CFTC Final Rules on Designated Contract Markets
On May 10, pursuant to Sections 735 and 723 of the Dodd-Frank Act, the CFTC adopted new and revised rules, guidance and acceptable practices governing the designation and operation of designated contract markets. The final rules, guidance and acceptable practices will be effective 60 days after publication in the Federal Register. CFTC Fact Sheet. CFTC Q&A.
CFTC Proposed Order to Extend the Effective Date for Swap Regulation
On May 10, the CFTC proposed an Order extending the effective date for swap regulation from certain provisions of the Commodity Exchange Act until December 31 or until the CFTC’s rules and regulations go into effect, whichever is earlier. Comments are due 14 days after publication in the Federal Register. CFTC Release.
SEC Approves MSRB Interpretive Notice on Duties of Underwriters to State and Local Government Issuers
On May 4, the SEC approved the MSRB’s proposed interpretive notice on the application of MSRB Rule G-17 to underwriters of municipal securities. According to the notice, underwriters of municipal securities will be required to make certain disclosures to their state and local government clients, including risks about complex financial transactions, potential conflicts of interest, and compensation received from third-party providers of derivatives and investments. The notice will become effective on August 2. MSRB Release. MSRB Notice. SEC Release.
Basel Consultative Document on Trading Book Capital Requirements
On May 3, the Basel Committee on Banking Supervision issued a consultative document on the fundamental review of trading book capital requirements. The consultative document proposals include: (i) a more objective boundary between the trading book and banking book that reduces the scope for regulatory arbitrage; (ii) moving from value-at-risk to expected shortfall to better capture tail risk; (iii) calibrating the revised framework to a period of significant financial stress; (iv) incorporating the risk of market illiquidity; (v) measures to reduce model risk; and (vi) a revised standardized approach that is intended to be more risk-sensitive. Comments must be submitted by September 7. Basel Release.
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On May 10, Fitch updated its guidelines for rating tender option bonds. Fitch Report.
On May 10, Fitch updated its surveillance criteria for franchise loan ABS. Fitch Report.
On May 8, DBRS released its methodology for rating Canadian public pension funds and related exclusive asset managers. DBRS Report.
On May 7, DBRS released its methodology for the European Financial Stability Facility. DBRS Report.
On May 4, S&P published a report on structural and credit considerations for REO-to-rent securitizations. S&P Report.
Note: Free registration is required for rating agency releases and reports.
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Manhattan Federal Judge Denies UBS’s Motion to Dismiss FHFA Suit
On May 4, the Honorable Denise Cote of the Southern District of New York denied UBS Americas Inc.’s (“UBS”) motion to dismiss the Federal Housing Finance Agency’s (“FHFA”) complaint against it for violations of the Securities Act. FHFA alleges that UBS fraudulently induced Fannie Mae and Freddie Mac into purchasing $6.4 billion worth of mortgage-backed securities from 22 different securitizations by misrepresenting the quality of the mortgage loans and that the mortgage loans complied with the applicable underwriting guidelines. Judge Cote held that the complaint was timely and not barred by the Securities Act’s Statute of Repose, as well as that FHFA had standing to bring the action. The Court also held that the complaint stated a claim under the Securities Act because FHFA had alleged actionable misrepresentations in the offering documents concerning LTV ratios, owner-occupancy status and compliance with underwriting guidelines. Judge Cote did, however, dismiss FHFA’s claims for negligent misrepresentation, concluding that because both parties were sophisticated, no special relationship existed that would support such a claim. Decision.
German Bank Sues Merrill Lynch In Connection With Sale of $324 Million in RMBS
German bank Bayerische Landesbank (“BayernLB”) filed suit against Merrill Lynch on May 2 in New York Supreme Court, claiming that Merrill Lynch knowingly made misrepresentations in its offering materials relating to $324 million in residential mortgage-backed securities. The complaint alleges that the offering materials falsely claimed that the mortgage loans had been underwritten to strict underwriting standards, and that Merrill Lynch misrepresented that it had conducted due diligence on the underlying loans before purchasing and securitizing them. BayernLB asserts claims for common law fraud, fraudulent inducement, and aiding and abetting fraudulent inducement, and seeks compensatory, rescissory, and punitive damages. Complaint.
California District Court Grants Partial Summary Judgment in Citigroup’s Suit Against Impac
On May 4, Judge Pfaelzer of the Central District of California granted partial summary judgment to Citigroup establishing that Impac Funding Corp. was liable to Citigroup on two of Citigroup’s three claims against Impac. Citigroup’s suit alleges that Impac Funding misled investors by filing a Pooling and Servicing Agreement (“PSA”) that incorrectly described the payment waterfall for the relevant securitization trust, and which Impaq waited six weeks to correct. Citigroup brought claims pursuant to Sections 18 (material false statement in an Exchange Act filing) and 20(a) (control person liability) of the Securities Exchange Act of 1934, as well as a common law claim for negligent misrepresentation. The court rejected Impac’s argument that the discrepancies between the PSA and the Prospectus Supplement should have raised a red flag for the trader who purchased the securities on Citigroup’s behalf. The court also held that Impac was not entitled to a good faith “safe harbor” defense because Impac knew in 2007 that the PSA was incorrect and, as a general matter, a corporate entity is deemed to have knowledge of its own public statements. Judge Pfaelzer denied Citigroup’s motion for summary judgment on its negligent misrepresentation claim, concluding that Impac did not make the false statements itself but caused its subsidiaries to make them, and that California law does not extend negligent misrepresentation liability where one merely “causes” a misstatement to be made. Decision.
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Breakfast Briefing: Introduction to Shipping Finance and Workouts
On May 16, Orrick will host a panel discussion in the New York Office to address the legal and business considerations of the shipping industry, including shipping workouts. This briefing will discuss the complexities related to the industry with regard to jurisdictions, insurance, diligence, and other topics that arise when dealing with vessels. Panelists will include Orrick partners Raniero D'Aversa, William Haft and Laura Metzger, as well as Robert DiMarsico, Managing Director at Poseidon Capital Corp., and Senior Shipping Advisor at FTI Consulting. For additional information and to RSVP, please click here.
Orrick's Annual Financial Services Roundtable
On May 31 in the New York Office, members of Orrick's Global Employment Law Group and in-house counsel will meet for an interactive discussion of critical employment law issues impacting the financial services industry. Topics to be discussed include:
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Hot topics in industry employment arbitration, including a discussion of the status of class action waivers
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Recent developments in wage-and-hour law impacting the financial services industry
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What every employment lawyer needs to know about whistleblower investigations, the Dodd-Frank whistleblower program and significant interpretation changes in Sarbanes-Oxley whistleblower law
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Protecting trade secrets and enforcing post-employment restrictions, including developments involving the Computer Fraud and Abuse Act, criminal prosecutions and no-hire agreements between firms
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Best practices for financial services employers to effectively use social media and minimize risk
To RSVP for this event, please click here.
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