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May 03, 2012 SDNY Bankruptcy Court Interprets Section 546(e)’s Safe Harbors in Lehman-JPMorgan Dispute On April 19, 2012, the U.S. Bankruptcy Court for the Southern District of New York granted in part and denied in part JPMorgan Chase, N.A.'s motion to dismiss an adversary complaint filed by Lehman Brothers Holdings Inc. ("LBHI") and its Official Committee of Unsecured Creditors. The Complaint seeks to recover approximately $8.6 billion in prepetition transfers made by LBHI to JPMorgan in the days leading up to LBHI's bankruptcy. JPMorgan filed a motion to dismiss the Complaint, arguing that it acted reasonably in requiring additional collateral at a time of great financial risk, and that the transfers that the Plaintiffs sought to unwind are immunized by the safe harbor protections of section
546(e) of the Bankruptcy Code.
May 03, 2012 The Impact of the JOBS Act on Private Funds and their Managers President Obama signed the Jumpstart Our Business Startups Act, HR 3606 (the "JOBS Act") on Thursday, April 5, 2012, which contains significant amendments to the private capital raising provisions in the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Sarbanes-Oxley Act of 2002, as amended. The amendments most relevant to private investment funds and their investment advisers are contained in Title II, which lifts the ban on general solicitation and general advertising under Regulation D under the Securities Act ("Regulation D") in connection with private offerings, and Title V, which increases the holder-of-record threshold that triggers reporting company registration requirements under the Exchange Act.
Apr 30, 2012 FERC Confirms It Lacks Jurisdiction over Unbundled Renewable Energy Certificate Sales On April 20, 2012, the Federal Energy Regulatory Commission (“FERC”) issued an order accepting proposed revisions to the WSPP Agreement addressing sales of renewable energy certificates (“RECs”) made pursuant to that agreement. In the course of issuing this order FERC confirmed something participants in the U.S. energy markets had long suspected: that FERC’s jurisdiction extends to sales of RECs made in conjunction, or “bundled,” with a sale of wholesale electric power, but does not extend to sales of RECs alone, which FERC refers to as “unbundled” REC sales. The WSPP Agreement is a form of agreement used by hundreds of sellers of electric energy along the West Coast of the U.S. and Canada, and amendments to that agreement are subject to FERC approval.
Apr 17, 2012 Delaware’s Not So Safe Harbors: Third Circuit Bankruptcy Court Declines to Rule that a Payment on a Letter of Credit is an Avoidance-Proof “Settlement Payment” On March 26, 2012, Judge Mary F. Walrath of the United States Bankruptcy Court for the District of Delaware refused to rule that, as a matter of law, payments made to satisfy a debtor’s obligations under a letter of credit constitute “settlement payments” protected from avoidance under section 546(e) of the Bankruptcy Code. EPLG I, LLC v. Citibank, National Association et al. (In re Qimonda Richmond, LLC, et al.), No. 09-10589, 2012 Bankr. LEXIS 1264 (Bankr. Del. March 26, 2012). Although the decision helps to clarify the scope of one of the Bankruptcy Code’s most important safe harbor provisions, it has also left some important questions unanswered regarding the scope of section 546(e).
Apr 17, 2012 The Sun Never Sets on Dodd-Frank When Dodd-Frank (more formally, the Wall Street Reform and Consumer Protection Act) was adopted, the legislation was advertised as a legal blueprint that, although proudly stamped "Made in America," would serve as a light of financial safety as to derivatives, bank activities, and like matters for the entire world. The global commercial and financial community was assured that a cooperative, consistent, and rational scheme of regulation would be adopted in financial capitals across the world, from Afghanistan to Zimbabwe, all based closely (maybe even word-for-word!) on translations of Dodd-Frank.
Apr 13, 2012 FERC Issues Orders on MISO Net Zero Interconnection Service On March 30, 2012, the Federal Energy Regulatory Commission ("FERC") issued two orders related to the Midwest Independent System Operator, Inc.'s ("MISO") policies and procedures for the interconnection of generation facilities, which are set forth in Attachment X of MISO’s tariff.
Apr 12, 2012 English Court of Appeal Interprets the ISDA Master Agreement Last week the Court of Appeal of England and Wales handed down its decision in four appeals which raise a number of questions of construction in relation to derivatives in the form of interest rate swaps and forward freight agreements documented under the International Swaps and Derivatives Association Inc. Master Agreement (the “ISDA Master Agreement”). In particular, the decision focuses on the interpretation of section 2(a)(iii) of the ISDA Master Agreement.
Apr 12, 2012 What is a Swap? Maybe (Almost) Everything? You Gotta Problem with That? It has now been almost two years since Dodd-Frank was enacted in order to provide comprehensive regulation of those transactions the legislation calls "swaps." In a world regulated by common sense, "what is a swap" would have been the first question answered by the regulators—indeed, the term should have been clearly defined by the statute. After all, how can the regulators adopt rules that govern a group of transactions where the regulators themselves do not know the transactions to which the rules will apply? How can businesses comment as to whether the proposed rules are sensible, or even feasible, as applied to a set of transactions that is boundless?
Apr 10, 2012 New Pan-European Restrictions on Short Selling On 24 March 2012, the European Parliament's Regulation on "short selling and certain aspects of credit default swaps" came into force.
Apr 09, 2012 FERC Finds “More Credible” a Postage Stamp New Transmission Cost Allocation for PJM On March 30, 2012, the Federal Energy Regulatory Commission ("FERC" or "Commission")issued an Order on Remand finding that the flow-based cost-allocation methodology used by PJM Interconnection, L.L.C. ("PJM") is inadequate to determine and allocate costs associated with new high voltage transmission lines. Finding that PJM's current static flow-based model for allocating these costs is unjust and unreasonable, FERC further found that a system-wide "postage stamp"
method of cost allocation is a "more credible basis" on which to base rates. Importantly, FERC emphasized that its determination is limited to this case, and "should not be construed as preventing PJM and its stakeholders from developing other cost allocation methodologies in response to Order No. 1000 or other relevant stakeholder processes."
Apr 03, 2012 EPA Proposes CO2 Emissions Standards for New Fossil Fuel-Fired Power Generators On March 27, 2012 the Environmental Protection Agency ("EPA") submitted for publication in the Federal Register a notice of proposed rulemaking that would set standards of performance for CO2 gas emissions for new fossil fuel-fired electric utility generating units ("EGUs") with a base load rating of more than 73 MW (the "proposed rule"). In 2009 the EPA concluded that "by causing or contributing to climate change, [greenhouse gases] endanger both the public health and the public welfare of current and future generations," and on this basis proposes to require new EGUs to limit their CO2 emissions pursuant to the EPA’s authority under Section 111 of the Clean Air Act. The EPA's proposed CO2 emissions output standard is based on the demonstrated CO2 emissions of natural gas combined cycle generation units. The standard is designed to reflect the emissions capture and storage capabilities of coal and petroleum coke-fired power plants that incorpora
Mar 28, 2012 ISDA March 2012 Supplement and Protocol: Updating Muni CDS As of April 3, 2012, the documentation and industry standards for municipal CDS transactions (“Muni CDS”) will be brought in line with the corporate and sovereign CDS market through several initiatives lead by ISDA and related publications by Markit. Cadwalader represented ISDA and Markit on these initiatives, which include the following features to enhance liquidity and transparency for Muni CDS: determinations Committee for the Americas Region will decide on Credit Events and other matters, mandatory auction settlement, rolling “look-backs” for Credit Events and Succession Events, Standardized Fixed Rate and full 3-month initial Calculation Periods, recovery assumption of 75%, changes to “Accreting Obligation” and “Accreted Amount” definitions and other Muni CDS-specific provisions, automatic trigger for “Restructuring Credit Event,” new or revised templates for many types of Muni CDS transactions.
Mar 27, 2012 Conference Series to Address Competition Issues in China and Globally Cadwalader, Wickersham & Taft LLP, will host a series of conferences in Beijing, Hong Kong, Shanghai and Taipei, addressing several important competition-related issues, including review of mergers and joint ventures under China’s newly-enacted Antimonopoly Law (“AML”), litigation under the AML, cartel investigations impacting Chinese companies, and the intersection of intellectual property and competition laws in China and elsewhere.
Mar 22, 2012 UK Budget 2012 – Key Tax Measures The Chancellor of the Exchequer’s third budget, held on 21 March 2012, might well be remembered in future years for a balancing act (at least in a taxation context) between stimulus and incentive on the one hand, and austerity and anti-avoidance on the other. A number of the Chancellor’s provisions focused on enterprise incentives and were accompanied by an additional 1 per cent. reduction in the main rate of UK corporation tax from April 2012. While these announcements will be welcomed, they were balanced against a very tough message on tax avoidance – particularly in the areas of stamp duty land tax planning and income tax avoidance. Foremost among the Budget statements on combating tax avoidance was the announcement that the Government will proceed with the introduction of a general anti-avoidance rule (“GAAR”), consulting in the summer of 2012 on draft legislation based on the recommendations of the Aaronson Report published in November 2011 with a view to introducing legislatio
Mar 19, 2012 Senator Stabenow's Alternative Energy Tax Incentive Measure Fails to Pass Senate On March 13, an amendment to the "Moving Ahead for Progress in the 21st Century Act" (which is also known as the "Surface Transportation Act") that would have reestablished and extended several tax incentives for alternative energy, failed to garner the required 60 votes for approval. However, the amendment, which was introduced by Senator Debbie Stabenow (D-MI), did secure 49 votes, which suggests that similar measures may be introduced in the future. This memorandum discusses the application of the Stabenow amendment to production tax credits, investment tax credits, and the cash grant program.
Mar 16, 2012 Opportunity to Invest in China’s Securities Market: The Accelerated Approval Process for Foreign Financial Institutions Foreign investors are permitted to invest in China’s stock markets , provided that an investor is a Qualified Foreign Institutional Investor (“QFII”). Previously, applying for QFII status took as long as one to two years, and in some cases the entire process took even longer. However, recent reforms and policy adjustments will reduce this processing time to approximately six (6) months or less if the application is prepared correctly. Therefore, this policy change provides foreign financial institutions with a window of opportunity to qualify as a QFII and to deploy capital to invest in China’s burgeoning stock market when the timing is right.
This alert summaries the QFII statutory framework, and gives a comparison between the old timetable and the now revised timetable.
Mar 07, 2012 Retrospective Change of Law Announced for UK Debt Buybacks In a Written Ministerial Statement, delivered on 27 February 2012, the UK Government has announced measures to counteract two tax avoidance schemes entered into by a UK bank, the UK Bank being a signatory to the Code of Practice on Taxation for Banks.
Mar 06, 2012 The Consumer Financial Protection Bureau: The New, Powerful Regulator of Financial Products and Services The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") created the Consumer Financial Protection Bureau ("CFPB") to oversee a broad array of financial products and services. Creation of the CFPB marked the first time in decades that Congress had formed a new federal agency. The political debate over who would lead the new agency initially overshadowed the more significant legal and policy concerns about the manner in which the CFPB was intended to operate. But now, after the procedurally controversial appointment of former Ohio Attorney General Richard Cordray on January 4, 2012, these broader concerns will be tested, both as a matter of governance and very possibly in the courts.
Mar 05, 2012 CMS Issues Proposed Regulations to Guide Providers and Suppliers in Complying with Mandate to Report and Return Medicare Overpayments Signed into law on March 23, 2010, the Patient Protection and Affordable Care Act ("PPACA"), or federal health care reform act, included a provision (the "Report and Refund Mandate"), broadly requiring health care providers, suppliers and managed care organizations that have received an "overpayment" from the Medicare or Medicaid program to report and return the overpayment within 60 days of the date when the overpayment was "identified."
Mar 05, 2012 European Short Selling Bans Lifted Amid growing evidence that short selling bans function, at best, as very temporary circuit breakers with no long term effect on volatility, several European regulators have lifted their bans on short selling as of February 2012. The bans, imposed in August 2011, have followed the trajectory set out below (along with a summary of the disclosure regime still in force in the UK and the on-going position in Greece). In all cases, while the regulators have lifted outright bans, disclosure requirements and various restrictions on naked short selling remain in place.
Mar 02, 2012 Clean Energy Standard Legislation Introduced in Senate On March 1, 2012 Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) introduced the Clean Energy Standard Act of 2012, legislation that seeks to reduce greenhouse gas emissions and encourage low-carbon energy sources through the establishment of a federal clean energy standard (CES). The legislation builds off of past renewable energy standard (RES) proposals, such as the RES program included in the heavily debated, and ultimately defeated, cap-and-trade legislation of 2009. Although similar to past proposals, the legislation takes a broader view as to the types of energy that can be used to meet the CES, including not only renewables such as wind and solar, but also other low-emission sources such as natural gas, nuclear power, and certain "clean" coal carbon-capture technology.
Mar 02, 2012 Supreme Court Gives Protection to All UK Client Money On 29 February, the Supreme Court of the United Kingdom handed down its judgment on the treatment of client money that had not been segregated, or was improperly segregated, as at the date Lehman Brothers International (Europe) (“LBIE”) entered administration.
Feb 17, 2012 Application of Proposed FATCA Regulations to Foreign Investment Vehicles On February 8, the Internal Revenue Service issued proposed regulations that provide guidance on the “FATCA provisions” contained in sections 1471-1474 of the Internal Revenue Code. The purpose of FATCA is to reduce U.S. tax evasion by requiring "foreign financial institutions" and certain other foreign entities to provide information to the IRS about U.S. holders of their debt and equity interests and other "financial accounts," or else be subject to a 30% withholding tax.
Feb 13, 2012 SEC Issues No-Action Letter Addressing Registration Requirements for Certain Advisory Affiliates The staff of the Securities and Exchange Commission (the "Commission") issued a no-action letter on January 18, 2012 to the American Bar Association's Subcommittee on Hedge Funds clarifying the registration requirements for certain related entities under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). The letter reaffirms and clarifies the Commission's previously existing position that registered advisers to private funds may file a single Form ADV that includes special purpose vehicles ("SPVs") established to function as general partners or managing members of a fund. In addition, the letter explains the conditions under which a group of related advisers organized as separate legal entities, but operating as a "single advisory business," may elect to file a single Form ADV.
Feb 03, 2012 FERC Staff Seeks Comments on Its Proposal for a Process to Advise the EPA On January 30, 2012, the Federal Energy Regulatory Commission ("FERC" or "Commission") staff issued a White Paper explaining staff’s proposal on advising the Environmental Protection Agency ("EPA") in responding to requests for an extension of time to comply with EPA’s Mercury and Air Toxics Standards ("MATS"). FERC staff is seeking comments on its proposal.
Jan 25, 2012 New Proposed and Temporary Regulations Address U.S. Withholding Tax on Cross-Border Equity Derivatives On Thursday, January 19, the Internal Revenue Service (the "IRS") and the Treasury Department issued proposed and temporary regulations under section 871(m) of the Internal Revenue Code. These regulations provide guidance on cross-border swaps and other equity-linked instruments whose dividend equivalent payments will be subject to U.S. withholding tax.
Jan 12, 2012 Time to Roll the Dice on Online Gaming? On December 23, 2011, the U.S. Department of Justice Office of Legal Counsel (“OLC”) issued a memorandum opinion dated September 20, 2011, eliminating one of the federal barriers to legalizing internet gambling and opening the door for the possibility of a regulatory regime shift. In the OLC Opinion, the Department of Justice addressed an apparent conflict between the Wire Act and UIGEA and concluded that “interstate transmissions of wire communications that do not relate to a sporting event or contest” fall outside the reach of the Wire Act. Finding that the Federal Wire Act does not prohibit the use of out-of-state transaction processors to sell in-state lottery tickets over the internet or the transmission of lottery data across state lines, the OLC Opinion reverses the long-held position that the Wire Act applied to all interstate gambling, whether sports-related or not.
Jan 10, 2012 Harrisburg: A Case Study in State Law Barriers to Chapter 9
On November 23, 2011, the Bankruptcy Court for the Middle District of Pennsylvania dismissed Harrisburg, Pennsylvania's Chapter 9 bankruptcy petition because, shortly before the filing, the state legislature expressly prohibited Harrisburg from seeking relief under Chapter 9. Harrisburg's failed attempt to remain in Chapter 9 highlights the political factors and state law constraints that municipalities must consider prior to seeking bankruptcy relief. This article will discuss the origins of Harrisburg's debt crisis, the Harrisburg City Council's attempt to file for Chapter 9 without the Mayor's approval, the legal obstacles placed in the path of the City Council's bankruptcy filing, and the lessons that other distressed municipalities and creditors can learn from Harrisburg's experience.
Dec 20, 2011 Contingent Convertible Bonds and the Impact of Basel III In January 2011, the Basel Committee on Banking Supervision (the “Basel Committee”) set out rules to supplement Basel III regulations on capital adequacy and liquidity. The Basel III reforms aim to improve the quality and level of capital within firms.
Dec 19, 2011 Duke-Progress Merger Delayed by FERC Ruling; Implementing Tariffs Also Rejected Without Prejudice On December 14, 2011, the Federal Energy Regulatory Commission ("FERC") determined that,although conditionally authorizing the proposed merger on September 30, 2011 subject to approval of appropriate market power mitigation, it cannot approve the merger of Duke Energy Corp. ("Duke") and Progress Energy Inc. ("Progress", collectively, "Applicants") because the Applicants’ proposed mitigation plan1 is inadequate to remedy their merger’s harmful effects on competition. The merger remains conditionally authorized and the Applicants may offer a revised plan to address FERC’s market power concerns.
Dec 13, 2011 First Time for Everything: Finding Unduly Discriminatory Treatment of Wind Generators and Compelling Circumstances, FERC Exercises Its Section 211A Authority to Order BPA to Change Its Ways On December 7, 2011, the Federal Energy Regulatory Commission (FERC) determined that Bonneville Power Administration's (BPA) use of environmental redispatch to address excess water supply and low load by curtailing renewable and thermal generators in favor of federal hydropower providers unfairly discriminated against wind generators. This decision will have broad jurisdictional and alternative energy implications, given that FERC has exercised for the first time its Federal Power Act (FPA) section 211A authority to order BPA, an unregulated transmitting utility, to file changes to or replace its voluntarily-filed Open Access Transmission Tariff (OATT) to address undue discrimination regarding access to its transmission system.
Dec 12, 2011 A Critical Analysis of the Potential Impact of the Volcker Rule on Municipal Bonds Federal regulators recently issued a notice of proposed rulemaking (the 'Proposal') under Section 619 of the Dodd-Frank Act, commonly known as the 'Volcker Rule.' If the Proposal were to be adopted in its present form, the regulators' narrow interpretation of the types of government securities exempted from the Volcker Rule would prohibit banking entities from proprietary trading in over half of the municipal bonds outstanding in the markets. Likewise, by the regulators' narrow interpretation, banking entities would be effectively prohibited from sponsoring or acquiring an ownership interest in municipal tender option bond ('TOB') trusts and from entering into the liquidity facilities that are an essential feature of TOB trusts.
Nov 22, 2011 FERC Issues Order Denying Hunter Rehearing Request on Alleged Market Manipulation On November 18, 2011, the Federal Energy Regulatory Commission (FERC) denied former Amaranth Advisors LLC trader Brian Hunter’s (Hunter) rehearing request of FERC's Order Affirming Initial Decision and Ordering Payment of Civil Penalty issued on April 21, 2011. In the Affirming Order, FERC found that the record supported the administrative law judge's (ALJ) determination that "Hunter’s trading practices [in the natural gas futures market during the settlement periods] on expiration days were fraudulent or deceptive, undertaken with the requisite scienter, and carried out in connection with FERC-jurisdictional natural gas transactions" in violation of FERC’s Anti-Manipulation Rule and directed Hunter to pay a $30 million civil penalty. Hunter has sixty days to appeal FERC's decision to the U.S. Court of Appeals.
Nov 22, 2011 FERC Office of Enforcement Issues 2011 Report on Enforcement On November 17, 2011, the Federal Energy Regulatory Commission (FERC) Office of Enforcement issued its 2011 Report on Enforcement (Report). The annual Report provides an overview of and statistics regarding FERC’s enforcement activities during the fiscal year 2011 (FY2011) within the Office of Enforcement’s three divisions: the Division of Investigations, the Division of Audits and the Division of Energy Market Oversight. The Report provides information regarding the Office of Enforcement’s non-public activities and priorities during FY2011.
Nov 16, 2011 European Commission Announces Revisions to the Transparency Directive Under the headline “More responsible businesses can foster more growth in Europe”, the European Commission (the “Commission”) unveiled proposals for directives to amend several legislative measures on 25 October 2011, including a directive to amend the Transparency Directive (the “Amendment Directive”) .
Nov 14, 2011 Final Rule for Accountable Care Organizations Addresses Major Provider Concerns: Will Long Term Care Providers Dive In? On October 20, 2011, the Federal Centers for Medicare and Medicaid Services ("CMS") released the final regulations to establish the Shared Savings Program for Accountable Care Organizations ("ACOs") in accord with Section 3022 of the Patient Protection and Affordable Care Act (the "Final Rule"). The same day, the Office of Inspector General (
("OIG") within the Department of Health and Human Services ("HHS"), CMS, the Department of Justice ("DOJ"), the Federal Trade Commission ("FTC"), and the Internal Revenue Service ("IRS") released final regulatory guidance explaining how the federal laws within their respective jurisdictions would be waived or interpreted to promote the formation and operation of ACOs ("Final Regulatory Guidance").
