Orrick's Financial Industry Week in Review - April 23, 2012

by Orrick, Herrington & Sutcliffe LLP

Financial Industry Developments


Volcker Rule Conformance Period Clarification

On April 19, the Fed, CFTC, FDIC, OCC and SEC issued a joint release clarifying that an entity covered by Section 619 of the Dodd-Frank Act, or the Volcker Rule, will have the full two-year period from the statutory effective date through July 21, 2014 in which to fully conform its activities and investments to the Volcker Rule requirements and any implementing rules adopted under the Volcker Rule, subject to the two-year period being extended by the Fed.  Fed Release.  Joint Release.

SEC and CFTC Rule Defining Swap-Related Terms

On April 18, pursuant to Title VII of the Dodd-Frank Act, the SEC and CFTC adopted joint rules to define certain terms related to the over-the-counter swaps market as part of the Securities Exchange Act of 1934 and the Commodity Exchange Act.  The SEC rule will be effective 60 days after the date of publication in the Federal Register while the text of the CFTC rules will be published in conjunction with the adoption of final rules further defining "swap" and other terms later this year.  SEC Release.  CFTC Fact Sheet.  CFTC Q&A.  

CFTC Final Rule and Interim Final Rule on Commodity Options

On April 18, pursuant to Section 721 of the Dodd-Frank Act, the CFTC adopted a final rule authorizing commodity options to transact subject to the same rules applicable to other swaps.  In addition, the CFTC adopted an interim final rule providing a trade option exemption for certain physically delivered commodity options used by commercial market participants.  The final rule and the interim final rule will be effective 60 days after publication in the Federal Register.  The compliance date for the final rule and the interim final rule will be 60 days after further definition of the term “swap” by the CFTC and the SEC.  CFTC Fact Sheet.  CFTC Q&A.  

Fannie and Freddie Streamline Short Sales

On April 17, the FHFA directed Fannie Mae and Freddie Mac to develop enhanced and aligned strategies to facilitate short sales, deeds-in-lieu and deeds-for-lease to help more homeowners avoid foreclosure, including requiring that servicers review and respond to short sale requests within 30 days from receipt of a short sale offer.  The first stage of these developments will take effect in June.  FHFA Release.  

CPSS and IOSCO Final Report on Principles for Financial Market Infrastructures

On April 16, the Committee on Payment and Settlement Systems (CPSS) and IOSCO published the final report on the Principles for Financial Market Infrastructures, which updates the risk management and related standards applicable to financial market infrastructures.  CPSS and IOSCO also released for comment the Disclosure Framework for Financial Market Infrastructures and the Assessment Methodology for the Principles for FMIs and the Responsibilities of Authorities.  Comments must be submitted by June 15.  SEC Release.

Rating Agency Developments


On April 18, Fitch published criteria for partial-credit guarantees in emerging markets.  Fitch Report.

On April 18, S&P updated its criteria for the global midstream energy industry.  S&P Release.

On April 17, S&P updated its methodology for reviewing originators of residential mortgage collateral in U.S. RMBS.  S&P Release.

On April 17, Fitch updated its 17G-7 representations and warranties report.  Fitch Report.  Fitch Release.

On April 17, Fitch updated its global aircraft operating lease ABS criteria.  Fitch Report.

On April 16, S&P updated its methodology for U.S. cash flow CDOs of bank trust preferred securities.  S&P Release.

On April 16, Fitch updated its U.S. auto loan ABS rating criteria.  Fitch Report.

On April 16, Fitch updated its global criteria for onshore wind farm debt instruments. Fitch Report.

On April 13, DBRS released its legal criteria for European structured finance transactions.  DBRS Report.

On April 13, S&P updated its assumptions for liquidation timelines in the U.S. residential mortgage market.  S&P Release. 

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

Asset Management


SEC Approves Amendments to FINRA Arbitration Rule

On April 20, pursuant to the Dodd-Frank Act, the SEC approved amendments to FINRA Rule 13201 of the Code of Arbitration Procedure for Industry Disputes (Industry Code).  The amendments provide that a dispute arising under a whistleblower statute that prohibits the use of pre-dispute arbitration agreements is not required to be arbitrated under the Industry Code.  The amendments to the rule will be effective on Mary 21, 2012.  FINRA Regulatory Notice.

