regulatory technical standards ("RTS") for the maintenance of relevant data relating to orders in financial instruments (C(2016) 3821 final).

The Delegated Regulation will now be considered by the Council of the EU and the European Parliament. If neither of them objects, it will enter into force 20 days after its publication in the Official Journal of the EU. The Delegated Regulation will apply from the application date of MiFIR (that is, January 3, 2018).

ESMA Updates Document on Waivers from MiFID Pre-Trade Transparency Requirements

On June 20, 2016, ESMA published an updated version of the waiver document (ESMA/2011/241h) that sets out its assessment of applications for waivers from pre-trade transparency requirements under the Markets in Financial Instruments Directive (2004/39/EC) ("MiFID").

The waiver document is aimed at competent authorities under MiFID to ensure that, in their supervisory activities, their actions converge with the opinions provided by ESMA. The examples are also intended to provide clarity for firms on the MiFID requirements for pre-trade transparency.

In the updated waiver document there is a new ESMA opinion relating to large-in-scale waivers. The new opinion, which is written in red, provides an example of functionalities that satisfy the MiFID criteria.

European Commission Adopts a Delegated Regulation on RTS Relating to Clearing Access in Respect of Trading Venues and Central Counterparties under MiFIR

The European Commission has adopted a Delegated Regulation and annex supplementing the Markets in Financial Instruments Regulation (Regulation 600/2014) ("MiFIR") with regard to regulatory technical standards ("RTS") relating to clearing access in respect of trading venues and central counterparties (C(2016) 3807 final). ESMA submitted the draft RTS to the Commission in September 2015. The RTS cover transparency, micro-structural issues, data publication and access, requirements applying on and to trading venues, commodity derivatives, market data reporting, post-trading issues and best execution.

The Delegated Regulation will now be considered by the Council of the EU and the European Parliament. If neither of them objects, it will enter into force 20 days after its publication in the Official Journal of the EU. The Delegated Regulation will apply from the application date of MiFIR (that is, January 3, 2018) with the exception of Articles 15, 16, 17, 19 and 20, which will apply from the date the Regulation enters into force.

ESMA Publishes Responses to its Discussion Paper on UCITS Share Classes

The European Securities and Markets Authority ("ESMA") has published the responses received to the Discussion Paper on UCITS share classes.

The UCITS Directive recognizes the possibility for UCITS to offer different share classes to investors but it does not prescribe whether, and to what extent, share classes of a given UCITS can differ from one another. ESMA has identified diverging national practices as to the types of share class that are permitted, ranging from very simple share classes (e.g. with different levels of fees) to much more sophisticated share classes (e.g. which may potentially have different investment strategies).