Nov 03, 2011 MF Global UK Enters Special Administration Regime The Financial Services Authority (“FSA”) has confirmed that MF Global UK Limited (“MF Global UK”) has entered the Special Administration Regime created under the Investment Bank Special Administration Regulations 2011 (“Regulations”). MF Global UK is the first investment bank to enter the Special Administration Regime. The decision to apply for special administration was initiated by the board of MF Global UK.
Nov 03, 2011 The Volcker Rule's Impact on Financial Institutions' Ownership and Sponsorship of Structured Finance and Securitization Transactions The three federal banking agencies and the SEC recently approved for comment a proposed
regulation implementing Section 619 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the 'Act'), more generally known as the 'Volcker Rule.' The 298-page proposal has yet to be published in the Federal Register, but the agencies have already agreed to an extended comment period for the proposal - running until January 13, 2012 - given the subject matter's significance.
Nov 01, 2011 SAFE Circular 19: Revised SAFE Rules Concerning Round-Trip Investments Recent changes in China's regulatory landscape may facilitate Round-Trip Investments (defined below) and should make it easier for foreign investors to invest in China. The State Administration of Foreign Exchange ("SAFE") issued new guidelines ("Circular 19") on July 1, 2011 and introduced significant changes to the implementation of Circular 75 ("Circular 75") which local PRC companies must follow to establish offshore Special Purpose Vehicles ("SPV"). In short, Circular 19 addresses foreign exchange registration by SPVs established by PRC residents, newly-established foreign-invested enterprises, and offshore direct investments by entities in the PRC.
Oct 31, 2011 MiFID and MiFIR on Algorithmic Trading – and – Provision of Services AND Establishment of Branches by Third Country Firms This is the sixth in our series of briefings on MiFID and MiFIR. In this alert, we describe new obligations set out in MiFID that apply to investment firms engaging in algorithmic trading to have in place risk control measures, and authorisation requirements for third country firms providing services into or establishing a branch within the European Union as set out in MiFID and MiFIR.
Oct 28, 2011 MiFID and MiFIR on Supervision of Products – and – Circuit Breakers This is the fifth in our series of briefings on MiFID and MiFIR. In this alert, we describe new powers of product intervention granted to ESMA and local regulators under MiFIR and new obligations set out in MiFID for regulated markets to have in place measures to ensure systems’ resilience, including circuit breakers and controls over algorithmic trading.
Oct 28, 2011 The SEC Approves Final Version of Form PF The Securities and Exchange Commission (the "SEC") held an open meeting on Wednesday, October 26, 2011, regarding the adoption of a rule requiring certain registered investment advisers to hedge funds and other private funds to report information on Form PF for use by the Financial Stability Oversight Council ("FSOC") in monitoring systemic risk to the U.S. financial system. The new rule, Rule 204(b)-1 under the Investment Advisers Act of 1940, would implement sections 404 and 406 of the Dodd-Frank Act and was initially proposed, along with the Form PF, on January 26, 2011.
Oct 27, 2011 European Commission Unveils Plans to Boost Energy Networks in Europe On 19 October 2011, the European Commission (the “Commission”) published a proposal to fund €50 billion worth of investment in the European Union’s (“EU”) transport, energy, and digital networks for the period from 2014 to 2020, with a view to strengthening links across Member State borders. Amongst the measures that were adopted by the Commission are a draft regulation to establish the Connecting Europe Facility (the “CEF”), the terms for the Europe 2020 Project Bond Initiative (the “Project Bond Initiative”), and a proposal for a regulation on guidelines for trans-European energy infrastructure (the “Energy Infrastructure Guidelines Regulation”).
Oct 27, 2011 MiFID on Client Categorisation and Transactions with ‘Eligible Counterparties’ – and – Organised Trading Facilities This is the fourth in our series of briefings on MiFID and MiFIR. In this alert, we describe the proposed changes to the current client classification regime, and in particular, amendments to the regime for transactions with ‘eligible counterparties’. We will also discuss the introduction of a new concept of regulated ‘organised trading facilities’.
Oct 26, 2011 Proposals for a European Union Financial Transactions Tax The proposals made by the EU Commission on 28 September 2011 regarding an EU directive on a common system of financial transaction taxation in the 27 Member States of the EU have been debated widely in the three weeks since they were presented. The presentation of the proposed Directive (the "Directive"), together with proposals to amend Directive 2008/7/EC concerning indirect taxes on the raising of capital, represent the latest stage in a series of announcements by EU authorities directed towards ensuring that the European financial sector should "contribute more fairly" towards the costs of addressing and rectifying the current European financial crisis. A series of conclusions from the European Council, communications addressed to the European Parliament and EU Commission staff working papers and consultations throughout 2010 and 2011 have created a platform upon which the relative merits of various options for taxing the financial sector have been analysed.
Oct 25, 2011 Montana Consumer Counsel v. Federal Energy Regulatory Commission On October 13, 2011, the U.S. Court of Appeals for the Ninth Circuit held that the market-based rate policy embodied in Order Nos. 697 and 697-A does not exceed FERC's authority as conferred by the FPA. Under Order 697, which became effective in September 2007, sellers who apply for market-based rates must be pre-screened by FERC and show that they lack (or have adequately mitigated) both horizontal and vertical market power. FERC bases its market power determination primarily on the seller's share of capacity in the relevant markets, and also considers whether the seller can limit competition through its control of transmission, erect barriers to entry, or engage in abuse of affiliate relationships.
Oct 24, 2011 MiFID AND MiFIR on Position Limits and Position Reporting for Commodities Derivatives and Emissions Trading The first in a series of short briefings on radical changes proposed for the regulation and conduct of investment business set out in the European Commission’s revised Markets in Financial Instruments Directive (MiFID) and Markets in Financial Instruments Regulation (MiFIR). This Client & Friends Alert outlines the “highlights” of the Commission’s proposals for the imposition of position limits and position reporting requirements for commodities derivatives and emissions trading.
Oct 21, 2011 Adoption of New Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) On 10 October 2011, the Council of the European Union adopted a regulation on wholesale energy market integrity and transparency (the “Regulation”). The Regulation is expected to be published in the Official Journal towards the end of November 2011 and its provisions will come into force in each Member State 20 days after publication. The Regulation establishes rules prohibiting abusive practices affecting the wholesale energy markets in the European Union (the “EU”).
Oct 21, 2011 CFTC Chairman Discusses Derivatives Reform in London On Thursday 13 October, the Chairman of the Commodity Futures Trading Commission (the “CFTC”), Gary Gensler, spoke on the topic of “Global Reform for Derivatives Markets” at the London School of Economics.
Oct 19, 2011 Position Limits Rumors Become Reality: CFTC Adopts Final Position Limits Rule Under Dodd-Frank On October 18, 2011, the Commodity Futures Trading Commission ("Commission") adopted, by a vote of 3 to 2, a final rule regarding position limits for certain physical commodity derivatives ("Final Rule") pursuant to the Commodity Exchange Act ("CEA"), as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act").
Oct 13, 2011 The Volcker Rule's Significant Impact on a Foreign Banking Organization's Proprietary Trading Activities This week, the three federal banking agencies and the SEC approved for comment a proposed regulation implementing Section 619 of the Dodd-Frank Act, more generally known as the 'Volcker Rule.' The 298-page proposal has yet to be published in the Federal Register, but the agencies have already agreed to an extended comment period for the proposal - running until January 13, 2012 - given the subject matter's significance.
Effective July 21, 2012, the Volcker Rule restricts proprietary trading activities and investing in or sponsoring of private equity funds by 'banking entities' -defined by statute to include FDIC-insured depository institutions, bank holding companies, savings and loan holding companies, other entities that control an FDIC-insured depository institution, and foreign banks that are regulated as if they are bank holding companies under the International Banking Act.
Oct 12, 2011 Bankruptcy Court for Southern District of New York Prohibits Triangular Setoff Provided for in Safe Harbored Contract On October 4, 2011, the United States Bankruptcy Court for the Southern District of New York ruled that a contractual right of a triangular (non-mutual) setoff was unenforceable in bankruptcy, even though the contract was safe harbored. In re Lehman Brothers, Inc., No. 08-01420 (JMP), 2011 WL 4553015 (Bankr. S.D.N.Y. Oct. 4, 2011). In doing so, Judge Peck followed prior decisions by the Delaware bankruptcy and district courts in In re SemCrude, L.P., 399 B.R. 388 (Bankr. D. Del. 2009), aff’d, 428 B.R. 590 (D. Del. 2010) and his own decision in In re Lehman Brothers Holdings Inc., 433 B.R. 101 (Bankr. S.D.N.Y. 2010) (“Swedbank”).
Oct 07, 2011 The Proposed Revision of the Market Abuse Directive In September 2011, an unofficial draft of the European Commission’s (the Commission) proposals for a new market abuse regime covering insider dealing and market manipulation (MAD II), was received by certain market participants. MAD II is intended to amend and update the existing Market Abuse Directive 2003/6/EC (MAD).
Oct 04, 2011 SEC Proposes a New Rule Prohibiting Conflicts of Interest in Securitizations On September 19, 2011, the Securities and Exchange Commission (the "SEC") issued a release (the "Release") proposing new rule 127B (the "Proposed Rule") under the Securities Act, which would prohibit "material conflicts of interest" in securitizations. The Proposed Rule is intended to implement Section 621 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), codified as Section 27B ("Section 27B") of the Securities Act of 1933, as amended (the "Securities Act"). Subject to certain exceptions, Section 27B prohibits certain participants in asset-backed securities ("ABS") transactions from engaging in transactions within a designated time period that would involve or result in any material conflict of interest. Disclosure of such material conflicts of interest would not otherwise permit such prohibited transactions.
Sep 28, 2011 Recent Amendments to Rule 14a-8 and the Implications for the 2012 Proxy Season This memorandum discusses recent amendments to Exchange Act Rule 14a-8 that will require companies to include in their proxy materials, under certain circumstances, shareholder proposals that seek to establish a procedure for shareholders to include director nominees in the company's proxy materials. This memorandum also identifies certain actions companies should consider for the 2012 proxy season.
Sep 23, 2011 Living Wills: FDIC Modifies, Finalizes Rules On September 13, 2011, the Federal Deposit Insurance Corporation approved the final rule governing the implementation of the "living will" provision found in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule continues to require covered companies to submit to the Board of Governors of the Federal Reserve System, the FDIC and the Financial Stability Oversight Council annual plans for the rapid and orderly resolution of their business in the event of material financial distress. The rule must still be approved by the Federal Reserve (which is expected to approve the rule shortly) It will then become effective 30 days after its publication in the Federal Register.
Sep 22, 2011 Final SEC Rule Regulating Large Trader Reporting On July 27, 2011, the Securities and Exchange Commission (the "SEC") adopted Rule 13h-1 ("Rule 13h-1" or the "Large Trader Rule") and related Form 13H as directed by Section 13(h) of the Securities Exchange Act of 1934 ("Exchange Act"). Rule 13h-1 requires each "Large Trader" (as defined in the Large Trader Rule) (i) to identify itself by filing and periodically updating Form 13H with the SEC and (ii) to disclose to each SEC-registered broker-dealer, through which it trades its large trader identification number ("LTID") and all accounts to which that LTID applies.
Sep 21, 2011 Proposed Treasury Regulations Regarding Swaps and Other Notional Principal Contracts On Thursday, September 15, the Treasury Department and the Internal Revenue Service issued proposed regulations that affect swaps and other notional principal contracts. The proposed regulations are proposed to be effective for contracts entered into on or after the date the final regulations are published in the Federal Register.
Sep 20, 2011 UK Corporate Tax Reform Update While the UK Government’s blue-print for corporation tax reform was put forward in June 2010, key elements of the reform programme have become much clearer during the course of the Summer of 2011. The long awaited detailed and extensive consultation documents on the reform of the UK controlled foreign companies rules and the UK Patent Box have been published, alongside a consultation on changes to the UK debt cap rules and extensive guidance on the foreign branch tax exemption which was enacted in the Finance Act 2011.
Sep 13, 2011 SEC Seeks Public Comment On Treatment of Asset-Backed Issuers under the Investment Company Act The Securities and Exchange Commission (the "SEC") recently issued an advance notice of proposed rulemaking (the "ANPR") requesting public comment on the treatment of asset-backed issuers under Rule 3a-7 under the Investment Company Act of 1940 (the "Investment Company Act").
Sep 06, 2011 Investment in Alternative Energy After the End of Cash Grants The cash grant program for renewable energy expires at the end of this year. When cash grants end, renewable energy projects will once again rely on 'tax equity investors' to offer lower-cost financing in exchange for the tax credits and accelerated depreciation that are available to investments in renewable energy.
Will lenders and investors continue to drive growth in the renewable energy sector after the cash grant program expires? Tax equity investing has been the bedrock of renewable power development for a decade. Although the economy continues to face rough times, there are investors with sufficient tax liability to benefit from renewable tax credits and depreciation, without cash grants. While financial institutions have traditionally been the predominant tax equity investors,
there also are new, significant investors in the renewable tax equity market that could continue to support renewable projects and infrastructure development in the United States.
Sep 02, 2011 UPDATE: MOFCOM's New Security Review Measures (Announcement No. 53): Increased Scrutiny of VIE Structures Operating in Areas of PRC National Concern Recent PRC regulations have increased both the number and complexity of requirements imposed on foreign investors looking to acquire enterprises or assets in China. These new regulations raise questions regarding the validity of common transaction structures used by Chinese companies looking to list overseas. In March 2011, the General Office of the State Council ("State Council") issued the Notice on Establishing a Security Review System for Acquisition of Domestic Enterprises by Foreign Investors ("Circular 6").
Aug 16, 2011 SEC Re-Proposes Shelf Eligibility Conditions for Asset-Backed Securities On July 26, 2011, the Securities and Exchange Commission (the "SEC") re-proposed rules (the "Re-Proposal") regarding new shelf eligibility requirements for asset-backed securities ("ABS"). In April 2010, the SEC had proposed rules that would revise the disclosure, reporting and offering process for ABS (the "2010 Proposal"), and the Re-Proposal is being made in light of changes mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") as well as to address certain comments that the SEC received on the 2010 Proposal.
Aug 10, 2011 Understanding the VIE Structure: Necessary Elements for Success and the Legal Risks Involved The 'variable interest entity' structure (the 'VIE Structure') has been the investment structure of choice for foreign investors to navigate through the grey areas of PRC law on foreign direct investment ('FDI') for over a decade. The VIE Structure was first made famous by Sina.com in its 2000 listing on NASDAQ as a workaround structure in the value-added telecom services sector ('Class II Telecommunications Services'), where FDI is subject to substantial PRC regulatory restrictions. Since then, foreign investors have replicated the VIE Structure in many other sectors of China's economy where FDI is either restricted or prohibited under PRC law.
Aug 04, 2011 SEC Re-proposal of Shelf Eligibility Conditions for Asset-Backed Securities and Applicability to Insurance-Linked Securities On July 26, 2011 the Securities and Exchange Commission (the 'SEC') issued a release (the 'Proposing Release') revising and re-proposing certain rules (the 'Proposed Rules') initially proposed in April 2010 related to asset-backed securities in light of the provisions added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the 'Dodd-Frank Act') and comments received on the 2010 ABS Proposals. Among other things, the 2010 ABS Proposals propose amendments to the safe harbor for exempt offerings and resales for 'structured finance products' in reliance on Securities Act Rule 144A, which would include many Insurance-Linked Securities ('ILS') such as CAT bonds. Under the Proposing Release, the SEC has requested additional comment on these proposals relating to exempt offerings.
Aug 02, 2011 FTC/DOJ Announce Significant Changes to HSR Premerger Notification Form On July 7, 2011, the Federal Trade Commission ("FTC") and the Antitrust Division of the U.S. Department of Justice ("DOJ") announced significant changes to the Hart-Scott-Rodino ("HSR") Premerger Notification Rules and the Premerger Notification and Report Form ("HSR Form") that may substantially increase the burden placed on filing parties. The new HSR rules were published in the Federal Register on July 19, 2011, and will take effect on August 18, 2011. Any transactions notified to the agencies on or after that date must use the amended form.
Jul 28, 2011 FDIC Approves Rule Making With Respect to Orderly Liquidation Authority; Defers Ruling on Living Wills On July 6, the FDIC approved a final rule implementing the Orderly Liquidation Authority. The FDIC had been expected to issue a final rule on the 'Living Will' requirements July 6 as well. However, the FDIC tabled this matter until its August 6 meeting.
The rule on the Orderly Liquidation Authority is promulgated under Title II of the Dodd-Frank Act, which authorizes the FDIC to create an orderly liquidation mechanism for systemically important financial institutions, which are referred to in the rule as covered financial companies. The final rule defines key terms, creates a priority structure, and delineates the procedure for filing a claim. The final rule will become effective August 15, 2011.
Jul 22, 2011 Tax Aspects of the 'Gang of Six' Plan to Reduce the Deficit On Tuesday, July 19, the 'Gang of Six' senators who have been negotiating a bipartisan plan to reduce the budget deficit presented their proposal to a closed-door meeting of forty-nine senators. The plan was immediately praised by members of both parties and President Obama. The plan borrows heavily from the report issued in December by President Obama's National Commission on Fiscal Responsibility.
This memorandum summarizes the tax proposals of the Gang of Six plan and compares the Gang of Six proposals to the analogous proposals made by the Deficit Reduction Commission (and a previous proposal made by the Deficit Reduction Commission's co-chairs, Senator Alan Simpson and Erskine Bowles).
Jul 19, 2011 IRS Issues Proposed Regulations to Clarify Application of Section 162(m) New proposed regulations clarifying perceived ambiguities in the application of the $1 million limit on deductible compensation for covered employees, including the transition rule applicable to privately held corporations that become publicly held, were recently published by the Internal Revenue Service. Companies should review their incentive compensation arrangements to determine whether these proposed regulations, once finalized, will affect such arrangements, and, if so, how such arrangements may need to be modified in order to comply with Section 162(m).
Jul 18, 2011 EPA Finalizes Long-Awaited Transport Rule to Replace CAIR On July 6, 2011, the U.S. Environmental Protection Agency ("EPA") issued its final Cross-State Air Pollution Rule ("CSAPR" or "Final Rule") pursuant to Section 110(a)(2)(D)(i)(I) of the Clean Air Act, 42 U.S.C. § 7410(a)(2)(D)(i)(I). The CSAPR requires significant reductions of emissions of sulfur dioxide ("SO2") and nitrogen oxide ("NOx") from power plants in 27 states in the eastern half of the U.S. that, according to the EPA, contribute to "downwind" ozone or fine particle pollution in other states. The EPA estimates that the CSAPR will achieve a 73% reduction in SO2 and a 54% reduction in NOx power plant emissions from 2005 levels in the covered states. The CSAPR is available on the EPA’s website, but has not yet been published in the Federal Register.
Jul 14, 2011 American Electric Power Co. v. Connecticut: The Supreme Court Bars Tort Lawsuits Challenging Greenhouse Gas Emissions On June 20, 2011, the U.S. Supreme Court unanimously held that the Clean Air Act, and the authority it confers on the U.S. Environmental Protection Agency (EPA) to regulate emissions of carbon dioxide and other greenhouse gases, "displaces" any federal common law right of state, municipal and private plaintiffs to assert tort claims in the federal courts seeking injunctive relief for alleged harm from greenhouse gas emissions. American Electric Power Co. v. Connecticut, No. 10-174, (2011).
Jul 14, 2011 Stern v. Marshall: How Big Is It? On June 23, 2011, the Supreme Court ruled 5-4, in an opinion by Chief Justice Roberts, that a Bankruptcy Judge lacked constitutional authority to issue a final ruling on state law counterclaims by a debtor against a claimant. This is the latest round of a well-known case involving the estate of former model Anna Nicole Smith and the estate of her late husband, wealthy oil magnate J. Howard Marshall.
Jul 08, 2011 SEC Proposed Rules Regarding Third-Party Due Diligence Disclosure On June 8, 2011, the Securities and Exchange Commission (the "SEC") issued a release (the "Proposing Release") describing proposed rules (the "Proposed Rules") implementing the portion of Section 932 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") relating to third-party due diligence. The Proposed Rules describe i) the obligations of issuers and underwriters to disclose the findings and conclusions of third-party due diligence reports and ii) the form this disclosure should take.
Jul 06, 2011 Global Trade Associations Warn of Potential Pitfalls of New Derivatives Regulations Eight international trade associations, including the International Swaps and Derivatives Association, the European Banking Federation and the Futures and Options Association, have sent a joint letter to Michel Barnier, the EU Internal Markets Commissioner, and Timothy Geithner, the Secretary of the US Treasury Department, urging them to focus on greater international coordination in the preparation and implementation of the new regulations on derivatives to be introduced across the G20 jurisdictions. The message of the trade associations reflects two main concerns
Jul 05, 2011 Possible PRC Import Tariff Cut on Luxury Goods and the Recent Textile Tariff Cuts On June, 27, 2011, a spokesman from the Ministry of Commerce ("MOFCOM") stated that China's reduction of the import tariff on luxury goods is only "a matter of time". Other news sources reported that the China government is going to cut the import tariff for luxury products, and some even speculated such an import tariff cut as early as October, 2011. However, as of July 5, 2011, neither the reports nor the schedule for these reductions has been officially confirmed. Furthermore, the controlling department of tariff policies, the Ministry of Finance (the "MOF"), currently holds a different position on this issue.