Recent Orrick Alerts


Tax Law Update - Proposed Treasury Regulations Implementing the Foreign Account Tax Compliance Act ("FATCA")

Since FATCA’s enactment in March 2010, the IRS has issued several rounds of guidance and the proposed implementing rules are evolving considerably as the Treasury and the IRS continue to consider comments received from various stakeholders. However, the Proposed Regulations have been much anticipated by taxpayers that may be affected by the FATCA withholding tax regime and they provide a clearer insight into the possible contours of final regulations to be adopted, as well as some welcome relief in certain areas.  Click here to read more.

RMBS Litigation


California Federal Court Partially Dismisses RMBS Claims In Countrywide MDL Action

On April 16, 2012, Judge Mariana R. Pfaelzer of the Central District of California dismissed in part an RMBS action brought by Massachusetts Mutual Life Insurance Co. (“MassMutual”) against Countrywide, JPMorgan, Deutsche Bank, UBS, and various individual defendants.  This case, which asserts claims under the Massachusetts Uniform Securities Act (“MUSA”), was transferred to the Countrywide MDL for pre-trial proceedings.  In addressing defendants’ initial motions to dismiss on the issues of timeliness, standing and jurisdiction, Judge Pfaelzer found that the court lacked personal jurisdiction over the individual defendants who moved on this ground and dismissed all claims against them with prejudice.  Judge Pfaelzer also found that only the Underwriter Defendants could be held liable as a seller under the MUSA, and dismissed the MUSA claims against the other defendants with prejudice.  Judge Pfaelzer declined to dismiss the remaining claims based on the statute of limitations.  Decision.   

Ambac Files $856 Million RMBS Insurance Suit Against Bank of America and Merrill Lynch

On April 16, 2012, bankrupt insurer Ambac Financial Group filed suit against Bank of America as successor to Merrill Lynch, Merrill Lynch, and certain of its affiliates, in New York County Supreme Court.  The complaint alleges that Merrill Lynch fraudulently induced Ambac into insuring $856 million in RMBS consisting of low-quality mortgages.  Ambac alleges that Merrill Lynch misrepresented the quality of the loans, the underwriting guidelines followed, the due diligence performed, and the disclosures as to the loans, and that Ambac was required to pay out hundreds of millions of dollars in insured claims. The complaint includes claims for fraudulent inducement, breaches of representations and warranties, breach of contract, indemnification, and reimbursement. Complaint.   

Bayernische Landesbank Files $810 Million RMBS Suit Against Deutsche Bank

On April 19, 2012, Bayerische Landesbank (“Bayern”), a German bank, filed an $810 million suit against Deutsche Bank and certain of its affiliates in New York County Supreme Court.  Bayern alleges Deutsche Bank fraudulently obtained, securitized, marketed, and sold Bayern RMBS while internally disparaging the quality of the loans underlying the RMBS.  Bayern allegedly purchase 22 securitizations and claims that Deutsche Bank and the originators violated the represented originator underwriting guidelines, made material misrepresentations in the offering documents as to the quality of the underlying loans, and knew, as a result of their due diligence, that the underlying loans were destined to fail.  The complaint includes claims for fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation, and seeks compensatory and/or rescissory damages.  Complaint.   



iiBIG's 2012 Education Loan & Financing Executive Summit

May 9-10, 2012 – Orrick is sponsoring the two-day conference in Washington, D.C., which will bring together Student Loan Issuers & Investors, Student Loan Servicers, Student Loan Lenders - both private and public - and other key valued industry participants in the student loan industry to discuss the latest issues facing the industry – and to lay the groundwork for the road ahead in 2012 and beyond. Orrick Managing Associate Tonio DeSorrento will moderate the panel “Private Education Finance 2.0: Better For Borrowers, Better For Schools.”  Click here for more information.


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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