Orrick's Financial Industry Week in Review - July 16, 2012

by Orrick, Herrington & Sutcliffe LLP

Financial Industry Developments


Fed Guidance on Bank Acquisition Requests

On July 12, the Fed issued supervisory guidance describing an optional process for an applicant to request a response on a potential bank acquisition or other proposal before the submission of a formal application or notice.  This process is expected to benefit community banking organizations that do not file applications frequently and also pre-filers with novel proposals. Fed Release.   

SEC Rule to Monitor Trading Activity

On July 11, the SEC approved a rule to require the national securities exchanges and FINRA to establish a market-wide consolidated audit trail to enhance regulators’ ability to monitor and analyze trading activity.  The rule requires the exchanges and FINRA to jointly submit a plan detailing how they would implement an audit trail to collect and identify every order, cancellation, modification, and trade execution for all exchange-listed equities and equity options across all U.S. markets.   The rule will be effective 60 days after publication in the Federal Register.  SEC Release.   

SEC Extension of Rule on Retail Foreign Exchange Transactions

On July 11, the SEC amended interim final temporary Rule 15b12-1T to extend the date on which the rule will expire from July 16, 2012 to July 16, 2013.  On July 13, 2011, the SEC adopted the temporary rule which permits a broker-dealer to engage in a “retail forex business”.  SEC Temporary Rule.   

SEC Rules for Derivative Regulation

The SEC, on July 6, and the CFTC, on July 10, approved rules and interpretations for key definitions of certain derivatives products.  The SEC rules and interpretations further define the terms “swap” and “security-based swap” and whether a particular instrument is a “swap” regulated by the CFTC or a “security-based swap” regulated by the SEC.  The action also addresses “mixed swaps,” which are regulated by both agencies, and “security-based swap agreements,” which are regulated by the CFTC but over which the SEC has antifraud and other authority.  The rules will be effective 60 days after publication in the Federal Register. However, solely for the purposes of certain interim relief granted and exemptions adopted under the Securities Act of 1933, the Securities and Exchange Act of 1934, and the Trust Indenture Act of 1939, the compliance date for the final rules further defining the term “security-based swap” will be 180 days after the publication in the Federal Register. SEC Release.  CFTC Meeting Notice.  

Rating Agency Developments


On July 12, S&P updated its methodology for fees, expenses, and indemnificationS&P Report.

On July 11, Fitch updated its global surveillance criteria for trust preferred CDOsFitch Report.

On July 11, S&P released its methodology for public and nonprofit social housingS&P Release.

On July 10, DBRS released its capital call lending facility criteria. DBRS Report.

On July 9, S&P requested comments, due by September 9, on its insurer rating methodology. S&P Release.

On July 6, Fitch updated its U.S. RMBS surveillance criteria. Fitch Report. 

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

Recent Orrick Alerts


Panorama des réformes récentes du droit communautaire relatif aux prospectus d’émissions obligataires

This Alert, written by Paris partner Louis de Longeaux  and Paris associate Adrien Guidet, presents the scope of recent reforms of the EU regulation relating to prospectuses for bond issues. 

European Financial Industry Developments


Payment Services Regulations 2012 Published

On July 11, the Payment Services Regulations 2012 were published. SI 2012/1791.  The Regulations address a concern that unfit persons may currently establish or manage a small payment institution. They amend the Money Laundering Regulations 2007 (MLRs) and the Payment Services Regulations 2009 (PSRs).

The Regulations will, among other things:

  • Give the FSA the power to check that the owners and managers of small payment institutions are fit and proper persons, and that the directors and managers of such businesses are of good repute and possess the necessary knowledge and experience.
  • Give HMRC the power to strike a business off the register of money service businesses under the MLRs, if the business is providing, or is purporting to provide, a payment service, when it is not registered or authorised to do so by the FSA.

They come into force on October 1 (with the exception of the regulations relating to the consequential amendments).

Sub-Committee of House of Lords EU Select Committee Report on MiFID II Proposals

On July 10, a sub-committee of the House of Lords EU Select Committee published a report on the European Commission's legislative proposals to amend the Markets in Financial Instruments Directive (2004/39/EC) (MiFID II). Report

The sub-committee concludes that:

  • There is a risk that, if introduced, the provisions relating to third country access could lock third country firms out of the EU markets, which would have an extremely damaging effect on European financial markets.
  • While the committee understands the need for greater transparency, a "one-size-fits-all" approach to pre-trade transparency must be avoided.
  • There is considerable uncertainty about the implications of the proposals for a new category of organised trading facility (OTF), and the proposal to increase regulation of algorithmic and high-frequency trading (HFT).
  • The MiFID II proposals have been rushed, and risk creating confusion rather than providing clarity on the regulatory framework for investment. 

ECOFIN Discusses Banking Union, CRD IV and RRD

On July 10, the European Economic and Financial Affairs Committee ("ECOFIN") considered the progress and timings in relation to the work on the banking union, CRD IV and the proposed Recovery and Resolution Directive ("RRD").  The Council of the EU published a press release concerning the matters discussed at the meeting.  Press Release

The press release covers the following areas:

  • Banking Union: The President of the Council has been invited to assist with the development of a specific and time-bound work programme on the banking report. 
  • CRD IV: At the meeting, it was explained that negotiations concerning the CRD IV Directive are almost finished, and attention has now turned to the Capital Requirements Regulation.  There are several outstanding issues such as bankers' remuneration, crisis sanctions and the powers to be given to the European Banking Authority.
  • RRD: The press release states that the Council aims to agree a general approach on the proposed RRD by December 2012.  

FSA Fines Broker for Improper Disclosure

On July 9, the FSA issued a final notice, stating that it has imposed a fine of £160,000 (reduced to £30,000 due to his financial circumstances) on Jay Alan Rutland for engaging in the market abuse offence of improper disclosure under section 118(3) of the Financial Services and Markets Act 2000.  He had also encouraging others to engage in similar behaviour.  Final Notice.

Mr. Rutland was a senior broker at Pacific Continental Securities (UK) Limited.  On four occasions, he drafted and supplied sales scripts to brokers to use when selling shares which contained diluted risk warnings and risk factors.  He also improperly disclosed inside information to his colleagues.  He did not obtain approval from the compliance department and was aware that he should not circulate scripts which had not been approved.

EBA Report on Risks and Vulnerabilities of the EU Banking System

On the July 12, the European Banking Authority ("EBA") published its first annual report on the risks and vulnerabilities of the EU banking system in 2011. 

The report states that the situation in mid-2012 remains extremely fragile, with increasing uncertainty on asset quality, funding capacity and concerns over  possible extreme events.  Banks and supervisors are considering putting emergency actions in place.  The report also highlights sovereign risk and funding and liquidity risk as significant risks in the short term.  Annual Report.



Renewable Backed Securities: Funding for Solar Projects

On August 1 in New York, Partner Howard Altarescu  will participate in a roundtable discussion hosted by Agrion relating to securitization and other financings of solar contracts.  For more information, please click here. Please contact Ania Mirek at amirek@orrick.com if you are interested in attending, and comply with the criteria that you are a “non-member who has never previously attended an AGRION event.” 


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Orrick, Herrington & Sutcliffe LLP

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