Jun 30, 2011 The Bribery Act 2010: Are You Ready? The Bribery Act 2010 (the “Act”) enters into force tomorrow and with it comes some of the most far-reaching anti-bribery laws in the world, surpassing the previous benchmark set by the U.S. Foreign Corrupt Practices Act (the “FCPA”). The Act will change profoundly the approach to business transactions and internal investigations of public and private companies.
Jun 27, 2011 A Primer on Foreign Investments, Investment Structures & Special Development Zones in China China's economic strength continues to attract a growing number of first-time China investors. This memorandum presents a general introduction to: investments by foreign investors in China; the various investment structures that may be utilized by such foreign investors; and China's special development zones and their significance for foreign investors.
Jun 27, 2011 SEC Adopts Dodd-Frank Act Investment Adviser Rules and Delays Implementation of Some Deadlines During an open meeting on June 22, 2011, the Securities and Exchange Commission (the "SEC") approved the adoption of new rules under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), as mandated by Title IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"). These rules, which are spelled out in three releases, will require advisers to hedge funds and other private funds to register with the SEC, establish new exemptions from SEC registration for certain advisers, reallocate regulatory responsibility for advisers between the SEC and states, expand Form ADV disclosure by investment advisers, revise the SEC’s "pay-to-play" rule for advisers, and exclude certain "family offices" from the Advisers Act.
Jun 22, 2011 The Dodd-Frank Act: How It Impacts Specific Institutions, Entities and Transactions The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") was signed into law
by President Obama on July 21, 2010. The Act consists of sixteen distinct Titles on a wide variety of topics. Once implemented by the required regulations, the Act will significantly alter the U.S. financial regulatory system. All financial institutions will be directly and materially affected by the
Act’s accompanying regulations, and non-financial institutions that use regulated financial products will be indirectly affected. Additionally, the Act’s amendments to Sarbanes-Oxley and broad changes to executive compensation and corporate governance rules will impact all U.S. public
companies.
Jun 21, 2011 Commodity Markets' Enforcement Landscape to Shift With Federal Trade Commission's Launch of First Crude Oil Investigation Under 2007 Law Yesterday, Senator Jay Rockefeller announced that the Federal Trade Commission (FTC) has agreed to start an investigation into oil and gasoline markets and the impact on retail prices. In a letter to Senator Rockefeller announcing the investigation, the FTC indicated that it was attempting to determine "whether certain oil producers, refiners, transporters, marketers, physical or financial traders, or others (1) have engaged or are engaging in practices that have lessened or may lessen competition – or have engaged or are engaging in manipulation – in the production, refining, transportation, distribution, or wholesale supply of crude oil or petroleum products; or (2) have provided false or misleading information related to the wholesale price of crude oil or petroleum products to a federal department or agency."
Jun 20, 2011 Regulatory Issues For European Funds: Updates on Synthetic ETFs and the Implementation of UCITS IV A recent Financial Stability Board note (“Potential financial stability issues arising from recent trends in Exchange-Traded Funds (ETFs)” ) has raised, not for the first time, the risks to investors supposedly inherent in synthetic ETFs and whether or not those risks require active management by regulatory authorities. Given the focus on counterparty risk post-Lehman, and on the need to protect retail investors investing in “complex” products, the question is being asked again as to whether or not the particular risks generated by these funds require special mitigating measures and restraints.
Jun 14, 2011 SAFE Regulations Affecting Inbound and Outbound Payments in Cross-border M&A Transactions within the People's Republic of China Recently, the Chinese government tightened its policies on foreign exchange and taxes with respect to cross-border mergers and acquisitions ("M&A") transactions. Local government authorities with oversight over foreign currency issues are now given discretion to deny applications to properly register funds designated for M&A transactions in China. In addition, a tax certificate is now required before funds can be remitted offshore. As a result, we believe it will generally take more time to complete M&A transactions and that those not in compliance with the requisite foreign exchange and tax laws in China will be more frequently subject to fines and hurdles in the M&A process. In addition to complying with all PRC government regulations on foreign exchange and taxes, we recommend that parties to an M&A transaction in China consult with legal counsel to mitigate any potential negative effects the heightened regulatory environment will have on a proposed M&A deal.
Jun 13, 2011 Living Wills: A User's Guide To Dodd-Frank's Bequest to Banks In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. While many of its provisions have received greater publicity — such as the Orderly Liquidation Authority of Title II and the swap provisions of Title VII — the so-called "living will" provisions of Dodd-Frank are now receiving more focused attention. Section 165(d) of Dodd-Frank requires "systemically significant" financial institutions to periodically report to the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Company and the Financial Stability Oversight Counsel a plan for the rapid and orderly resolution of their business in the event of material financial distress.
Jun 13, 2011 Two Dodd Frank Problems: the Effective Date and the Definitions; Contingency Planning in the Absence of a Regulatory Structure This memorandum first explains the July 16, 2011 problem that will arise because the Dodd Frank derivatives legislation (Title VII of the statute) goes into effect without either a ready regulatory plan or an operating market structure. The effective date problem is made worse because of drafting problems in Dodd Frank, including the flawed definition of the single most important term in all of the statute: "swap."
Jun 01, 2011 Joint Agencies’ Proposed Rules Governing Incentive-Based Compensation at Covered Financial Institutions The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") requires seven Federal agencies (the "Agencies") to jointly prescribe regulations or guidelines with respect to incentive-based compensation practices at covered financial institutions. On April 14, 2011, the government published proposed rules governing such incentive-based compensation arrangements at covered financial institutions (the "Proposed Rules").
May 26, 2011 The Dodd-Frank Whistleblower Provisions: Considerations for Effectively Preparing for and Responding to Whistleblowers As part of the Dodd-Frank Act ("Dodd-Frank" or the "Act"), Congress created powerful incentives to encourage persons to report (i) potential violations of the federal securities laws to the Securities and Exchange Commission ("SEC") and (ii) potential violations of the Commodity Exchange Act (the "CEA") to the Commodity Futures Trading Commission (the "CFTC"). While the Sarbanes-Oxley Act ("SOX") encouraged up-the-ladder reporting by employees and allowed for self-policing and self-reporting by companies of potential violations, the Dodd-Frank Act’s whistleblower provisions will incentivize external reporting to the regulators that may hamper a company’s ability to self-police and self-report.
May 25, 2011 CFTC Sues Three Firms for Manipulation of 2008 Crude Oil Prices On May 24, 2011, the U.S. Commodity Futures Trading Commission (CFTC) filed a civil complaint in the United States District Court for the Southern District of New York alleging that three speculators, Parnon Energy Inc. (Parnon) of California, Arcadia Petroleum Ltd. (Arcadia Petroleum) of the United Kingdom, Arcadia Energy (Suisse) SA (Arcadia Suisse) of Switzerland, including two individuals, James T. Dyer of Australia and Nicholas J. Wildgoose of California, manipulated (and attempted to manipulate) the price of the New York Mercantile Exchange (NYMEX) West Texas Intermediate (WTI) futures contract in January 2008 and March 2008. The price of the NYMEX WTI futures contract is based on the price of crude oil delivered to Cushing, Oklahoma and is a crucial benchmark for crude oil prices around the world.
May 25, 2011 China Establishes National Security Review Procedures for Acquisitions of Domestic Enterprises and Assets by Foreign Investors As China continues its rapid pace of economic development, there is increasing interest among foreign investors to acquire local Chinese enterprises and assets. Control of local enterprises and assets by foreign investors may involve matters of national security for China. As a result, the Chinese government has issued a set of procedures designed to strengthen its review of acquisitions by foreign investors in sensitive sectors which may significantly increase the amount of
time it takes for foreign investors to get a transaction approved by the Chinese government. If the Chinese government finds that a transaction has national security implications, the procedures
grant it broad powers to amend the terms of the transaction or even cancel it.
May 04, 2011 The Proposed Regulations on Accountable Care Organizations and the Role of Long Term Care, Home Care, and Other Providers Across the Continuum Enacted by Congress in March 2010, the Patient Protection and Affordable Care Act ("PPACA") required the Federal Centers for Medicare and Medicaid Services ("CMS") to establish a Shared Savings Program, under which Accountable Care Organizations ("ACOs") would assume responsibility for the cost and quality of care for Medicare fee-for-service ("FFS") beneficiaries and share in the savings achieved in accord with financial and clinical benchmarks set by CMS. In our November 30, 2010, Clients & Friends Memo, "National Health Care Reform Promotes Accountable Care Organizations", we discussed some of the legal and regulatory issues surrounding ACOs posed by PPACA. We also noted that many key issues related to ACO formation, governance, operation, and financial incentives would be addressed in the regulations.
Apr 22, 2011 FERC Orders Trader to Pay $30 Million for Market Manipulation On April 21, 2011, the Federal Energy Regulatory Commission (FERC) ruled that former Amaranth Advisors LLC trader Brian Hunter violated FERC’s Anti-Manipulation Rule and ordered Hunter to pay a $30 million civil penalty. This is the first litigated case involving FERC’s enhanced anti-manipulation authority under section 4A of the Natural Gas Act, which prohibits manipulation in connection with FERC-jurisdictional transactions. FERC’s order, which affirmed a previous decision by a FERC Administrative Law Judge (ALJ), found that “Hunter’s trading practices [in the natural gas futures market during the settlement periods on] expiration days were fraudulent or deceptive, undertaken with the requisite scienter, and carried out in connection with FERC-jurisdictional natural gas transactions.”
Apr 21, 2011 The Dodd-Frank Act's Impact on Affiliate Transactions The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) contains several provisions that will tighten the restrictions that govern transactions between banks and their affiliates – Sections 23A and 23B of the Federal Reserve Act – beginning in July 2012. These new provisions will (i) significantly increase the cost and burden of certain types of transactions between a bank and its nonbank affiliates, in particular, derivatives, securities lending/borrowing, and repo transactions; (ii) expand the scope of “affiliates” subject to Sections 23A and 23B; and (iii) increase the collateral burdens applicable to extensions of credit. As a result, banks should review, and may be required to modify, existing business arrangements with affiliates (as newly redefined) to comply with the new requirements.
Apr 13, 2011 CFTC, Prudential Regulators Propose Margin Rules for Non-Cleared Swap On April 12, 2011, the Commodity Futures Trading Commission (“CFTC”) voted 4-1 to issue proposed rules establishing minimum initial and variation margin requirements for non-cleared swaps entered into by CFTC-regulated swap dealers and major swap participants. Later the same day, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Farm Credit Administration and the Federal Housing Finance Agency(collectively, “Prudential Regulators”) jointly issued their own rules establishing margin requirements for swap dealers and major swap participants that are subject to their respective prudential regulation.
Apr 12, 2011 The MiFID Review and What it Means For Commodities The European Commission’s December 2010 consultation paper on wholesale revisions to MiFID has focused on commodities derivatives as an area for regulatory intervention and oversight. The proposals, outlined as follows, are likely to lead to significant infrastructure changes for firms that trade commodities derivatives, particularly those firms that now rely on exemptions for own account and “ancillary” trading. The proposals place unregulated and non-financial firms into a financial regulatory context by requiring trading authorisation and imposing capital requirements, conduct of business and operational requirements.
Apr 06, 2011 In Matrixx Decision the Supreme Court Rejects Bright-Line Materiality Test for Motions to Dismiss Securities Fraud Claims On March 22, 2011, the United States Supreme Court, in a unanimous decision written by Justice Sonia Sotomayor, stated that the "materiality" element of a claim for securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, "is satisfied when there is 'a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available,'" and held that materiality "cannot be reduced to a bright-line rule." The Court ruled that on a motion to dismiss, a court must assess – on a case by case basis – the totality of available information and not focus solely on the presence or absence of a single type of information.
Apr 06, 2011 Proposed Credit Risk Retention Requirements for Asset-Backed Securities Transactions The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") was signed into law by President Obama on July 21, 2010. On March 28, 2011, the Federal banking agencies (the Office of the Comptroller of Currency, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System), the Securities and Exchange Commission ("SEC"), the Department of Housing and Urban Development ("HUD"), and the Federal Housing Finance Agency ("FHFA") (collectively, the "Agencies") released a joint notice of proposed rulemaking (the "NPR") containing proposed rules ("Proposed Rules") to implement the credit risk retention requirements of Section 941(b) of the Act, codified as Section 15G ("Section 15G") of the Securities Exchange Act of 1934 (the "Exchange Act").
Apr 04, 2011 Hospital and Nursing Home Ethics Committees Face Significant New Responsibilities On June 1, 2010, the Family Health Care Decisions Act (the "FHCDA" or the "Act") became effective in New York State. Proposed by the New York State Task Force on Life and the Law in 1992, the Act effects sweeping changes to New York State's laws on treatment decisions for patients in hospitals and nursing homes. Specifically, the FHCDA establishes a new Article 29-CC of the Public Health Law that covers treatment decisions, including decisions to forgo life-sustaining measures, for adults who lack the capacity to decide for themselves and have not signed an advance directive. The Act also covers decisions to forgo life-sustaining treatment for children.
Mar 30, 2011 The UK Budget 2011 – Spotlight on Insurance On 23 March 2011, the Chancellor of the Exchequer announced a number of measures that will both directly and indirectly affect the UK tax treatment of insurers.
While the UK insurance sector will likely welcome the reduction in April 2011 of the main rate of corporation tax, there are a number of sector-specific areas in which further changes have been announced.
Mar 24, 2011 UK Budget 2011: Key Taxation Aspects The Chancellor of the Exchequer’s second budget, held on 23 March 2011, was perhaps most notable for the attention placed on fiscal neutrality, coupled with plans for the stimulation of economic growth. The technical tax developments and announcements echoed this approach. One document described a “coherent framework” within which HMRC could tackle perceived tax avoidance, an approach supplemented by the closure of a number of loopholes and schemes and a general focus on measures to “shut down the open abuses that have been allowed to continue for too long”. Other provisions focused on encouraging investment in UK enterprise and in developing the competitiveness of the UK economy.
Mar 18, 2011 SEC Launches FCPA Probe of Financial Services Industry's Interactions with Sovereign Wealth Funds The U.S. Securities and Exchange Commission ("SEC") has, to our understanding, delivered letters of inquiry to at least 10 hedge funds, banks, and private equity firms requesting information about the firms’ interactions with sovereign wealth funds ("SWF"). That list may expand to include other financial institutions. The investigation appears to be driven by: (i) the SEC's opinion that SWF employees are foreign government officials for purposes of the Foreign Corrupt Practices Act ("FCPA"); and (ii) reports that certain hedge funds, banks, and private equity firms may have paid bribes to those government officials to attract or retain business.
Mar 16, 2011 New York State Supreme Court Upholds Springing Guaranty in Granting Summary Judgment On March 8, 2011, in a decision enforcing a springing guaranty in a commercial real estate loan, the Supreme Court of the State of New York granted a motion for summary judgment in lieu of complaint pursuant to CPLR 3213. In UBS Commercial Mortg. Trust 2007-FL1, Commercial Mortg. Pass-through Certificates, Series 2007-FL1 v. Garrison Special Opportunities Fund L.P., the court not only found that such springing guaranty was an instrument for the payment of money only, thus entitling Plaintiffs to move for summary judgment in lieu of complaint, but the court also found that such springing guaranty was neither an unenforceable penalty nor against public policy.
Mar 02, 2011 Third Circuit Upholds Use of Discounted Cash Flow Method Under Bankruptcy Code Section 562 in In re American Home Mortgage Holdings, Inc., et al. On February 16, 2011, the United States Court of Appeals for the Third Circuit ruled that a discounted cash flow analysis constituted "a commercially reasonable determinant[] of value" for purposes of section 562(a) of the United States Bankruptcy Code. In so doing, the court upheld the United States Bankruptcy Court for the District of Delaware decision sustaining the objection of American Home Mortgage Holdings, Inc. (the "Debtors") to the $478.5 million claim of Calyon New York Branch for damages related to the termination of a mortgage loan repurchase agreement. Calyon had taken the position that no commercially reasonable determinants of value existed on the termination date, and, in reliance on section 562(b) of the Code, calculated its claim based on the "market value" of the specific loans at issue one year after the termination date.
Mar 01, 2011 SEC Finalizes Rules Regarding Shareholder Approval of Executive Compensation and Golden Parachute Arrangements On January 25, 2011, the Securities and Exchange Commission (the “SEC”) adopted final rules (the “Final Rules”) to implement the provisions of Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires publicly traded companies to provide for non-binding shareholder votes on executive compensation (“say-on-pay votes”), the frequency of say-on-pay votes (“say-when-on-pay votes”), and golden parachute packages of named executive officers (“say-on-golden-parachute votes”). The Final Rules become effective on April 4, 2011 and are largely similar to proposed rules (the “Proposed Rules”) that the SEC issued on October 18, 2010, discussed here. This Clients & Friends Memo supplements our previous discussion of the Proposed Rules by summarizing some of the substantive differences between the Proposed and Final Rules.
Feb 28, 2011 Final Regulations Issued with Respect to FBAR Filing Requirements On Wednesday, February 23, the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the Treasury Department, issued final regulations (the “Final Regulations”) describing the individuals and entities that are required to file Form TD F 90-22.1 – Foreign Bank and Financial Accounts Report (“FBAR”), and the foreign financial accounts that they must report. The Final Regulations
are substantively identical to the proposed regulations that were issued on February 26, 2010 (the “Proposed Regulations”). Most significantly, the Final Regulations continue to reserve on whether equity interests in foreign hedge funds, private equity funds, and other non-mutual company investment funds are treated as financial accounts subject to FBAR reporting.
Feb 25, 2011 Changes to the Rules on Client Assets: Implications For Prime Brokers and Funds On 1 March 2011, a series of amendments to the FSA’s Client Assets Sourcebook (“CASS”) come into force that will require the repapering of relationships between prime brokers and their fund customers as well as a review of any liens granted in custody agreements.
These amendments are set out in FSA Policy Statement 10/16 which also contains new rules to: (i) limit deposits of client monies with other group entities to a maximum of 20% (comes into force on 1 June 2011); (ii) require firms to make a Client Money and Asset Return (“CMAR”) (comes into force on 1 June 2011 ); and (iii) establish a CASS oversight controlled function (comes into force on 1 October 2011).
Feb 18, 2011 Del Monte Decision Enjoins Shareholder Vote and Deal Protections; Holds Buyer Potentially Responsible for Aiding and Abetting Seller Board’s Fiduciary Breach
In In re Del Monte Foods Company Shareholders Litigation, Consol. C.A. No. 6027-VCL (Del. Ch. Feb. 14, 2011), the Court of Chancery temporarily enjoined a shareholder vote on a high premium, all-cash merger to require an additional 20-day market check based on a preliminary finding that the sale process was potentially tainted by alleged misconduct by Del Monte’s financial advisor and the private equity buyers. The Court also enjoined the parties from enforcing the buyer’s deal protections and left open the door for a monetary damages claim against the buying consortium as an “aider and abettor” of a fiduciary breach by Del Monte’s Board.
Feb 17, 2011 Energy Tax Provisions in the Obama Administration's Fiscal Year 2012 Budget On Monday, the Treasury Department released the Obama Administration's Fiscal Year 2012 Revenue Proposals (the "Greenbook"), which includes several significant energy-related tax proposals. The proposals are all substantially similar to the energy-related tax proposals in last year’s Greenbook, except for a new proposal to provide a tax credit in lieu of a deduction for energy-efficient commercial buildings.
Feb 17, 2011 Tax Proposals in the Obama Administration's Fiscal Year 2012 Revenue Budget On Monday, the Treasury Department released the Obama Administration's Fiscal Year 2012 Revenue Proposals. This memorandum summarizes the tax proposals that are of most interest to U.S. corporate taxpayers, financial institutions, insurance companies, hedge funds, private equity funds, and high-income individuals.
Feb 14, 2011 Proposed EU “Bail-in” Measures May Impact Credit Derivatives Framework The European Commission recently launched a consultation on the Technical Details of a Possible EU Framework for Bank Recovery and Resolution (the “Consultation”). The Consultation is designed to be read with the Commission's October 2010 communication (the “Communication”) on an EU framework for crisis management in the financial sector. The Consultation contains technical details which expand on the principles identified in the Communication.
Feb 11, 2011 Fed Issues Final Regulations on the Volcker Rule’s Extension Periods On February 9, 2011, the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") issued final regulations implementing the various conformance and extension periods under the Dodd-Frank Act’s "Volcker Rule." These new regulations will be codified as new Subpart K of the Federal Reserve Board’s Regulation Y.
Feb 08, 2011 Summary of Proposed Rulemaking Regarding Commodity Options & Agricultural Swaps The Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits swaps in an agricultural commodity unless conducted pursuant to a rule or order under the Commodity Futures Trading Commission’s (“CFTC” or “Commission”) 4(c) exemptive authority. In the CFTC’s Notice of Proposed Rulemaking regarding Commodity Options and Agricultural Swaps, the Commission proposes to adopt new rules that would expressly require eligible parties that enter into swaps in an agricultural commodity to be subject to the same provisions of the CEA and the CFTC’s regulations that apply to all other commodity swaps. In addition, all over-the-counter commodity option transactions, including options on physical commodities, would be subject to the same requirements that apply to commodity swaps.
Feb 02, 2011 Important Court Decision For No-Fault Insurers; New York Court Grants Summary Judgment To Insurers On Mallela Issue We are very pleased to inform you that on January 28, 2011 our firm, together with our co-counsel Bob Stern of Stern & Montana, obtained a very favorable and significant decision for no-fault insurers from the Commercial Division of the New York County Supreme Court. Specifically, Supreme Court (Honorable Eileen Bransten) found that four radiology providers were ineligible to receive no fault benefits because they had engaged in illegal fee splitting with non professionals and were unlawfully controlled and/or beneficially owned by a non professional. In addition to dismissing all of the providers’ counterclaims against the insurers, the Court granted partial summary judgment in favor of the insurers, and against the providers, the radiologist and the real beneficial owner, on the insurers’ claims for fraud and unjust enrichment.
Feb 01, 2011 SEC Issues Final Rules for New Disclosure Requirements Regarding Representations and Warranties in Asset-Backed Securities Offerings The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") was signed into law by President Obama on July 21, 2010. Section 943 of the Act requires the Securities and Exchange Commission (the "SEC") to prescribe regulations on the use of representations and warranties in the market for asset-backed securities. Such regulations must provide for disclosure by "securitizers," as defined in the Act, of fulfilled and unfulfilled repurchase requests across all trusts aggregated by the securitizer. They also require a description by nationally recognized statistical rating organizations ("NRSROs"), in reports accompanying credit ratings of securitization transactions, of the representations, warranties and enforcement mechanisms contained in each transaction and how they differ from those contained in issues of similar securities.
Feb 01, 2011 SEC Issues Final Rules Regarding Diligence and Disclosure in ABS Offerings The Securities and Exchange Commission (the "SEC") issued final rules (the "Final Rule") on January 20, 2011, implementing the provisions of Section 945 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"). Section 945 of the Act directed the SEC to issue rules that require an issuer of publicly offered asset-backed securities ("ABS") to perform a review of the assets underlying an ABS offering and disclose the nature of that review. The Final Rule adopts the SEC’s earlier proposal with one important change, which is the inclusion of a minimum standard of review. The SEC also adopted amendments to Regulation AB that would require an ABS issuer to disclose information regarding assets that deviate from disclosed underwriting criteria.
Jan 10, 2011 SEC's First Use of A Non-Prosecution Agreement Shows Potential Benefits For Respondents But Also Demonstrates Potential Pitfalls On December 20, 2010, the Securities and Exchange Commission announced its first use of a non-prosecution agreement ("NPA") to resolve an enforcement investigation under the SEC's new cooperation initiative. The SEC first announced the availability of both NPAs and deferred prosecution agreements almost a year ago. The details of the agreement suggests that NPAs may simply function as a cooperation agreement, and, as anticipated, unlike a traditional settled injunction or administrative proceeding, will have no Commission findings and no sanctions associated with them. Under the right circumstances, an NPA should provide a tangible reward for cooperation. However, the SEC's first NPA also raises issues with respect to the specific scope of the settling party's continuing obligations under NPAs.
Jan 07, 2011 OMIG Begins Policing Provider Compliance Programs Last November, New York Medicaid Inspector General, James G. Sheehan, participated in a Webinar entitled "Evaluating Effectiveness of Compliance Programs," in which he described, among other things, OMIG's role in ensuring a provider’s implementation of an effective compliance program, detailing the steps he and OMIG Compliance staff are taking to evaluate a provider's implementation of the eight elements of a compliance program prescribed in the regulations. OMIG has since provided further guidance with respect to OMIG’s oversight of a provider’s compliance program in its 2011 Medicaid Work Plan, issued on December 6, 2010.
Jan 05, 2011 Revising the Remuneration Code: Pan-European Requirements Applicable From 1 January 2011 On 17 December 2010, the Financial Services Authority (FSA) published final rules expanding on its Remuneration Code in order to implement amendments being brought in by the Capital Requirements Directive (CRD 3) and guidelines on remuneration from the Committee of European Banking Supervisors (CEBS). These new rules expand the scope of application of the FSA’s existing Remuneration Code beyond the 26 larger banks covered by the original Code to include all banks, building societies and CAD investment firms (which will include asset managers, UCITS funds and most hedge fund managers).
Dec 22, 2010 High Court Interprets Section 2(a)(iii) of the ISDA Master Agreement Yesterday, the High Court gave its judgment in the case of Lomas and others v JFB Firth Rixson, Inc and others upon application by the Joint Administrators of Lehman Brothers International Europe ("LBIE") for directions as to the construction and effect of five interest rate swap agreements ("Swaps") to which LBIE is a party.
Dec 17, 2010 The Directive on Alternative Investment Fund Managers: Implications For Non-European Investment Managers The Directive on Alternative Investment Fund Managers (the “Directive”) is aimed, broadly, at two targets. Firstly, it requires the authorisation and supervision of all alternative investment fund managers (“AIFM”) and imposes investor protection requirements on those authorised AIFM. These requirements include significant obligations to make disclosures to investors, regulators and target companies, obligations to deploy adequate risk management systems, obligations to appoint independent depositaries who bear a degree of legal liability to the investor, and leverage controls. Secondly, the Directive looks to create a truly borderless market across the EU to allow AIFM to “passport” their services throughout Europe once authorised in a single Member State. For the first time, these passports will (eventually) be available to non-EU persons.
Dec 14, 2010 The Lincoln Amendment: Banks, Swap Dealers, National Treatment and the Future of the Amendment One of the most contentious provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") is Section 716 – commonly referred to either as the "Lincoln Amendment" after its principal proponent, Senator Blanche Lincoln of Arkansas, or alternatively by its functional name, the "swaps push-out rule." The Lincoln Amendment effectively forbids FDIC-insured institutions and other entities that have access to Federal Reserve credit facilities – including banks, thrifts, and U.S. branches of foreign banks – from acting as a "swap dealer" except in certain limited circumstances, thus requiring such institutions to "push out" most swap dealing activities into an affiliate that is not FDIC insured and that does not otherwise access Federal Reserve credit facilities. The Lincoln Amendment will become effective in July 2012 and will have a significant, and likely not wholly anticipated, impact on banks and U.S.
Dec 03, 2010 Final Report of President Obama's Deficit Reduction Commission Today, President Obama's bipartisan deficit-reduction commission approved its final report proposing sweeping changes to the tax, social security, and health care systems. The vote was 11 out of 18 in favor, which was fewer than the 14 votes that Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi had required for a vote by Congress. Nevertheless, because the report had bipartisan support, it is expected to be influential. The commission's report follows a prior draft proposal circulated by the Co-Chairs of the commission and another report issued by the Debt Reduction Task Force of the Bipartisan Policy Center. This memorandum summarizes and analyzes the significant tax and social security proposals of the three reports.
Dec 01, 2010 Important Court Decision For No-Fault Insurers; New York Appellate Court Rejects Limitation On State Farm v. Mallela We are very pleased to inform you that on November 30, 2010 our firm, together with our co-counsel Bob Stern of Stern & Montana, obtained a very favorable and significant decision for no-fault insurers from the Appellate Division, First Department, on an issue of first impression before the New York State appellate courts. This marks the second time in this same case that the Appellate Division has ruled in favor of no-fault insurers on an issue of first impression. In the first instance, the Court confirmed the right of insurers to defend any unpaid claim under State Farm v. Mallela irrespective of whether the services were alleged to be rendered prior to the April 2002 effective date of the new no-fault regulations.
Nov 30, 2010 National Health Care Reform Promotes Accountable Care Organizations National health care reform, as enacted by the Patient Protection and Affordable Care Act (“PPACA”), seeks to achieve major changes in the health care delivery system to enhance quality, efficiency, and patient-centered care. PPACA adopted a variety of policy tools to advance these goals that will affect providers across the continuum of care, including: pay-for-performance for long-term care, home care, and other providers; pilot program funding to create medical homes; demonstration programs for bundled payments to providers; and establishment of a Center for Medicare and Medicaid Innovation to study and fund new models of health care delivery.
Nov 29, 2010 SEC Proposes New Rules Regarding Shareholder Approval of Executive Compensation and Golden Parachute Arrangements The Securities and Exchange Commission (the "SEC") recently issued proposed rules (the "Proposed Rules") to implement the provisions of Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"). Section 951 of the Act requires publicly traded companies to provide for non-binding shareholder votes on executive compensation ("say on pay" and "say when on pay" votes) and golden parachute packages ("say on golden parachutes") of named executive officers.
Nov 22, 2010 S&P Reconsiders De-Linked Rating for Bank-Sponsored Securitizations That Fall Outside FDIC's Final Safe Harbor Rule Standard & Poor's issued an update (the "Update") last week indicating that it could issue a de-linked, asset-based credit rating for securities issued in a securitization sponsored by an insured depository institution ("Bank") that qualifies as a sale under GAAP, even if the transaction fails to comply with the Federal Deposit Insurance Corporation's new securitization safe harbor rule (the "Rule").
The Update modifies S&P's earlier position announced in October 14, 2010, which many had interpreted to mean that all Bank-sponsored securitizations must comply with the Rule, regardless of legal and accounting sale conclusions, in order to obtain a rating based solely on the credit strength of the assets. In the Update, S&P indicates that it could issue a de-linked credit rating under certain circumstances, namely, where the transaction qualifies as a sale under GAAP and the Bank retains no economic interest in the securitized assets.
Nov 15, 2010 The SEC Publishes Final Rule Regulating Access to Securities Markets The Securities and Exchange Commission (the "SEC") has adopted Rule 15c3-5 ("Rule 15c3-5" or the "Rule") under the Securities Exchange Act of 1934, restricting trading arrangements commonly called "sponsored access" or "direct market access." Rule 15c3-5 imposes regulatory requirements and restrictions on broker-dealers that are members of a national securities exchange or an alternative trading system ("ATS", and collectively with the exchanges, the "markets") who allow their customers (including customers who are themselves broker-dealers) to access the market under the member’s identification. The provisions of the Rule will apply as well to proprietary transactions for the broker-dealer’s own account and traditional agency transactions, which are routed directly to a market, though the primary focus of the Rule is to regulate the provision of market access to customers.
Nov 09, 2010 Important Gift and Generation-Skipping Transfer ("GST") Tax Planning Opportunities It was expected that Congress would enact legislation pertaining to the U.S. Federal estate, gift and GST tax laws for transfers in 2010, and, possibly, make such legislation retroactive to January 1, 2010. To date, Congress has not taken any such action. As matters now stand, there is no U.S. Federal estate or GST tax imposed on transfers in 2010, but the U.S. Federal gift tax still applies. The current state of affairs has given rise to tax planning opportunities that may be available, but only through the end of 2010.
Nov 08, 2010 New York State Enacts Prudent Management of Institutional Funds Act On September 17, 2010 New York State enacted the New York Prudent Management of Institutional Funds Act ("NYPMIFA"), joining about 47 other States that have adopted a form of UPMIFA. However, NYPMIFA varies in significant ways from the model act, and imposes unique burdens on directors of not-for-profit institutions and fund managers. This memorandum provides an overview of NYPMIFA, including the provisions of the statute that differ from the model act.
Oct 27, 2010 Art. 122a: Risk Retention for Securitisations with European Credit Institution Investors Art. 122a is an article added to the European Union Capital Requirements Directive (“CRD”). The CRD sets out the framework for bank capital rules that apply to over 6,200 credit institutions established in the 30 member states of the European Economic Area (“EEA”). Although Art. 122a applies only to EEA credit institutions, it has implications for originators, issuers and arrangers of securitisations worldwide.
Oct 27, 2010 S&P Likely to Refuse De-Linked Ratings for Bank-Sponsored Securitizations That Fail to Meet FDIC’s Final Safe Harbor Rule Standard & Poor’s announced recently that it will likely treat as secured loans Bank-sponsored securitizations that constitute sales under GAAP, but fail to comply with the FDIC’s final securitization safe harbor rule (the “Rule”). As secured loans, these transactions may not receive credit ratings linked solely to the credit of the underlying assets, but instead will receive credit ratings linked to those of the insured depository institution (each, a “Bank”) that sponsored the securitization. S&P’s announcement follows a conversation it reports to have had with the Federal Deposit Insurance Corporation (“FDIC”). According to S&P, the FDIC suggested it could repudiate any Bank securitization that failed to comply with the Rule. Since the adoption of the Rule last month, rating agencies and other industry players have been grappling with the Rule’s ramifications. S&P’s announcement suggests that to avoid any legal risk associated with structuring a transaction outside of the
Oct 26, 2010 SEC Proposes New Rules Regarding Diligence and Disclosure in ABS Offerings
As part of what is expected to be a wave of proposed rulemaking under The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"), the Securities and Exchange Commission (the "SEC") issued proposed rules to implement the provisions of Section 945 and a portion of Section 932 of the Act (the "Proposed Rules"). Section 945 of the Act added Section 7(d) to the Securities Act of 1933, as amended (the “Securities Act”), directing the SEC to issue rules requiring an issuer of asset-backed securities ("ABS") to perform a review of the assets underlying an ABS offering and disclose the nature of that review. Section 932 of the Act added Section 15E(s)(4)(A) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which requires an issuer or underwriter of ABS to make publicly available the findings and conclusions of any third-party due diligence report obtained by the issuer or underwriter.
Oct 18, 2010 SEC Proposes New Disclosure Requirements Regarding Representations and Warranties in Asset-Backed Securities Offerings The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was signed into law by President Obama on July 21, 2010. Section 943 of the Act requires the Securities and Exchange Commission (the “SEC”) to prescribe regulations in the use of representations and warranties in the market for asset-backed securities. Such regulations must set forth new disclosure requirements for issuers, originators and depositors and nationally recognized statistical rating organizations (“NRSROs”) in securitization transactions where the transaction documents require the repurchase or replacement of underlying assets in connection with a breach of asset-level representations and warranties.
Oct 15, 2010 An Analysis of the Dodd-Frank Act's Volcker Rule On Friday, October 1, 2010, the federal "Financial Stability Oversight Council" ("FSOC" or "Council") convened for the first time. The FSOC, created by Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act" or the "Act"), is comprised of the heads of the federal financial regulatory agencies and two presidential appointees, and is tasked with establishing recommendations regarding certain of the regulations that the financial regulatory agencies are required to adopt under the Dodd-Frank Act. One of the purposes of this initial meeting was to approve the issuance of a Request for Public Input (the "Request") soliciting comment regarding certain definitions contained in, and the general content of, Section 619 of the Dodd-Frank Act, popularly known as the "Volcker Rule." Public comments are due by November 5, 2010.
Oct 13, 2010 District Court Grants BNY Leave to Appeal Bankruptcy Court's Interlocutory Order In Lehman, Prohibiting Enforcement Of Ipso Facto Clause In Swap On September 21, 2010, the United States District Court for the Southern District of New York granted BNY Corporate Trustee Services Limited leave to appeal a decision of the Bankruptcy Court in the Lehman Brothers bankruptcy case. The Bankruptcy Court held that a key provision of certain transaction documents constituted an unenforceable ipso facto clause. The District Court granted leave to appeal the Bankruptcy Court decision even though it was interlocutory. The District Court held that the case warranted interlocutory review because the Bankruptcy Court decision represented a controversial question of first impression and because appellate review would advance resolution of the litigation.
Oct 11, 2010 FDIC Adopts Final Securitization Safe Harbor Rule On September 27, 2010 the Federal Deposit Insurance Corporation (“FDIC”) adopted its final safe harbor rule (the “Rule”) for securitizations sponsored by insured depository institutions (each, a “Bank”), which replaces the FDIC’s original safe harbor adopted in 2000.
Sep 28, 2010 FDIC Approves Final Securitization Safe Harbor On Monday, September 27, 2010, the Federal Deposit Insurance Corporation (the "FDIC") approved its final rule (the "Rule") regarding amendments to its securitization "safe harbor rule." Through adoption of the Rule, the FDIC seeks to use its authority to repudiate contracts when a Bank fails as the basis for comprehensively regulating the issuance and servicing of Bank-related asset backed securities in connection with a securitization or a participation occurring after December 31, 2010.
Sep 07, 2010 IRS Notice 2010-60: Preliminary Guidance on the "FATCA" Reporting and Withholding Rules On August 27, the Internal Revenue Service issued Notice 2010-60, which gives preliminary guidance on the "FATCA" foreign reporting and withholding regime for payments to foreign financial institutions, foreign hedge funds, foreign private equity funds, foreign CDOs, and other similar foreign vehicles. FATCA was enacted as part of the Hiring Incentives to Restore Employment Act (the "HIRE Act") and comes into effect in 2013.
Aug 31, 2010 Recent Developments Concerning ERISA at the Department of Labor This summer has proven to be one of significant activity at the U.S. Department of Labor (the “DOL”) with respect to the refinement of two significant exemptions to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). In July, the DOL amended Prohibited Transaction Exemption (“PTE”) 84-14, 75 Fed. Reg. 38837 (July 6, 2010) (the “QPAM Exemption”) to permit a qualified professional asset manager (a “QPAM”) to manage an investment fund containing assets of such QPAM’s own employee benefit plan. In July, the DOL published an interim final regulation clarifying the disclosure necessary for plan fiduciaries in concluding whether a contract or arrangement is “reasonable” in order to assist such fiduciaries in deciding whether the statutory exemption contained in Section 408(b)(2) of ERISA is available with respect to services provided by a party in interest to a plan.
Aug 27, 2010 UK Tax Summer Update 2010 The summer of 2010 has seen a number of important tax developments and initiatives which will set the context of key legislative changes for the remainder of 2010. Foremost among the raft of consultations and discussion documents which have been published by the Government have been the proposals regarding a UK bank levy, a consultation paper on the overseas branches of UK companies and further insight into the proposed anti-avoidance measures to counteract “group mismatch schemes”. We have included a summary of these initiatives in this Clients & Friends Memorandum as well as some important, but perhaps less prominent, changes such as the introduction of a double tax treaty “passport scheme” and a summary of the new guidance on the changes to the complex legislation relating to debt buybacks.
Aug 24, 2010 China’s Anti-tax Avoidance Measures for Offshore SPVs In a circular issued on 10 December 2009, the State Administration of Taxation (“SAT”) made clear its intention to target offshore transactions involving the indirect transfer of PRC enterprises (Notice on Strengthening the Management of Enterprise Income Tax Collection of Proceeds from Equity Transfers by Non-Resident Enterprises Guoshuihan [2009] No. 698) (“Circular 698”). Circular 698 has ushered in a new era in the China cross-border transactional landscape, and represents the most recent challenge for offshore holding companies or special purpose vehicle (“SPV”) structures in the PRC.
Aug 18, 2010 IRS Guidance on Release of Real Properties Securing Mortgage Loans Held by REMICs On August 17, 2010, the Internal Revenue Service (the “IRS”) released Revenue Procedure 2010-30 (the “Revenue Procedure”), which clarifies Treasury regulations issued in September 2009 (the “Modification Regulations”), concerning changes in the collateral securing mortgage loans held by real estate mortgage investment conduits (“REMICs”).
Aug 12, 2010 Changes to the Regulation of Broker-Dealers and Investment Advisers Under Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act Part I of this memorandum focuses on Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) as it relates to the regulation by the Securities and Exchange Commission (“SEC”) of broker-dealers and, to a lesser extent, investment advisers. Part II of this memorandum covers a number of miscellaneous provisions included within Title IX that may affect broker-dealers. Part III describes studies to be conducted by the SEC, the reorganization of the SEC, and a provision that affects current beneficial ownership and short swing profit reporting requirements. Other memoranda prepared by Cadwalader cover the remaining provisions of Title IX, which include (i) significant requirements relevant to credit rating agencies and structured finance products, and (ii) rules related to executive compensation and corporate governance that apply to public companies generally, not merely to those engaged in financial activities.
Aug 11, 2010 The Education Jobs and Medicaid Assistance Act of 2010 Yesterday, President Obama signed into law the Education Jobs and Medicaid Assistance Act of 2010 (H.R. 1586) (the “Act”). The Act allocates approximately $10 billion to local school districts to prevent teacher layoffs due to state revenue shortfalls, and approximately $16 billion to help states pay rising Medicaid costs without having to lay off public and private sector employees to raise funds.
The Act funds approximately $1.1 billion of the allocations by eliminating the advance payment option for the earned income credit, and approximately $9 billion of the allocations through several changes to the international provisions of the Internal Revenue Code. Part II of this memorandum lists these international tax law changes, and Part III explains them in greater detail.
Jul 22, 2010 The EU Commission Proposes Onerous Requirements for Rated Structured Finance Instruments The EU Commission has recently proposed amendments to Regulation (EC) No 1060/2009 (the “CRA Regulation”) of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (“CRAs”), which include a proposal to require all information necessary for the CRA hired by an issuer to determine or monitor the credit rating of a structured finance instrument to be made available to non-hired CRAs.
The stated purposes of the proposal are to reinforce competition between CRAs; to help avoid possible conflicts of interest under the issuer-pays model; to enhance transparency and the quality of ratings; and to promote the issuance of unsolicited ratings . The proposal follows closely the recent amendments to Rule 17g-5 of the Securities Exchange Act of 1934 in the U.S.
Jul 20, 2010 Executive Compensation and Corporate Governance Provisions Under the Dodd-Frank Wall Street Reform and Consumer Protection Act The focus of this Memorandum is Title IX – Subtitle E “Accountability and Executive Compensation” and Title IX – Subtitle G “Strengthening Corporate Governance” of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). We note that the Act requires the Securities and Exchange Commission (“SEC”), or other specified federal regulator, to develop rules in order to fully implement many of these compensation and corporate governance provisions. Accordingly, the ultimate impact of such provisions will in large part depend on how such rules are implemented.
Jul 20, 2010 Hedge Fund Regulation Under the Dodd-Frank Wall Street Reform and Consumer Protection Act The inevitable heightened regulation of the hedge fund industry has come to fruition, with the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act”) by the Senate on July 15, 2010. While the Act could be worse – it does not appear to be the operational and expense burden to hedge funds that Sarbanes-Oxley is for corporate America – its ultimate effects remain to be seen, as much of the detailed formulation and implementation of the Act’s largely ambiguous provisions are left to future rulemaking by a wide range of increasingly powerful governmental regulators having tremendous discretionary authority, such as the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Board of Governors of the Federal Reserve System, and the to-be-established Financial Stability Oversight Council.
Jul 20, 2010 Insurance Reforms Under the Dodd-Frank Wall Street Reform and Consumer Protection Act On July 15, 2010, the Senate voted in favor of adopting the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). The Act is far reaching in scope and represents the culmination of months of debate and intense lobbying. The Act was precipitated by the financial crisis that began in 2007 and, therefore, its primary goal is to prevent a recurrence. The focus of this Memorandum is Title V – “Insurance” – of the Act.
Jul 20, 2010 Orderly Liquidation of Financial Companies, Including Executive Compensation Clawback, Under the Dodd-Frank Wall Street Reform and Consumer Protection Act Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“WSRCPA”)
represents Congress’ attempt to address companies considered “too big to fail.” The statute creates a new “orderly liquidation authority” (“OLA”), which allows the Federal Deposit Insurance Corporation (“FDIC”) to seize control of a financial company whose imminent collapse is determined to threaten the financial system as a whole. Commencement of a receivership under the OLA would preempt any proceedings under the Bankruptcy Code. Thus, lenders, rating agencies, and others seeking to transact business with a company, or an affiliate of a company, that could potentially be considered a systemic risk will have to consider the impact on creditors’ rights of both the Bankruptcy Code and the OLA. Further, the OLA is solely a liquidation remedy. Rehabilitation or reorganization is not an option, and the ability of a debtor to stay in possession is eliminated.
Jul 20, 2010 Reforms to the Asset-Backed Securitization Process and the Regulation of Credit Rating Agencies under Dodd-Frank Wall Street Reform and Consumer Protection Act On July 15, 2010, the Senate voted in favor of adopting the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). The Act is far reaching in scope and represents the culmination of months of debate and intense lobbying. To assist our clients in navigating and digesting the portions of the Act that are significant to their lines of business, Cadwalader has prepared a series of Clients & Friends memoranda, each addressing different aspects of the Act. The focus of this Memorandum is Title IX – Subtitle D “Improvements to the Asset-Backed Securitization Process” and Title IX – Subtitle C “Improvements to the Regulation of Credit Rating Agencies”.
Jul 20, 2010 Regulation of End Users of Swaps Under the Dodd-Frank Wall Street Reform and Consumer Protection Act The purpose of this memorandum is to provide an overview of the application of Title VII (the “Derivatives Legislation” or the “Legislation”) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) to end users, particularly (i) operating corporations (“Corporates”), such as manufacturing companies, insurance companies and airlines (all of which may be impacted somewhat differently), (ii) state and other municipal entities (“Munis”), and (iii) public and private benefit plans (“Plans”; and collectively with Corporates and Munis, “end users”).
Jul 20, 2010 Regulation of Systemically Significant NonBanks Under the Dodd-Frank Wall Street Reform and Consumer Protection Act The focus of this Memorandum is the potential regulation by the Board of Governors of the Federal Reserve System, pursuant to the newly-passed Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act” or the “Dodd-Frank Act”), of nonbank financial companies designated as “systemically significant” as provided by Titles I and VI of the Act, including the Volcker Rule.
Jul 20, 2010 Summary of the Titles of the Dodd-Frank Wall Street Reform and Consumer Protection Act This Overview Memorandum is intended to provide a very brief summary of those Titles of the Act that are most significant to our clients. In addition to this Overview Memorandum, Cadwalader has prepared a series of memoranda, each discussing a different aspect of the Act and how it will affect different industries, types of entities and transactions.
Jul 20, 2010 The New Scheme for the Regulation of Swaps, with Appendices on Retroactivity, Special Entities and Tax, Under the Dodd-Frank Wall Street Reform and Consumer Protection Act Title VII (the “Derivatives Legislation” or the “Legislation”) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) is among the most far reaching and controversial sets of statutory changes included within the Act. The Derivatives Legislation will give primary authority to the Commodity Futures Trading Commission (the “CFTC”) and the Securities Exchange Commission (the “SEC”; and together with the CFTC, the “Commissions”) to regulate the swaps market, both as to transactions and participants, although the various banking regulators (the “Bank Regulators”; and together with the Commissions, the “Regulators”) will retain substantial authority with respect to banks.
Jul 07, 2010 BP in the Wake of the Deepwater Horizon Incident and the Bankruptcy Implications of Mounting Environmental Liabilities On April 20, 2010, an explosion on the Deepwater Horizon oil drilling rig located off the coast of Louisiana killed eleven crewmen and set off what is now considered the largest offshore oil spill in U.S. history. As a result, BP p.l.c. (“BP”), the parent company of the British Petroleum multi-national corporation, faces mounting liabilities related to the damages caused by the disaster and hundreds of lawsuits that have been filed in numerous U.S. state and federal courts. This memorandum considers how BP may consolidate and address the present and future claims arising from the Deepwater Horizon incident, with particular attention to applicable environmental laws, non-bankruptcy alternatives available to BP, and the issues likely to be raised by a BP bankruptcy filing.
Jun 24, 2010 Second Circuit Interpretation of "Absolute and Unconditional Clause" May limit the Effectiveness of Limited Recourse and Similar Provisions Common to Structured Finance Indentures On June 1, 2010, the U.S. Court of Appeals for the Second Circuit decided a case with broad implications for issuers of limited recourse notes. This is particularly applicable in the context of structured finance transactions and notes issued by special purpose entities. In The Bank of New York v. First Millennium, Inc., the Second Circuit found that the holders of notes issued by a trust of which The Bank of New York (BNY) was trustee, in favor of NextBank, N.A. (NextBank) had a valid claim to all assets held in the trust despite a limited recourse provision in the indenture.
Jun 23, 2010 The Emergency UK Budget 2010: Key Taxation Aspects On Tuesday 22 June 2010, the ‘Emergency’ Budget of the UK’s new Coalition Government was delivered by the Chancellor of the Exchequer. Given that the Government has decided to achieve its aim of eliminating the bulk of the UK’s public sector structural deficit by 2014/15 through spending reductions (as to 80 per cent.) and tax increases (as to 20 per cent.), the changes announced to the UK’s tax regime appeared relatively mild in comparison and, indeed, in some cases quite encouraging.
Jun 03, 2010 Some Concerns with the Regulation of Large Non-Bank Holding Companies The Wall Street Reform and Consumer Protection Act of 2009 (the “House bill”) and the Restoring American Financial Stability Act of 2010 (the “Senate bill”; and together with the House bill, the “Legislation”) both contain a requirement that large financial firms that do not own banks (“NonBHCs”) should be regulated as if they were bank holding companies (“BHCs”).
Jun 01, 2010 U.S. Senate Bill Creates New Regime for Orderly Liquidation of Financial Companies That Present Systemic Risk The comprehensive financial reform bill recently passed by the Senate1 creates a new “orderly liquidation authority” (“OLA”) that would allow the Federal Deposit Insurance Corporation (“FDIC”) to seize control of a financial company whose imminent collapse is determined to threaten the financial system as a whole. This measure — which awaits reconciliation with a similar bill passed by the House of Representatives late last year — represents Congress’ attempt to address companies considered “too big to fail.”
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Dec 20, 2011 Contingent Convertible Bonds and the Impact of Basel III In January 2011, the Basel Committee on Banking Supervision (the “Basel Committee”) set out rules to supplement Basel III regulations on capital adequacy and liquidity. The Basel III reforms aim to improve the quality and level of capital within firms.
Nov 03, 2011 The Volcker Rule's Impact on Financial Institutions' Ownership and Sponsorship of Structured Finance and Securitization Transactions The three federal banking agencies and the SEC recently approved for comment a proposed
regulation implementing Section 619 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the 'Act'), more generally known as the 'Volcker Rule.' The 298-page proposal has yet to be published in the Federal Register, but the agencies have already agreed to an extended comment period for the proposal - running until January 13, 2012 - given the subject matter's significance.
Oct 04, 2011 SEC Proposes a New Rule Prohibiting Conflicts of Interest in Securitizations On September 19, 2011, the Securities and Exchange Commission (the "SEC") issued a release (the "Release") proposing new rule 127B (the "Proposed Rule") under the Securities Act, which would prohibit "material conflicts of interest" in securitizations. The Proposed Rule is intended to implement Section 621 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), codified as Section 27B ("Section 27B") of the Securities Act of 1933, as amended (the "Securities Act"). Subject to certain exceptions, Section 27B prohibits certain participants in asset-backed securities ("ABS") transactions from engaging in transactions within a designated time period that would involve or result in any material conflict of interest. Disclosure of such material conflicts of interest would not otherwise permit such prohibited transactions.
Sep 13, 2011 SEC Seeks Public Comment On Treatment of Asset-Backed Issuers under the Investment Company Act The Securities and Exchange Commission (the "SEC") recently issued an advance notice of proposed rulemaking (the "ANPR") requesting public comment on the treatment of asset-backed issuers under Rule 3a-7 under the Investment Company Act of 1940 (the "Investment Company Act").
Aug 16, 2011 SEC Re-Proposes Shelf Eligibility Conditions for Asset-Backed Securities On July 26, 2011, the Securities and Exchange Commission (the "SEC") re-proposed rules (the "Re-Proposal") regarding new shelf eligibility requirements for asset-backed securities ("ABS"). In April 2010, the SEC had proposed rules that would revise the disclosure, reporting and offering process for ABS (the "2010 Proposal"), and the Re-Proposal is being made in light of changes mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") as well as to address certain comments that the SEC received on the 2010 Proposal.
Aug 04, 2011 SEC Re-proposal of Shelf Eligibility Conditions for Asset-Backed Securities and Applicability to Insurance-Linked Securities On July 26, 2011 the Securities and Exchange Commission (the 'SEC') issued a release (the 'Proposing Release') revising and re-proposing certain rules (the 'Proposed Rules') initially proposed in April 2010 related to asset-backed securities in light of the provisions added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the 'Dodd-Frank Act') and comments received on the 2010 ABS Proposals. Among other things, the 2010 ABS Proposals propose amendments to the safe harbor for exempt offerings and resales for 'structured finance products' in reliance on Securities Act Rule 144A, which would include many Insurance-Linked Securities ('ILS') such as CAT bonds. Under the Proposing Release, the SEC has requested additional comment on these proposals relating to exempt offerings.
Jul 08, 2011 SEC Proposed Rules Regarding Third-Party Due Diligence Disclosure On June 8, 2011, the Securities and Exchange Commission (the "SEC") issued a release (the "Proposing Release") describing proposed rules (the "Proposed Rules") implementing the portion of Section 932 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") relating to third-party due diligence. The Proposed Rules describe i) the obligations of issuers and underwriters to disclose the findings and conclusions of third-party due diligence reports and ii) the form this disclosure should take.
Apr 06, 2011 Proposed Credit Risk Retention Requirements for Asset-Backed Securities Transactions The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") was signed into law by President Obama on July 21, 2010. On March 28, 2011, the Federal banking agencies (the Office of the Comptroller of Currency, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System), the Securities and Exchange Commission ("SEC"), the Department of Housing and Urban Development ("HUD"), and the Federal Housing Finance Agency ("FHFA") (collectively, the "Agencies") released a joint notice of proposed rulemaking (the "NPR") containing proposed rules ("Proposed Rules") to implement the credit risk retention requirements of Section 941(b) of the Act, codified as Section 15G ("Section 15G") of the Securities Exchange Act of 1934 (the "Exchange Act").
Feb 01, 2011 SEC Issues Final Rules for New Disclosure Requirements Regarding Representations and Warranties in Asset-Backed Securities Offerings The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") was signed into law by President Obama on July 21, 2010. Section 943 of the Act requires the Securities and Exchange Commission (the "SEC") to prescribe regulations on the use of representations and warranties in the market for asset-backed securities. Such regulations must provide for disclosure by "securitizers," as defined in the Act, of fulfilled and unfulfilled repurchase requests across all trusts aggregated by the securitizer. They also require a description by nationally recognized statistical rating organizations ("NRSROs"), in reports accompanying credit ratings of securitization transactions, of the representations, warranties and enforcement mechanisms contained in each transaction and how they differ from those contained in issues of similar securities.
Feb 01, 2011 SEC Issues Final Rules Regarding Diligence and Disclosure in ABS Offerings The Securities and Exchange Commission (the "SEC") issued final rules (the "Final Rule") on January 20, 2011, implementing the provisions of Section 945 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"). Section 945 of the Act directed the SEC to issue rules that require an issuer of publicly offered asset-backed securities ("ABS") to perform a review of the assets underlying an ABS offering and disclose the nature of that review. The Final Rule adopts the SEC’s earlier proposal with one important change, which is the inclusion of a minimum standard of review. The SEC also adopted amendments to Regulation AB that would require an ABS issuer to disclose information regarding assets that deviate from disclosed underwriting criteria.
Nov 22, 2010 S&P Reconsiders De-Linked Rating for Bank-Sponsored Securitizations That Fall Outside FDIC's Final Safe Harbor Rule Standard & Poor's issued an update (the "Update") last week indicating that it could issue a de-linked, asset-based credit rating for securities issued in a securitization sponsored by an insured depository institution ("Bank") that qualifies as a sale under GAAP, even if the transaction fails to comply with the Federal Deposit Insurance Corporation's new securitization safe harbor rule (the "Rule").
The Update modifies S&P's earlier position announced in October 14, 2010, which many had interpreted to mean that all Bank-sponsored securitizations must comply with the Rule, regardless of legal and accounting sale conclusions, in order to obtain a rating based solely on the credit strength of the assets. In the Update, S&P indicates that it could issue a de-linked credit rating under certain circumstances, namely, where the transaction qualifies as a sale under GAAP and the Bank retains no economic interest in the securitized assets.
Oct 27, 2010 Art. 122a: Risk Retention for Securitisations with European Credit Institution Investors Art. 122a is an article added to the European Union Capital Requirements Directive (“CRD”). The CRD sets out the framework for bank capital rules that apply to over 6,200 credit institutions established in the 30 member states of the European Economic Area (“EEA”). Although Art. 122a applies only to EEA credit institutions, it has implications for originators, issuers and arrangers of securitisations worldwide.
Oct 27, 2010 S&P Likely to Refuse De-Linked Ratings for Bank-Sponsored Securitizations That Fail to Meet FDIC’s Final Safe Harbor Rule Standard & Poor’s announced recently that it will likely treat as secured loans Bank-sponsored securitizations that constitute sales under GAAP, but fail to comply with the FDIC’s final securitization safe harbor rule (the “Rule”). As secured loans, these transactions may not receive credit ratings linked solely to the credit of the underlying assets, but instead will receive credit ratings linked to those of the insured depository institution (each, a “Bank”) that sponsored the securitization. S&P’s announcement follows a conversation it reports to have had with the Federal Deposit Insurance Corporation (“FDIC”). According to S&P, the FDIC suggested it could repudiate any Bank securitization that failed to comply with the Rule. Since the adoption of the Rule last month, rating agencies and other industry players have been grappling with the Rule’s ramifications. S&P’s announcement suggests that to avoid any legal risk associated with structuring a transaction outside of the
Oct 26, 2010 SEC Proposes New Rules Regarding Diligence and Disclosure in ABS Offerings
As part of what is expected to be a wave of proposed rulemaking under The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"), the Securities and Exchange Commission (the "SEC") issued proposed rules to implement the provisions of Section 945 and a portion of Section 932 of the Act (the "Proposed Rules"). Section 945 of the Act added Section 7(d) to the Securities Act of 1933, as amended (the “Securities Act”), directing the SEC to issue rules requiring an issuer of asset-backed securities ("ABS") to perform a review of the assets underlying an ABS offering and disclose the nature of that review. Section 932 of the Act added Section 15E(s)(4)(A) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which requires an issuer or underwriter of ABS to make publicly available the findings and conclusions of any third-party due diligence report obtained by the issuer or underwriter.
Oct 18, 2010 SEC Proposes New Disclosure Requirements Regarding Representations and Warranties in Asset-Backed Securities Offerings The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was signed into law by President Obama on July 21, 2010. Section 943 of the Act requires the Securities and Exchange Commission (the “SEC”) to prescribe regulations in the use of representations and warranties in the market for asset-backed securities. Such regulations must set forth new disclosure requirements for issuers, originators and depositors and nationally recognized statistical rating organizations (“NRSROs”) in securitization transactions where the transaction documents require the repurchase or replacement of underlying assets in connection with a breach of asset-level representations and warranties.
Oct 11, 2010 FDIC Adopts Final Securitization Safe Harbor Rule On September 27, 2010 the Federal Deposit Insurance Corporation (“FDIC”) adopted its final safe harbor rule (the “Rule”) for securitizations sponsored by insured depository institutions (each, a “Bank”), which replaces the FDIC’s original safe harbor adopted in 2000.
Sep 28, 2010 FDIC Approves Final Securitization Safe Harbor On Monday, September 27, 2010, the Federal Deposit Insurance Corporation (the "FDIC") approved its final rule (the "Rule") regarding amendments to its securitization "safe harbor rule." Through adoption of the Rule, the FDIC seeks to use its authority to repudiate contracts when a Bank fails as the basis for comprehensively regulating the issuance and servicing of Bank-related asset backed securities in connection with a securitization or a participation occurring after December 31, 2010.
Aug 18, 2010 IRS Guidance on Release of Real Properties Securing Mortgage Loans Held by REMICs On August 17, 2010, the Internal Revenue Service (the “IRS”) released Revenue Procedure 2010-30 (the “Revenue Procedure”), which clarifies Treasury regulations issued in September 2009 (the “Modification Regulations”), concerning changes in the collateral securing mortgage loans held by real estate mortgage investment conduits (“REMICs”).
Jul 20, 2010 Reforms to the Asset-Backed Securitization Process and the Regulation of Credit Rating Agencies under Dodd-Frank Wall Street Reform and Consumer Protection Act On July 15, 2010, the Senate voted in favor of adopting the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). The Act is far reaching in scope and represents the culmination of months of debate and intense lobbying. To assist our clients in navigating and digesting the portions of the Act that are significant to their lines of business, Cadwalader has prepared a series of Clients & Friends memoranda, each addressing different aspects of the Act. The focus of this Memorandum is Title IX – Subtitle D “Improvements to the Asset-Backed Securitization Process” and Title IX – Subtitle C “Improvements to the Regulation of Credit Rating Agencies”.
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Mar 16, 2012 Opportunity to Invest in China’s Securities Market: The Accelerated Approval Process for Foreign Financial Institutions Foreign investors are permitted to invest in China’s stock markets , provided that an investor is a Qualified Foreign Institutional Investor (“QFII”). Previously, applying for QFII status took as long as one to two years, and in some cases the entire process took even longer. However, recent reforms and policy adjustments will reduce this processing time to approximately six (6) months or less if the application is prepared correctly. Therefore, this policy change provides foreign financial institutions with a window of opportunity to qualify as a QFII and to deploy capital to invest in China’s burgeoning stock market when the timing is right.
This alert summaries the QFII statutory framework, and gives a comparison between the old timetable and the now revised timetable.
Jan 12, 2012 Time to Roll the Dice on Online Gaming? On December 23, 2011, the U.S. Department of Justice Office of Legal Counsel (“OLC”) issued a memorandum opinion dated September 20, 2011, eliminating one of the federal barriers to legalizing internet gambling and opening the door for the possibility of a regulatory regime shift. In the OLC Opinion, the Department of Justice addressed an apparent conflict between the Wire Act and UIGEA and concluded that “interstate transmissions of wire communications that do not relate to a sporting event or contest” fall outside the reach of the Wire Act. Finding that the Federal Wire Act does not prohibit the use of out-of-state transaction processors to sell in-state lottery tickets over the internet or the transmission of lottery data across state lines, the OLC Opinion reverses the long-held position that the Wire Act applied to all interstate gambling, whether sports-related or not.
Nov 01, 2011 SAFE Circular 19: Revised SAFE Rules Concerning Round-Trip Investments Recent changes in China's regulatory landscape may facilitate Round-Trip Investments (defined below) and should make it easier for foreign investors to invest in China. The State Administration of Foreign Exchange ("SAFE") issued new guidelines ("Circular 19") on July 1, 2011 and introduced significant changes to the implementation of Circular 75 ("Circular 75") which local PRC companies must follow to establish offshore Special Purpose Vehicles ("SPV"). In short, Circular 19 addresses foreign exchange registration by SPVs established by PRC residents, newly-established foreign-invested enterprises, and offshore direct investments by entities in the PRC.
Sep 28, 2011 Recent Amendments to Rule 14a-8 and the Implications for the 2012 Proxy Season This memorandum discusses recent amendments to Exchange Act Rule 14a-8 that will require companies to include in their proxy materials, under certain circumstances, shareholder proposals that seek to establish a procedure for shareholders to include director nominees in the company's proxy materials. This memorandum also identifies certain actions companies should consider for the 2012 proxy season.
Sep 02, 2011 UPDATE: MOFCOM's New Security Review Measures (Announcement No. 53): Increased Scrutiny of VIE Structures Operating in Areas of PRC National Concern Recent PRC regulations have increased both the number and complexity of requirements imposed on foreign investors looking to acquire enterprises or assets in China. These new regulations raise questions regarding the validity of common transaction structures used by Chinese companies looking to list overseas. In March 2011, the General Office of the State Council ("State Council") issued the Notice on Establishing a Security Review System for Acquisition of Domestic Enterprises by Foreign Investors ("Circular 6").
Aug 10, 2011 Understanding the VIE Structure: Necessary Elements for Success and the Legal Risks Involved The 'variable interest entity' structure (the 'VIE Structure') has been the investment structure of choice for foreign investors to navigate through the grey areas of PRC law on foreign direct investment ('FDI') for over a decade. The VIE Structure was first made famous by Sina.com in its 2000 listing on NASDAQ as a workaround structure in the value-added telecom services sector ('Class II Telecommunications Services'), where FDI is subject to substantial PRC regulatory restrictions. Since then, foreign investors have replicated the VIE Structure in many other sectors of China's economy where FDI is either restricted or prohibited under PRC law.
Aug 04, 2011 SEC Re-proposal of Shelf Eligibility Conditions for Asset-Backed Securities and Applicability to Insurance-Linked Securities On July 26, 2011 the Securities and Exchange Commission (the 'SEC') issued a release (the 'Proposing Release') revising and re-proposing certain rules (the 'Proposed Rules') initially proposed in April 2010 related to asset-backed securities in light of the provisions added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the 'Dodd-Frank Act') and comments received on the 2010 ABS Proposals. Among other things, the 2010 ABS Proposals propose amendments to the safe harbor for exempt offerings and resales for 'structured finance products' in reliance on Securities Act Rule 144A, which would include many Insurance-Linked Securities ('ILS') such as CAT bonds. Under the Proposing Release, the SEC has requested additional comment on these proposals relating to exempt offerings.
Aug 02, 2011 FTC/DOJ Announce Significant Changes to HSR Premerger Notification Form On July 7, 2011, the Federal Trade Commission ("FTC") and the Antitrust Division of the U.S. Department of Justice ("DOJ") announced significant changes to the Hart-Scott-Rodino ("HSR") Premerger Notification Rules and the Premerger Notification and Report Form ("HSR Form") that may substantially increase the burden placed on filing parties. The new HSR rules were published in the Federal Register on July 19, 2011, and will take effect on August 18, 2011. Any transactions notified to the agencies on or after that date must use the amended form.
Jul 05, 2011 Possible PRC Import Tariff Cut on Luxury Goods and the Recent Textile Tariff Cuts On June, 27, 2011, a spokesman from the Ministry of Commerce ("MOFCOM") stated that China's reduction of the import tariff on luxury goods is only "a matter of time". Other news sources reported that the China government is going to cut the import tariff for luxury products, and some even speculated such an import tariff cut as early as October, 2011. However, as of July 5, 2011, neither the reports nor the schedule for these reductions has been officially confirmed. Furthermore, the controlling department of tariff policies, the Ministry of Finance (the "MOF"), currently holds a different position on this issue.
Jun 27, 2011 A Primer on Foreign Investments, Investment Structures & Special Development Zones in China China's economic strength continues to attract a growing number of first-time China investors. This memorandum presents a general introduction to: investments by foreign investors in China; the various investment structures that may be utilized by such foreign investors; and China's special development zones and their significance for foreign investors.
Jun 14, 2011 SAFE Regulations Affecting Inbound and Outbound Payments in Cross-border M&A Transactions within the People's Republic of China Recently, the Chinese government tightened its policies on foreign exchange and taxes with respect to cross-border mergers and acquisitions ("M&A") transactions. Local government authorities with oversight over foreign currency issues are now given discretion to deny applications to properly register funds designated for M&A transactions in China. In addition, a tax certificate is now required before funds can be remitted offshore. As a result, we believe it will generally take more time to complete M&A transactions and that those not in compliance with the requisite foreign exchange and tax laws in China will be more frequently subject to fines and hurdles in the M&A process. In addition to complying with all PRC government regulations on foreign exchange and taxes, we recommend that parties to an M&A transaction in China consult with legal counsel to mitigate any potential negative effects the heightened regulatory environment will have on a proposed M&A deal.
May 25, 2011 China Establishes National Security Review Procedures for Acquisitions of Domestic Enterprises and Assets by Foreign Investors As China continues its rapid pace of economic development, there is increasing interest among foreign investors to acquire local Chinese enterprises and assets. Control of local enterprises and assets by foreign investors may involve matters of national security for China. As a result, the Chinese government has issued a set of procedures designed to strengthen its review of acquisitions by foreign investors in sensitive sectors which may significantly increase the amount of
time it takes for foreign investors to get a transaction approved by the Chinese government. If the Chinese government finds that a transaction has national security implications, the procedures
grant it broad powers to amend the terms of the transaction or even cancel it.
Mar 16, 2011 New York State Supreme Court Upholds Springing Guaranty in Granting Summary Judgment On March 8, 2011, in a decision enforcing a springing guaranty in a commercial real estate loan, the Supreme Court of the State of New York granted a motion for summary judgment in lieu of complaint pursuant to CPLR 3213. In UBS Commercial Mortg. Trust 2007-FL1, Commercial Mortg. Pass-through Certificates, Series 2007-FL1 v. Garrison Special Opportunities Fund L.P., the court not only found that such springing guaranty was an instrument for the payment of money only, thus entitling Plaintiffs to move for summary judgment in lieu of complaint, but the court also found that such springing guaranty was neither an unenforceable penalty nor against public policy.
Feb 18, 2011 Del Monte Decision Enjoins Shareholder Vote and Deal Protections; Holds Buyer Potentially Responsible for Aiding and Abetting Seller Board’s Fiduciary Breach
In In re Del Monte Foods Company Shareholders Litigation, Consol. C.A. No. 6027-VCL (Del. Ch. Feb. 14, 2011), the Court of Chancery temporarily enjoined a shareholder vote on a high premium, all-cash merger to require an additional 20-day market check based on a preliminary finding that the sale process was potentially tainted by alleged misconduct by Del Monte’s financial advisor and the private equity buyers. The Court also enjoined the parties from enforcing the buyer’s deal protections and left open the door for a monetary damages claim against the buying consortium as an “aider and abettor” of a fiduciary breach by Del Monte’s Board.
Nov 22, 2010 S&P Reconsiders De-Linked Rating for Bank-Sponsored Securitizations That Fall Outside FDIC's Final Safe Harbor Rule Standard & Poor's issued an update (the "Update") last week indicating that it could issue a de-linked, asset-based credit rating for securities issued in a securitization sponsored by an insured depository institution ("Bank") that qualifies as a sale under GAAP, even if the transaction fails to comply with the Federal Deposit Insurance Corporation's new securitization safe harbor rule (the "Rule").
The Update modifies S&P's earlier position announced in October 14, 2010, which many had interpreted to mean that all Bank-sponsored securitizations must comply with the Rule, regardless of legal and accounting sale conclusions, in order to obtain a rating based solely on the credit strength of the assets. In the Update, S&P indicates that it could issue a de-linked credit rating under certain circumstances, namely, where the transaction qualifies as a sale under GAAP and the Bank retains no economic interest in the securitized assets.
Aug 24, 2010 China’s Anti-tax Avoidance Measures for Offshore SPVs In a circular issued on 10 December 2009, the State Administration of Taxation (“SAT”) made clear its intention to target offshore transactions involving the indirect transfer of PRC enterprises (Notice on Strengthening the Management of Enterprise Income Tax Collection of Proceeds from Equity Transfers by Non-Resident Enterprises Guoshuihan [2009] No. 698) (“Circular 698”). Circular 698 has ushered in a new era in the China cross-border transactional landscape, and represents the most recent challenge for offshore holding companies or special purpose vehicle (“SPV”) structures in the PRC.
Jun 24, 2010 Second Circuit Interpretation of "Absolute and Unconditional Clause" May limit the Effectiveness of Limited Recourse and Similar Provisions Common to Structured Finance Indentures On June 1, 2010, the U.S. Court of Appeals for the Second Circuit decided a case with broad implications for issuers of limited recourse notes. This is particularly applicable in the context of structured finance transactions and notes issued by special purpose entities. In The Bank of New York v. First Millennium, Inc., the Second Circuit found that the holders of notes issued by a trust of which The Bank of New York (BNY) was trustee, in favor of NextBank, N.A. (NextBank) had a valid claim to all assets held in the trust despite a limited recourse provision in the indenture.
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May 03, 2012 SDNY Bankruptcy Court Interprets Section 546(e)’s Safe Harbors in Lehman-JPMorgan Dispute On April 19, 2012, the U.S. Bankruptcy Court for the Southern District of New York granted in part and denied in part JPMorgan Chase, N.A.'s motion to dismiss an adversary complaint filed by Lehman Brothers Holdings Inc. ("LBHI") and its Official Committee of Unsecured Creditors. The Complaint seeks to recover approximately $8.6 billion in prepetition transfers made by LBHI to JPMorgan in the days leading up to LBHI's bankruptcy. JPMorgan filed a motion to dismiss the Complaint, arguing that it acted reasonably in requiring additional collateral at a time of great financial risk, and that the transfers that the Plaintiffs sought to unwind are immunized by the safe harbor protections of section
546(e) of the Bankruptcy Code.
Apr 17, 2012 Delaware’s Not So Safe Harbors: Third Circuit Bankruptcy Court Declines to Rule that a Payment on a Letter of Credit is an Avoidance-Proof “Settlement Payment” On March 26, 2012, Judge Mary F. Walrath of the United States Bankruptcy Court for the District of Delaware refused to rule that, as a matter of law, payments made to satisfy a debtor’s obligations under a letter of credit constitute “settlement payments” protected from avoidance under section 546(e) of the Bankruptcy Code. EPLG I, LLC v. Citibank, National Association et al. (In re Qimonda Richmond, LLC, et al.), No. 09-10589, 2012 Bankr. LEXIS 1264 (Bankr. Del. March 26, 2012). Although the decision helps to clarify the scope of one of the Bankruptcy Code’s most important safe harbor provisions, it has also left some important questions unanswered regarding the scope of section 546(e).
Apr 12, 2012 English Court of Appeal Interprets the ISDA Master Agreement Last week the Court of Appeal of England and Wales handed down its decision in four appeals which raise a number of questions of construction in relation to derivatives in the form of interest rate swaps and forward freight agreements documented under the International Swaps and Derivatives Association Inc. Master Agreement (the “ISDA Master Agreement”). In particular, the decision focuses on the interpretation of section 2(a)(iii) of the ISDA Master Agreement.
Jan 12, 2012 Time to Roll the Dice on Online Gaming? On December 23, 2011, the U.S. Department of Justice Office of Legal Counsel (“OLC”) issued a memorandum opinion dated September 20, 2011, eliminating one of the federal barriers to legalizing internet gambling and opening the door for the possibility of a regulatory regime shift. In the OLC Opinion, the Department of Justice addressed an apparent conflict between the Wire Act and UIGEA and concluded that “interstate transmissions of wire communications that do not relate to a sporting event or contest” fall outside the reach of the Wire Act. Finding that the Federal Wire Act does not prohibit the use of out-of-state transaction processors to sell in-state lottery tickets over the internet or the transmission of lottery data across state lines, the OLC Opinion reverses the long-held position that the Wire Act applied to all interstate gambling, whether sports-related or not.
Jan 10, 2012 Harrisburg: A Case Study in State Law Barriers to Chapter 9
On November 23, 2011, the Bankruptcy Court for the Middle District of Pennsylvania dismissed Harrisburg, Pennsylvania's Chapter 9 bankruptcy petition because, shortly before the filing, the state legislature expressly prohibited Harrisburg from seeking relief under Chapter 9. Harrisburg's failed attempt to remain in Chapter 9 highlights the political factors and state law constraints that municipalities must consider prior to seeking bankruptcy relief. This article will discuss the origins of Harrisburg's debt crisis, the Harrisburg City Council's attempt to file for Chapter 9 without the Mayor's approval, the legal obstacles placed in the path of the City Council's bankruptcy filing, and the lessons that other distressed municipalities and creditors can learn from Harrisburg's experience.
Nov 03, 2011 MF Global UK Enters Special Administration Regime The Financial Services Authority (“FSA”) has confirmed that MF Global UK Limited (“MF Global UK”) has entered the Special Administration Regime created under the Investment Bank Special Administration Regulations 2011 (“Regulations”). MF Global UK is the first investment bank to enter the Special Administration Regime. The decision to apply for special administration was initiated by the board of MF Global UK.
Oct 12, 2011 Bankruptcy Court for Southern District of New York Prohibits Triangular Setoff Provided for in Safe Harbored Contract On October 4, 2011, the United States Bankruptcy Court for the Southern District of New York ruled that a contractual right of a triangular (non-mutual) setoff was unenforceable in bankruptcy, even though the contract was safe harbored. In re Lehman Brothers, Inc., No. 08-01420 (JMP), 2011 WL 4553015 (Bankr. S.D.N.Y. Oct. 4, 2011). In doing so, Judge Peck followed prior decisions by the Delaware bankruptcy and district courts in In re SemCrude, L.P., 399 B.R. 388 (Bankr. D. Del. 2009), aff’d, 428 B.R. 590 (D. Del. 2010) and his own decision in In re Lehman Brothers Holdings Inc., 433 B.R. 101 (Bankr. S.D.N.Y. 2010) (“Swedbank”).
Sep 23, 2011 Living Wills: FDIC Modifies, Finalizes Rules On September 13, 2011, the Federal Deposit Insurance Corporation approved the final rule governing the implementation of the "living will" provision found in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule continues to require covered companies to submit to the Board of Governors of the Federal Reserve System, the FDIC and the Financial Stability Oversight Council annual plans for the rapid and orderly resolution of their business in the event of material financial distress. The rule must still be approved by the Federal Reserve (which is expected to approve the rule shortly) It will then become effective 30 days after its publication in the Federal Register.
Jul 28, 2011 FDIC Approves Rule Making With Respect to Orderly Liquidation Authority; Defers Ruling on Living Wills On July 6, the FDIC approved a final rule implementing the Orderly Liquidation Authority. The FDIC had been expected to issue a final rule on the 'Living Will' requirements July 6 as well. However, the FDIC tabled this matter until its August 6 meeting.
The rule on the Orderly Liquidation Authority is promulgated under Title II of the Dodd-Frank Act, which authorizes the FDIC to create an orderly liquidation mechanism for systemically important financial institutions, which are referred to in the rule as covered financial companies. The final rule defines key terms, creates a priority structure, and delineates the procedure for filing a claim. The final rule will become effective August 15, 2011.
Jul 14, 2011 Stern v. Marshall: How Big Is It? On June 23, 2011, the Supreme Court ruled 5-4, in an opinion by Chief Justice Roberts, that a Bankruptcy Judge lacked constitutional authority to issue a final ruling on state law counterclaims by a debtor against a claimant. This is the latest round of a well-known case involving the estate of former model Anna Nicole Smith and the estate of her late husband, wealthy oil magnate J. Howard Marshall.
Jun 13, 2011 Living Wills: A User's Guide To Dodd-Frank's Bequest to Banks In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. While many of its provisions have received greater publicity — such as the Orderly Liquidation Authority of Title II and the swap provisions of Title VII — the so-called "living will" provisions of Dodd-Frank are now receiving more focused attention. Section 165(d) of Dodd-Frank requires "systemically significant" financial institutions to periodically report to the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Company and the Financial Stability Oversight Counsel a plan for the rapid and orderly resolution of their business in the event of material financial distress.
Mar 02, 2011 Third Circuit Upholds Use of Discounted Cash Flow Method Under Bankruptcy Code Section 562 in In re American Home Mortgage Holdings, Inc., et al. On February 16, 2011, the United States Court of Appeals for the Third Circuit ruled that a discounted cash flow analysis constituted "a commercially reasonable determinant[] of value" for purposes of section 562(a) of the United States Bankruptcy Code. In so doing, the court upheld the United States Bankruptcy Court for the District of Delaware decision sustaining the objection of American Home Mortgage Holdings, Inc. (the "Debtors") to the $478.5 million claim of Calyon New York Branch for damages related to the termination of a mortgage loan repurchase agreement. Calyon had taken the position that no commercially reasonable determinants of value existed on the termination date, and, in reliance on section 562(b) of the Code, calculated its claim based on the "market value" of the specific loans at issue one year after the termination date.
Dec 22, 2010 High Court Interprets Section 2(a)(iii) of the ISDA Master Agreement Yesterday, the High Court gave its judgment in the case of Lomas and others v JFB Firth Rixson, Inc and others upon application by the Joint Administrators of Lehman Brothers International Europe ("LBIE") for directions as to the construction and effect of five interest rate swap agreements ("Swaps") to which LBIE is a party.
Nov 22, 2010 S&P Reconsiders De-Linked Rating for Bank-Sponsored Securitizations That Fall Outside FDIC's Final Safe Harbor Rule Standard & Poor's issued an update (the "Update") last week indicating that it could issue a de-linked, asset-based credit rating for securities issued in a securitization sponsored by an insured depository institution ("Bank") that qualifies as a sale under GAAP, even if the transaction fails to comply with the Federal Deposit Insurance Corporation's new securitization safe harbor rule (the "Rule").
The Update modifies S&P's earlier position announced in October 14, 2010, which many had interpreted to mean that all Bank-sponsored securitizations must comply with the Rule, regardless of legal and accounting sale conclusions, in order to obtain a rating based solely on the credit strength of the assets. In the Update, S&P indicates that it could issue a de-linked credit rating under certain circumstances, namely, where the transaction qualifies as a sale under GAAP and the Bank retains no economic interest in the securitized assets.
Oct 27, 2010 S&P Likely to Refuse De-Linked Ratings for Bank-Sponsored Securitizations That Fail to Meet FDIC’s Final Safe Harbor Rule Standard & Poor’s announced recently that it will likely treat as secured loans Bank-sponsored securitizations that constitute sales under GAAP, but fail to comply with the FDIC’s final securitization safe harbor rule (the “Rule”). As secured loans, these transactions may not receive credit ratings linked solely to the credit of the underlying assets, but instead will receive credit ratings linked to those of the insured depository institution (each, a “Bank”) that sponsored the securitization. S&P’s announcement follows a conversation it reports to have had with the Federal Deposit Insurance Corporation (“FDIC”). According to S&P, the FDIC suggested it could repudiate any Bank securitization that failed to comply with the Rule. Since the adoption of the Rule last month, rating agencies and other industry players have been grappling with the Rule’s ramifications. S&P’s announcement suggests that to avoid any legal risk associated with structuring a transaction outside of the
Oct 13, 2010 District Court Grants BNY Leave to Appeal Bankruptcy Court's Interlocutory Order In Lehman, Prohibiting Enforcement Of Ipso Facto Clause In Swap On September 21, 2010, the United States District Court for the Southern District of New York granted BNY Corporate Trustee Services Limited leave to appeal a decision of the Bankruptcy Court in the Lehman Brothers bankruptcy case. The Bankruptcy Court held that a key provision of certain transaction documents constituted an unenforceable ipso facto clause. The District Court granted leave to appeal the Bankruptcy Court decision even though it was interlocutory. The District Court held that the case warranted interlocutory review because the Bankruptcy Court decision represented a controversial question of first impression and because appellate review would advance resolution of the litigation.
Jul 20, 2010 Orderly Liquidation of Financial Companies, Including Executive Compensation Clawback, Under the Dodd-Frank Wall Street Reform and Consumer Protection Act Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“WSRCPA”)
represents Congress’ attempt to address companies considered “too big to fail.” The statute creates a new “orderly liquidation authority” (“OLA”), which allows the Federal Deposit Insurance Corporation (“FDIC”) to seize control of a financial company whose imminent collapse is determined to threaten the financial system as a whole. Commencement of a receivership under the OLA would preempt any proceedings under the Bankruptcy Code. Thus, lenders, rating agencies, and others seeking to transact business with a company, or an affiliate of a company, that could potentially be considered a systemic risk will have to consider the impact on creditors’ rights of both the Bankruptcy Code and the OLA. Further, the OLA is solely a liquidation remedy. Rehabilitation or reorganization is not an option, and the ability of a debtor to stay in possession is eliminated.
Jul 07, 2010 BP in the Wake of the Deepwater Horizon Incident and the Bankruptcy Implications of Mounting Environmental Liabilities On April 20, 2010, an explosion on the Deepwater Horizon oil drilling rig located off the coast of Louisiana killed eleven crewmen and set off what is now considered the largest offshore oil spill in U.S. history. As a result, BP p.l.c. (“BP”), the parent company of the British Petroleum multi-national corporation, faces mounting liabilities related to the damages caused by the disaster and hundreds of lawsuits that have been filed in numerous U.S. state and federal courts. This memorandum considers how BP may consolidate and address the present and future claims arising from the Deepwater Horizon incident, with particular attention to applicable environmental laws, non-bankruptcy alternatives available to BP, and the issues likely to be raised by a BP bankruptcy filing.
Jun 01, 2010 U.S. Senate Bill Creates New Regime for Orderly Liquidation of Financial Companies That Present Systemic Risk The comprehensive financial reform bill recently passed by the Senate1 creates a new “orderly liquidation authority” (“OLA”) that would allow the Federal Deposit Insurance Corporation (“FDIC”) to seize control of a financial company whose imminent collapse is determined to threaten the financial system as a whole. This measure — which awaits reconciliation with a similar bill passed by the House of Representatives late last year — represents Congress’ attempt to address companies considered “too big to fail.”
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Aug 02, 2011 FTC/DOJ Announce Significant Changes to HSR Premerger Notification Form On July 7, 2011, the Federal Trade Commission ("FTC") and the Antitrust Division of the U.S. Department of Justice ("DOJ") announced significant changes to the Hart-Scott-Rodino ("HSR") Premerger Notification Rules and the Premerger Notification and Report Form ("HSR Form") that may substantially increase the burden placed on filing parties. The new HSR rules were published in the Federal Register on July 19, 2011, and will take effect on August 18, 2011. Any transactions notified to the agencies on or after that date must use the amended form.
May 26, 2011 The Dodd-Frank Whistleblower Provisions: Considerations for Effectively Preparing for and Responding to Whistleblowers As part of the Dodd-Frank Act ("Dodd-Frank" or the "Act"), Congress created powerful incentives to encourage persons to report (i) potential violations of the federal securities laws to the Securities and Exchange Commission ("SEC") and (ii) potential violations of the Commodity Exchange Act (the "CEA") to the Commodity Futures Trading Commission (the "CFTC"). While the Sarbanes-Oxley Act ("SOX") encouraged up-the-ladder reporting by employees and allowed for self-policing and self-reporting by companies of potential violations, the Dodd-Frank Act’s whistleblower provisions will incentivize external reporting to the regulators that may hamper a company’s ability to self-police and self-report.
Apr 06, 2011 In Matrixx Decision the Supreme Court Rejects Bright-Line Materiality Test for Motions to Dismiss Securities Fraud Claims On March 22, 2011, the United States Supreme Court, in a unanimous decision written by Justice Sonia Sotomayor, stated that the "materiality" element of a claim for securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, "is satisfied when there is 'a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available,'" and held that materiality "cannot be reduced to a bright-line rule." The Court ruled that on a motion to dismiss, a court must assess – on a case by case basis – the totality of available information and not focus solely on the presence or absence of a single type of information.
Mar 18, 2011 SEC Launches FCPA Probe of Financial Services Industry's Interactions with Sovereign Wealth Funds The U.S. Securities and Exchange Commission ("SEC") has, to our understanding, delivered letters of inquiry to at least 10 hedge funds, banks, and private equity firms requesting information about the firms’ interactions with sovereign wealth funds ("SWF"). That list may expand to include other financial institutions. The investigation appears to be driven by: (i) the SEC's opinion that SWF employees are foreign government officials for purposes of the Foreign Corrupt Practices Act ("FCPA"); and (ii) reports that certain hedge funds, banks, and private equity firms may have paid bribes to those government officials to attract or retain business.
Jan 10, 2011 SEC's First Use of A Non-Prosecution Agreement Shows Potential Benefits For Respondents But Also Demonstrates Potential Pitfalls On December 20, 2010, the Securities and Exchange Commission announced its first use of a non-prosecution agreement ("NPA") to resolve an enforcement investigation under the SEC's new cooperation initiative. The SEC first announced the availability of both NPAs and deferred prosecution agreements almost a year ago. The details of the agreement suggests that NPAs may simply function as a cooperation agreement, and, as anticipated, unlike a traditional settled injunction or administrative proceeding, will have no Commission findings and no sanctions associated with them. Under the right circumstances, an NPA should provide a tangible reward for cooperation. However, the SEC's first NPA also raises issues with respect to the specific scope of the settling party's continuing obligations under NPAs.
Dec 01, 2010 Important Court Decision For No-Fault Insurers; New York Appellate Court Rejects Limitation On State Farm v. Mallela We are very pleased to inform you that on November 30, 2010 our firm, together with our co-counsel Bob Stern of Stern & Montana, obtained a very favorable and significant decision for no-fault insurers from the Appellate Division, First Department, on an issue of first impression before the New York State appellate courts. This marks the second time in this same case that the Appellate Division has ruled in favor of no-fault insurers on an issue of first impression. In the first instance, the Court confirmed the right of insurers to defend any unpaid claim under State Farm v. Mallela irrespective of whether the services were alleged to be rendered prior to the April 2002 effective date of the new no-fault regulations.
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Mar 16, 2011 New York State Supreme Court Upholds Springing Guaranty in Granting Summary Judgment On March 8, 2011, in a decision enforcing a springing guaranty in a commercial real estate loan, the Supreme Court of the State of New York granted a motion for summary judgment in lieu of complaint pursuant to CPLR 3213. In UBS Commercial Mortg. Trust 2007-FL1, Commercial Mortg. Pass-through Certificates, Series 2007-FL1 v. Garrison Special Opportunities Fund L.P., the court not only found that such springing guaranty was an instrument for the payment of money only, thus entitling Plaintiffs to move for summary judgment in lieu of complaint, but the court also found that such springing guaranty was neither an unenforceable penalty nor against public policy.
Aug 18, 2010 IRS Guidance on Release of Real Properties Securing Mortgage Loans Held by REMICs On August 17, 2010, the Internal Revenue Service (the “IRS”) released Revenue Procedure 2010-30 (the “Revenue Procedure”), which clarifies Treasury regulations issued in September 2009 (the “Modification Regulations”), concerning changes in the collateral securing mortgage loans held by real estate mortgage investment conduits (“REMICs”).
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May 03, 2012 The Impact of the JOBS Act on Private Funds and their Managers President Obama signed the Jumpstart Our Business Startups Act, HR 3606 (the "JOBS Act") on Thursday, April 5, 2012, which contains significant amendments to the private capital raising provisions in the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Sarbanes-Oxley Act of 2002, as amended. The amendments most relevant to private investment funds and their investment advisers are contained in Title II, which lifts the ban on general solicitation and general advertising under Regulation D under the Securities Act ("Regulation D") in connection with private offerings, and Title V, which increases the holder-of-record threshold that triggers reporting company registration requirements under the Exchange Act.
Apr 17, 2012 The Sun Never Sets on Dodd-Frank When Dodd-Frank (more formally, the Wall Street Reform and Consumer Protection Act) was adopted, the legislation was advertised as a legal blueprint that, although proudly stamped "Made in America," would serve as a light of financial safety as to derivatives, bank activities, and like matters for the entire world. The global commercial and financial community was assured that a cooperative, consistent, and rational scheme of regulation would be adopted in financial capitals across the world, from Afghanistan to Zimbabwe, all based closely (maybe even word-for-word!) on translations of Dodd-Frank.
Apr 12, 2012 English Court of Appeal Interprets the ISDA Master Agreement Last week the Court of Appeal of England and Wales handed down its decision in four appeals which raise a number of questions of construction in relation to derivatives in the form of interest rate swaps and forward freight agreements documented under the International Swaps and Derivatives Association Inc. Master Agreement (the “ISDA Master Agreement”). In particular, the decision focuses on the interpretation of section 2(a)(iii) of the ISDA Master Agreement.
Apr 12, 2012 What is a Swap? Maybe (Almost) Everything? You Gotta Problem with That? It has now been almost two years since Dodd-Frank was enacted in order to provide comprehensive regulation of those transactions the legislation calls "swaps." In a world regulated by common sense, "what is a swap" would have been the first question answered by the regulators—indeed, the term should have been clearly defined by the statute. After all, how can the regulators adopt rules that govern a group of transactions where the regulators themselves do not know the transactions to which the rules will apply? How can businesses comment as to whether the proposed rules are sensible, or even feasible, as applied to a set of transactions that is boundless?
Apr 10, 2012 New Pan-European Restrictions on Short Selling On 24 March 2012, the European Parliament's Regulation on "short selling and certain aspects of credit default swaps" came into force.
Mar 28, 2012 ISDA March 2012 Supplement and Protocol: Updating Muni CDS As of April 3, 2012, the documentation and industry standards for municipal CDS transactions (“Muni CDS”) will be brought in line with the corporate and sovereign CDS market through several initiatives lead by ISDA and related publications by Markit. Cadwalader represented ISDA and Markit on these initiatives, which include the following features to enhance liquidity and transparency for Muni CDS: determinations Committee for the Americas Region will decide on Credit Events and other matters, mandatory auction settlement, rolling “look-backs” for Credit Events and Succession Events, Standardized Fixed Rate and full 3-month initial Calculation Periods, recovery assumption of 75%, changes to “Accreting Obligation” and “Accreted Amount” definitions and other Muni CDS-specific provisions, automatic trigger for “Restructuring Credit Event,” new or revised templates for many types of Muni CDS transactions.
Mar 06, 2012 The Consumer Financial Protection Bureau: The New, Powerful Regulator of Financial Products and Services The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") created the Consumer Financial Protection Bureau ("CFPB") to oversee a broad array of financial products and services. Creation of the CFPB marked the first time in decades that Congress had formed a new federal agency. The political debate over who would lead the new agency initially overshadowed the more significant legal and policy concerns about the manner in which the CFPB was intended to operate. But now, after the procedurally controversial appointment of former Ohio Attorney General Richard Cordray on January 4, 2012, these broader concerns will be tested, both as a matter of governance and very possibly in the courts.
Mar 05, 2012 European Short Selling Bans Lifted Amid growing evidence that short selling bans function, at best, as very temporary circuit breakers with no long term effect on volatility, several European regulators have lifted their bans on short selling as of February 2012. The bans, imposed in August 2011, have followed the trajectory set out below (along with a summary of the disclosure regime still in force in the UK and the on-going position in Greece). In all cases, while the regulators have lifted outright bans, disclosure requirements and various restrictions on naked short selling remain in place.
Mar 02, 2012 Supreme Court Gives Protection to All UK Client Money On 29 February, the Supreme Court of the United Kingdom handed down its judgment on the treatment of client money that had not been segregated, or was improperly segregated, as at the date Lehman Brothers International (Europe) (“LBIE”) entered administration.
Feb 13, 2012 SEC Issues No-Action Letter Addressing Registration Requirements for Certain Advisory Affiliates The staff of the Securities and Exchange Commission (the "Commission") issued a no-action letter on January 18, 2012 to the American Bar Association's Subcommittee on Hedge Funds clarifying the registration requirements for certain related entities under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). The letter reaffirms and clarifies the Commission's previously existing position that registered advisers to private funds may file a single Form ADV that includes special purpose vehicles ("SPVs") established to function as general partners or managing members of a fund. In addition, the letter explains the conditions under which a group of related advisers organized as separate legal entities, but operating as a "single advisory business," may elect to file a single Form ADV.
Dec 20, 2011 Contingent Convertible Bonds and the Impact of Basel III In January 2011, the Basel Committee on Banking Supervision (the “Basel Committee”) set out rules to supplement Basel III regulations on capital adequacy and liquidity. The Basel III reforms aim to improve the quality and level of capital within firms.
Dec 12, 2011 A Critical Analysis of the Potential Impact of the Volcker Rule on Municipal Bonds Federal regulators recently issued a notice of proposed rulemaking (the 'Proposal') under Section 619 of the Dodd-Frank Act, commonly known as the 'Volcker Rule.' If the Proposal were to be adopted in its present form, the regulators' narrow interpretation of the types of government securities exempted from the Volcker Rule would prohibit banking entities from proprietary trading in over half of the municipal bonds outstanding in the markets. Likewise, by the regulators' narrow interpretation, banking entities would be effectively prohibited from sponsoring or acquiring an ownership interest in municipal tender option bond ('TOB') trusts and from entering into the liquidity facilities that are an essential feature of TOB trusts.
Nov 16, 2011 European Commission Announces Revisions to the Transparency Directive Under the headline “More responsible businesses can foster more growth in Europe”, the European Commission (the “Commission”) unveiled proposals for directives to amend several legislative measures on 25 October 2011, including a directive to amend the Transparency Directive (the “Amendment Directive”) .
Nov 03, 2011 MF Global UK Enters Special Administration Regime The Financial Services Authority (“FSA”) has confirmed that MF Global UK Limited (“MF Global UK”) has entered the Special Administration Regime created under the Investment Bank Special Administration Regulations 2011 (“Regulations”). MF Global UK is the first investment bank to enter the Special Administration Regime. The decision to apply for special administration was initiated by the board of MF Global UK.
Nov 03, 2011 The Volcker Rule's Impact on Financial Institutions' Ownership and Sponsorship of Structured Finance and Securitization Transactions The three federal banking agencies and the SEC recently approved for comment a proposed
regulation implementing Section 619 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the 'Act'), more generally known as the 'Volcker Rule.' The 298-page proposal has yet to be published in the Federal Register, but the agencies have already agreed to an extended comment period for the proposal - running until January 13, 2012 - given the subject matter's significance.
Oct 31, 2011 MiFID and MiFIR on Algorithmic Trading – and – Provision of Services AND Establishment of Branches by Third Country Firms This is the sixth in our series of briefings on MiFID and MiFIR. In this alert, we describe new obligations set out in MiFID that apply to investment firms engaging in algorithmic trading to have in place risk control measures, and authorisation requirements for third country firms providing services into or establishing a branch within the European Union as set out in MiFID and MiFIR.
Oct 28, 2011 MiFID and MiFIR on Supervision of Products – and – Circuit Breakers This is the fifth in our series of briefings on MiFID and MiFIR. In this alert, we describe new powers of product intervention granted to ESMA and local regulators under MiFIR and new obligations set out in MiFID for regulated markets to have in place measures to ensure systems’ resilience, including circuit breakers and controls over algorithmic trading.
Oct 28, 2011 The SEC Approves Final Version of Form PF The Securities and Exchange Commission (the "SEC") held an open meeting on Wednesday, October 26, 2011, regarding the adoption of a rule requiring certain registered investment advisers to hedge funds and other private funds to report information on Form PF for use by the Financial Stability Oversight Council ("FSOC") in monitoring systemic risk to the U.S. financial system. The new rule, Rule 204(b)-1 under the Investment Advisers Act of 1940, would implement sections 404 and 406 of the Dodd-Frank Act and was initially proposed, along with the Form PF, on January 26, 2011.
Oct 27, 2011 MiFID on Client Categorisation and Transactions with ‘Eligible Counterparties’ – and – Organised Trading Facilities This is the fourth in our series of briefings on MiFID and MiFIR. In this alert, we describe the proposed changes to the current client classification regime, and in particular, amendments to the regime for transactions with ‘eligible counterparties’. We will also discuss the introduction of a new concept of regulated ‘organised trading facilities’.
Oct 24, 2011 MiFID AND MiFIR on Position Limits and Position Reporting for Commodities Derivatives and Emissions Trading The first in a series of short briefings on radical changes proposed for the regulation and conduct of investment business set out in the European Commission’s revised Markets in Financial Instruments Directive (MiFID) and Markets in Financial Instruments Regulation (MiFIR). This Client & Friends Alert outlines the “highlights” of the Commission’s proposals for the imposition of position limits and position reporting requirements for commodities derivatives and emissions trading.
Oct 21, 2011 CFTC Chairman Discusses Derivatives Reform in London On Thursday 13 October, the Chairman of the Commodity Futures Trading Commission (the “CFTC”), Gary Gensler, spoke on the topic of “Global Reform for Derivatives Markets” at the London School of Economics.
Oct 13, 2011 The Volcker Rule's Significant Impact on a Foreign Banking Organization's Proprietary Trading Activities This week, the three federal banking agencies and the SEC approved for comment a proposed regulation implementing Section 619 of the Dodd-Frank Act, more generally known as the 'Volcker Rule.' The 298-page proposal has yet to be published in the Federal Register, but the agencies have already agreed to an extended comment period for the proposal - running until January 13, 2012 - given the subject matter's significance.
Effective July 21, 2012, the Volcker Rule restricts proprietary trading activities and investing in or sponsoring of private equity funds by 'banking entities' -defined by statute to include FDIC-insured depository institutions, bank holding companies, savings and loan holding companies, other entities that control an FDIC-insured depository institution, and foreign banks that are regulated as if they are bank holding companies under the International Banking Act.
Oct 07, 2011 The Proposed Revision of the Market Abuse Directive In September 2011, an unofficial draft of the European Commission’s (the Commission) proposals for a new market abuse regime covering insider dealing and market manipulation (MAD II), was received by certain market participants. MAD II is intended to amend and update the existing Market Abuse Directive 2003/6/EC (MAD).
Sep 22, 2011 Final SEC Rule Regulating Large Trader Reporting On July 27, 2011, the Securities and Exchange Commission (the "SEC") adopted Rule 13h-1 ("Rule 13h-1" or the "Large Trader Rule") and related Form 13H as directed by Section 13(h) of the Securities Exchange Act of 1934 ("Exchange Act"). Rule 13h-1 requires each "Large Trader" (as defined in the Large Trader Rule) (i) to identify itself by filing and periodically updating Form 13H with the SEC and (ii) to disclose to each SEC-registered broker-dealer, through which it trades its large trader identification number ("LTID") and all accounts to which that LTID applies.
Sep 13, 2011 SEC Seeks Public Comment On Treatment of Asset-Backed Issuers under the Investment Company Act The Securities and Exchange Commission (the "SEC") recently issued an advance notice of proposed rulemaking (the "ANPR") requesting public comment on the treatment of asset-backed issuers under Rule 3a-7 under the Investment Company Act of 1940 (the "Investment Company Act").
Jun 30, 2011 The Bribery Act 2010: Are You Ready? The Bribery Act 2010 (the “Act”) enters into force tomorrow and with it comes some of the most far-reaching anti-bribery laws in the world, surpassing the previous benchmark set by the U.S. Foreign Corrupt Practices Act (the “FCPA”). The Act will change profoundly the approach to business transactions and internal investigations of public and private companies.
Jun 27, 2011 SEC Adopts Dodd-Frank Act Investment Adviser Rules and Delays Implementation of Some Deadlines During an open meeting on June 22, 2011, the Securities and Exchange Commission (the "SEC") approved the adoption of new rules under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), as mandated by Title IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"). These rules, which are spelled out in three releases, will require advisers to hedge funds and other private funds to register with the SEC, establish new exemptions from SEC registration for certain advisers, reallocate regulatory responsibility for advisers between the SEC and states, expand Form ADV disclosure by investment advisers, revise the SEC’s "pay-to-play" rule for advisers, and exclude certain "family offices" from the Advisers Act.
Jun 22, 2011 The Dodd-Frank Act: How It Impacts Specific Institutions, Entities and Transactions The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") was signed into law
by President Obama on July 21, 2010. The Act consists of sixteen distinct Titles on a wide variety of topics. Once implemented by the required regulations, the Act will significantly alter the U.S. financial regulatory system. All financial institutions will be directly and materially affected by the
Act’s accompanying regulations, and non-financial institutions that use regulated financial products will be indirectly affected. Additionally, the Act’s amendments to Sarbanes-Oxley and broad changes to executive compensation and corporate governance rules will impact all U.S. public
companies.
Jun 20, 2011 Regulatory Issues For European Funds: Updates on Synthetic ETFs and the Implementation of UCITS IV A recent Financial Stability Board note (“Potential financial stability issues arising from recent trends in Exchange-Traded Funds (ETFs)” ) has raised, not for the first time, the risks to investors supposedly inherent in synthetic ETFs and whether or not those risks require active management by regulatory authorities. Given the focus on counterparty risk post-Lehman, and on the need to protect retail investors investing in “complex” products, the question is being asked again as to whether or not the particular risks generated by these funds require special mitigating measures and restraints.
Jun 13, 2011 Living Wills: A User's Guide To Dodd-Frank's Bequest to Banks In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. While many of its provisions have received greater publicity — such as the Orderly Liquidation Authority of Title II and the swap provisions of Title VII — the so-called "living will" provisions of Dodd-Frank are now receiving more focused attention. Section 165(d) of Dodd-Frank requires "systemically significant" financial institutions to periodically report to the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Company and the Financial Stability Oversight Counsel a plan for the rapid and orderly resolution of their business in the event of material financial distress.
Jun 13, 2011 Two Dodd Frank Problems: the Effective Date and the Definitions; Contingency Planning in the Absence of a Regulatory Structure This memorandum first explains the July 16, 2011 problem that will arise because the Dodd Frank derivatives legislation (Title VII of the statute) goes into effect without either a ready regulatory plan or an operating market structure. The effective date problem is made worse because of drafting problems in Dodd Frank, including the flawed definition of the single most important term in all of the statute: "swap."
May 26, 2011 The Dodd-Frank Whistleblower Provisions: Considerations for Effectively Preparing for and Responding to Whistleblowers As part of the Dodd-Frank Act ("Dodd-Frank" or the "Act"), Congress created powerful incentives to encourage persons to report (i) potential violations of the federal securities laws to the Securities and Exchange Commission ("SEC") and (ii) potential violations of the Commodity Exchange Act (the "CEA") to the Commodity Futures Trading Commission (the "CFTC"). While the Sarbanes-Oxley Act ("SOX") encouraged up-the-ladder reporting by employees and allowed for self-policing and self-reporting by companies of potential violations, the Dodd-Frank Act’s whistleblower provisions will incentivize external reporting to the regulators that may hamper a company’s ability to self-police and self-report.
Apr 21, 2011 The Dodd-Frank Act's Impact on Affiliate Transactions The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) contains several provisions that will tighten the restrictions that govern transactions between banks and their affiliates – Sections 23A and 23B of the Federal Reserve Act – beginning in July 2012. These new provisions will (i) significantly increase the cost and burden of certain types of transactions between a bank and its nonbank affiliates, in particular, derivatives, securities lending/borrowing, and repo transactions; (ii) expand the scope of “affiliates” subject to Sections 23A and 23B; and (iii) increase the collateral burdens applicable to extensions of credit. As a result, banks should review, and may be required to modify, existing business arrangements with affiliates (as newly redefined) to comply with the new requirements.
Apr 12, 2011 The MiFID Review and What it Means For Commodities The European Commission’s December 2010 consultation paper on wholesale revisions to MiFID has focused on commodities derivatives as an area for regulatory intervention and oversight. The proposals, outlined as follows, are likely to lead to significant infrastructure changes for firms that trade commodities derivatives, particularly those firms that now rely on exemptions for own account and “ancillary” trading. The proposals place unregulated and non-financial firms into a financial regulatory context by requiring trading authorisation and imposing capital requirements, conduct of business and operational requirements.
Mar 18, 2011 SEC Launches FCPA Probe of Financial Services Industry's Interactions with Sovereign Wealth Funds The U.S. Securities and Exchange Commission ("SEC") has, to our understanding, delivered letters of inquiry to at least 10 hedge funds, banks, and private equity firms requesting information about the firms’ interactions with sovereign wealth funds ("SWF"). That list may expand to include other financial institutions. The investigation appears to be driven by: (i) the SEC's opinion that SWF employees are foreign government officials for purposes of the Foreign Corrupt Practices Act ("FCPA"); and (ii) reports that certain hedge funds, banks, and private equity firms may have paid bribes to those government officials to attract or retain business.
Feb 25, 2011 Changes to the Rules on Client Assets: Implications For Prime Brokers and Funds On 1 March 2011, a series of amendments to the FSA’s Client Assets Sourcebook (“CASS”) come into force that will require the repapering of relationships between prime brokers and their fund customers as well as a review of any liens granted in custody agreements.
These amendments are set out in FSA Policy Statement 10/16 which also contains new rules to: (i) limit deposits of client monies with other group entities to a maximum of 20% (comes into force on 1 June 2011); (ii) require firms to make a Client Money and Asset Return (“CMAR”) (comes into force on 1 June 2011 ); and (iii) establish a CASS oversight controlled function (comes into force on 1 October 2011).
Feb 14, 2011 Proposed EU “Bail-in” Measures May Impact Credit Derivatives Framework The European Commission recently launched a consultation on the Technical Details of a Possible EU Framework for Bank Recovery and Resolution (the “Consultation”). The Consultation is designed to be read with the Commission's October 2010 communication (the “Communication”) on an EU framework for crisis management in the financial sector. The Consultation contains technical details which expand on the principles identified in the Communication.
Feb 11, 2011 Fed Issues Final Regulations on the Volcker Rule’s Extension Periods On February 9, 2011, the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") issued final regulations implementing the various conformance and extension periods under the Dodd-Frank Act’s "Volcker Rule." These new regulations will be codified as new Subpart K of the Federal Reserve Board’s Regulation Y.
Jan 05, 2011 Revising the Remuneration Code: Pan-European Requirements Applicable From 1 January 2011 On 17 December 2010, the Financial Services Authority (FSA) published final rules expanding on its Remuneration Code in order to implement amendments being brought in by the Capital Requirements Directive (CRD 3) and guidelines on remuneration from the Committee of European Banking Supervisors (CEBS). These new rules expand the scope of application of the FSA’s existing Remuneration Code beyond the 26 larger banks covered by the original Code to include all banks, building societies and CAD investment firms (which will include asset managers, UCITS funds and most hedge fund managers).
Dec 22, 2010 High Court Interprets Section 2(a)(iii) of the ISDA Master Agreement Yesterday, the High Court gave its judgment in the case of Lomas and others v JFB Firth Rixson, Inc and others upon application by the Joint Administrators of Lehman Brothers International Europe ("LBIE") for directions as to the construction and effect of five interest rate swap agreements ("Swaps") to which LBIE is a party.
Dec 17, 2010 The Directive on Alternative Investment Fund Managers: Implications For Non-European Investment Managers The Directive on Alternative Investment Fund Managers (the “Directive”) is aimed, broadly, at two targets. Firstly, it requires the authorisation and supervision of all alternative investment fund managers (“AIFM”) and imposes investor protection requirements on those authorised AIFM. These requirements include significant obligations to make disclosures to investors, regulators and target companies, obligations to deploy adequate risk management systems, obligations to appoint independent depositaries who bear a degree of legal liability to the investor, and leverage controls. Secondly, the Directive looks to create a truly borderless market across the EU to allow AIFM to “passport” their services throughout Europe once authorised in a single Member State. For the first time, these passports will (eventually) be available to non-EU persons.
Dec 14, 2010 The Lincoln Amendment: Banks, Swap Dealers, National Treatment and the Future of the Amendment One of the most contentious provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") is Section 716 – commonly referred to either as the "Lincoln Amendment" after its principal proponent, Senator Blanche Lincoln of Arkansas, or alternatively by its functional name, the "swaps push-out rule." The Lincoln Amendment effectively forbids FDIC-insured institutions and other entities that have access to Federal Reserve credit facilities – including banks, thrifts, and U.S. branches of foreign banks – from acting as a "swap dealer" except in certain limited circumstances, thus requiring such institutions to "push out" most swap dealing activities into an affiliate that is not FDIC insured and that does not otherwise access Federal Reserve credit facilities. The Lincoln Amendment will become effective in July 2012 and will have a significant, and likely not wholly anticipated, impact on banks and U.S.
Nov 15, 2010 The SEC Publishes Final Rule Regulating Access to Securities Markets The Securities and Exchange Commission (the "SEC") has adopted Rule 15c3-5 ("Rule 15c3-5" or the "Rule") under the Securities Exchange Act of 1934, restricting trading arrangements commonly called "sponsored access" or "direct market access." Rule 15c3-5 imposes regulatory requirements and restrictions on broker-dealers that are members of a national securities exchange or an alternative trading system ("ATS", and collectively with the exchanges, the "markets") who allow their customers (including customers who are themselves broker-dealers) to access the market under the member’s identification. The provisions of the Rule will apply as well to proprietary transactions for the broker-dealer’s own account and traditional agency transactions, which are routed directly to a market, though the primary focus of the Rule is to regulate the provision of market access to customers.
Oct 15, 2010 An Analysis of the Dodd-Frank Act's Volcker Rule On Friday, October 1, 2010, the federal "Financial Stability Oversight Council" ("FSOC" or "Council") convened for the first time. The FSOC, created by Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act" or the "Act"), is comprised of the heads of the federal financial regulatory agencies and two presidential appointees, and is tasked with establishing recommendations regarding certain of the regulations that the financial regulatory agencies are required to adopt under the Dodd-Frank Act. One of the purposes of this initial meeting was to approve the issuance of a Request for Public Input (the "Request") soliciting comment regarding certain definitions contained in, and the general content of, Section 619 of the Dodd-Frank Act, popularly known as the "Volcker Rule." Public comments are due by November 5, 2010.
Aug 31, 2010 Recent Developments Concerning ERISA at the Department of Labor This summer has proven to be one of significant activity at the U.S. Department of Labor (the “DOL”) with respect to the refinement of two significant exemptions to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). In July, the DOL amended Prohibited Transaction Exemption (“PTE”) 84-14, 75 Fed. Reg. 38837 (July 6, 2010) (the “QPAM Exemption”) to permit a qualified professional asset manager (a “QPAM”) to manage an investment fund containing assets of such QPAM’s own employee benefit plan. In July, the DOL published an interim final regulation clarifying the disclosure necessary for plan fiduciaries in concluding whether a contract or arrangement is “reasonable” in order to assist such fiduciaries in deciding whether the statutory exemption contained in Section 408(b)(2) of ERISA is available with respect to services provided by a party in interest to a plan.
Aug 12, 2010 Changes to the Regulation of Broker-Dealers and Investment Advisers Under Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act Part I of this memorandum focuses on Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) as it relates to the regulation by the Securities and Exchange Commission (“SEC”) of broker-dealers and, to a lesser extent, investment advisers. Part II of this memorandum covers a number of miscellaneous provisions included within Title IX that may affect broker-dealers. Part III describes studies to be conducted by the SEC, the reorganization of the SEC, and a provision that affects current beneficial ownership and short swing profit reporting requirements. Other memoranda prepared by Cadwalader cover the remaining provisions of Title IX, which include (i) significant requirements relevant to credit rating agencies and structured finance products, and (ii) rules related to executive compensation and corporate governance that apply to public companies generally, not merely to those engaged in financial activities.
Jul 22, 2010 The EU Commission Proposes Onerous Requirements for Rated Structured Finance Instruments The EU Commission has recently proposed amendments to Regulation (EC) No 1060/2009 (the “CRA Regulation”) of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (“CRAs”), which include a proposal to require all information necessary for the CRA hired by an issuer to determine or monitor the credit rating of a structured finance instrument to be made available to non-hired CRAs.
The stated purposes of the proposal are to reinforce competition between CRAs; to help avoid possible conflicts of interest under the issuer-pays model; to enhance transparency and the quality of ratings; and to promote the issuance of unsolicited ratings . The proposal follows closely the recent amendments to Rule 17g-5 of the Securities Exchange Act of 1934 in the U.S.
Jul 20, 2010 Hedge Fund Regulation Under the Dodd-Frank Wall Street Reform and Consumer Protection Act The inevitable heightened regulation of the hedge fund industry has come to fruition, with the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act”) by the Senate on July 15, 2010. While the Act could be worse – it does not appear to be the operational and expense burden to hedge funds that Sarbanes-Oxley is for corporate America – its ultimate effects remain to be seen, as much of the detailed formulation and implementation of the Act’s largely ambiguous provisions are left to future rulemaking by a wide range of increasingly powerful governmental regulators having tremendous discretionary authority, such as the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Board of Governors of the Federal Reserve System, and the to-be-established Financial Stability Oversight Council.
Jul 20, 2010 Regulation of End Users of Swaps Under the Dodd-Frank Wall Street Reform and Consumer Protection Act The purpose of this memorandum is to provide an overview of the application of Title VII (the “Derivatives Legislation” or the “Legislation”) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) to end users, particularly (i) operating corporations (“Corporates”), such as manufacturing companies, insurance companies and airlines (all of which may be impacted somewhat differently), (ii) state and other municipal entities (“Munis”), and (iii) public and private benefit plans (“Plans”; and collectively with Corporates and Munis, “end users”).
Jul 20, 2010 Regulation of Systemically Significant NonBanks Under the Dodd-Frank Wall Street Reform and Consumer Protection Act The focus of this Memorandum is the potential regulation by the Board of Governors of the Federal Reserve System, pursuant to the newly-passed Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act” or the “Dodd-Frank Act”), of nonbank financial companies designated as “systemically significant” as provided by Titles I and VI of the Act, including the Volcker Rule.
Jul 20, 2010 Summary of the Titles of the Dodd-Frank Wall Street Reform and Consumer Protection Act This Overview Memorandum is intended to provide a very brief summary of those Titles of the Act that are most significant to our clients. In addition to this Overview Memorandum, Cadwalader has prepared a series of memoranda, each discussing a different aspect of the Act and how it will affect different industries, types of entities and transactions.
Jul 20, 2010 The New Scheme for the Regulation of Swaps, with Appendices on Retroactivity, Special Entities and Tax, Under the Dodd-Frank Wall Street Reform and Consumer Protection Act Title VII (the “Derivatives Legislation” or the “Legislation”) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) is among the most far reaching and controversial sets of statutory changes included within the Act. The Derivatives Legislation will give primary authority to the Commodity Futures Trading Commission (the “CFTC”) and the Securities Exchange Commission (the “SEC”; and together with the CFTC, the “Commissions”) to regulate the swaps market, both as to transactions and participants, although the various banking regulators (the “Bank Regulators”; and together with the Commissions, the “Regulators”) will retain substantial authority with respect to banks.
Jun 03, 2010 Some Concerns with the Regulation of Large Non-Bank Holding Companies The Wall Street Reform and Consumer Protection Act of 2009 (the “House bill”) and the Restoring American Financial Stability Act of 2010 (the “Senate bill”; and together with the House bill, the “Legislation”) both contain a requirement that large financial firms that do not own banks (“NonBHCs”) should be regulated as if they were bank holding companies (“BHCs”).
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Mar 22, 2012 UK Budget 2012 – Key Tax Measures The Chancellor of the Exchequer’s third budget, held on 21 March 2012, might well be remembered in future years for a balancing act (at least in a taxation context) between stimulus and incentive on the one hand, and austerity and anti-avoidance on the other. A number of the Chancellor’s provisions focused on enterprise incentives and were accompanied by an additional 1 per cent. reduction in the main rate of UK corporation tax from April 2012. While these announcements will be welcomed, they were balanced against a very tough message on tax avoidance – particularly in the areas of stamp duty land tax planning and income tax avoidance. Foremost among the Budget statements on combating tax avoidance was the announcement that the Government will proceed with the introduction of a general anti-avoidance rule (“GAAR”), consulting in the summer of 2012 on draft legislation based on the recommendations of the Aaronson Report published in November 2011 with a view to introducing legislatio
Mar 19, 2012 Senator Stabenow's Alternative Energy Tax Incentive Measure Fails to Pass Senate On March 13, an amendment to the "Moving Ahead for Progress in the 21st Century Act" (which is also known as the "Surface Transportation Act") that would have reestablished and extended several tax incentives for alternative energy, failed to garner the required 60 votes for approval. However, the amendment, which was introduced by Senator Debbie Stabenow (D-MI), did secure 49 votes, which suggests that similar measures may be introduced in the future. This memorandum discusses the application of the Stabenow amendment to production tax credits, investment tax credits, and the cash grant program.
Mar 07, 2012 Retrospective Change of Law Announced for UK Debt Buybacks In a Written Ministerial Statement, delivered on 27 February 2012, the UK Government has announced measures to counteract two tax avoidance schemes entered into by a UK bank, the UK Bank being a signatory to the Code of Practice on Taxation for Banks.
Feb 17, 2012 Application of Proposed FATCA Regulations to Foreign Investment Vehicles On February 8, the Internal Revenue Service issued proposed regulations that provide guidance on the “FATCA provisions” contained in sections 1471-1474 of the Internal Revenue Code. The purpose of FATCA is to reduce U.S. tax evasion by requiring "foreign financial institutions" and certain other foreign entities to provide information to the IRS about U.S. holders of their debt and equity interests and other "financial accounts," or else be subject to a 30% withholding tax.
Jan 25, 2012 New Proposed and Temporary Regulations Address U.S. Withholding Tax on Cross-Border Equity Derivatives On Thursday, January 19, the Internal Revenue Service (the "IRS") and the Treasury Department issued proposed and temporary regulations under section 871(m) of the Internal Revenue Code. These regulations provide guidance on cross-border swaps and other equity-linked instruments whose dividend equivalent payments will be subject to U.S. withholding tax.
Oct 26, 2011 Proposals for a European Union Financial Transactions Tax The proposals made by the EU Commission on 28 September 2011 regarding an EU directive on a common system of financial transaction taxation in the 27 Member States of the EU have been debated widely in the three weeks since they were presented. The presentation of the proposed Directive (the "Directive"), together with proposals to amend Directive 2008/7/EC concerning indirect taxes on the raising of capital, represent the latest stage in a series of announcements by EU authorities directed towards ensuring that the European financial sector should "contribute more fairly" towards the costs of addressing and rectifying the current European financial crisis. A series of conclusions from the European Council, communications addressed to the European Parliament and EU Commission staff working papers and consultations throughout 2010 and 2011 have created a platform upon which the relative merits of various options for taxing the financial sector have been analysed.
Sep 21, 2011 Proposed Treasury Regulations Regarding Swaps and Other Notional Principal Contracts On Thursday, September 15, the Treasury Department and the Internal Revenue Service issued proposed regulations that affect swaps and other notional principal contracts. The proposed regulations are proposed to be effective for contracts entered into on or after the date the final regulations are published in the Federal Register.
Sep 20, 2011 UK Corporate Tax Reform Update While the UK Government’s blue-print for corporation tax reform was put forward in June 2010, key elements of the reform programme have become much clearer during the course of the Summer of 2011. The long awaited detailed and extensive consultation documents on the reform of the UK controlled foreign companies rules and the UK Patent Box have been published, alongside a consultation on changes to the UK debt cap rules and extensive guidance on the foreign branch tax exemption which was enacted in the Finance Act 2011.
Sep 06, 2011 Investment in Alternative Energy After the End of Cash Grants The cash grant program for renewable energy expires at the end of this year. When cash grants end, renewable energy projects will once again rely on 'tax equity investors' to offer lower-cost financing in exchange for the tax credits and accelerated depreciation that are available to investments in renewable energy.
Will lenders and investors continue to drive growth in the renewable energy sector after the cash grant program expires? Tax equity investing has been the bedrock of renewable power development for a decade. Although the economy continues to face rough times, there are investors with sufficient tax liability to benefit from renewable tax credits and depreciation, without cash grants. While financial institutions have traditionally been the predominant tax equity investors,
there also are new, significant investors in the renewable tax equity market that could continue to support renewable projects and infrastructure development in the United States.
Jul 22, 2011 Tax Aspects of the 'Gang of Six' Plan to Reduce the Deficit On Tuesday, July 19, the 'Gang of Six' senators who have been negotiating a bipartisan plan to reduce the budget deficit presented their proposal to a closed-door meeting of forty-nine senators. The plan was immediately praised by members of both parties and President Obama. The plan borrows heavily from the report issued in December by President Obama's National Commission on Fiscal Responsibility.
This memorandum summarizes the tax proposals of the Gang of Six plan and compares the Gang of Six proposals to the analogous proposals made by the Deficit Reduction Commission (and a previous proposal made by the Deficit Reduction Commission's co-chairs, Senator Alan Simpson and Erskine Bowles).
Jul 19, 2011 IRS Issues Proposed Regulations to Clarify Application of Section 162(m) New proposed regulations clarifying perceived ambiguities in the application of the $1 million limit on deductible compensation for covered employees, including the transition rule applicable to privately held corporations that become publicly held, were recently published by the Internal Revenue Service. Companies should review their incentive compensation arrangements to determine whether these proposed regulations, once finalized, will affect such arrangements, and, if so, how such arrangements may need to be modified in order to comply with Section 162(m).
Jun 20, 2011 Regulatory Issues For European Funds: Updates on Synthetic ETFs and the Implementation of UCITS IV A recent Financial Stability Board note (“Potential financial stability issues arising from recent trends in Exchange-Traded Funds (ETFs)” ) has raised, not for the first time, the risks to investors supposedly inherent in synthetic ETFs and whether or not those risks require active management by regulatory authorities. Given the focus on counterparty risk post-Lehman, and on the need to protect retail investors investing in “complex” products, the question is being asked again as to whether or not the particular risks generated by these funds require special mitigating measures and restraints.
Jun 01, 2011 Joint Agencies’ Proposed Rules Governing Incentive-Based Compensation at Covered Financial Institutions The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") requires seven Federal agencies (the "Agencies") to jointly prescribe regulations or guidelines with respect to incentive-based compensation practices at covered financial institutions. On April 14, 2011, the government published proposed rules governing such incentive-based compensation arrangements at covered financial institutions (the "Proposed Rules").
Mar 30, 2011 The UK Budget 2011 – Spotlight on Insurance On 23 March 2011, the Chancellor of the Exchequer announced a number of measures that will both directly and indirectly affect the UK tax treatment of insurers.
While the UK insurance sector will likely welcome the reduction in April 2011 of the main rate of corporation tax, there are a number of sector-specific areas in which further changes have been announced.
Mar 24, 2011 UK Budget 2011: Key Taxation Aspects The Chancellor of the Exchequer’s second budget, held on 23 March 2011, was perhaps most notable for the attention placed on fiscal neutrality, coupled with plans for the stimulation of economic growth. The technical tax developments and announcements echoed this approach. One document described a “coherent framework” within which HMRC could tackle perceived tax avoidance, an approach supplemented by the closure of a number of loopholes and schemes and a general focus on measures to “shut down the open abuses that have been allowed to continue for too long”. Other provisions focused on encouraging investment in UK enterprise and in developing the competitiveness of the UK economy.
Mar 01, 2011 SEC Finalizes Rules Regarding Shareholder Approval of Executive Compensation and Golden Parachute Arrangements On January 25, 2011, the Securities and Exchange Commission (the “SEC”) adopted final rules (the “Final Rules”) to implement the provisions of Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires publicly traded companies to provide for non-binding shareholder votes on executive compensation (“say-on-pay votes”), the frequency of say-on-pay votes (“say-when-on-pay votes”), and golden parachute packages of named executive officers (“say-on-golden-parachute votes”). The Final Rules become effective on April 4, 2011 and are largely similar to proposed rules (the “Proposed Rules”) that the SEC issued on October 18, 2010, discussed here. This Clients & Friends Memo supplements our previous discussion of the Proposed Rules by summarizing some of the substantive differences between the Proposed and Final Rules.
Feb 28, 2011 Final Regulations Issued with Respect to FBAR Filing Requirements On Wednesday, February 23, the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the Treasury Department, issued final regulations (the “Final Regulations”) describing the individuals and entities that are required to file Form TD F 90-22.1 – Foreign Bank and Financial Accounts Report (“FBAR”), and the foreign financial accounts that they must report. The Final Regulations
are substantively identical to the proposed regulations that were issued on February 26, 2010 (the “Proposed Regulations”). Most significantly, the Final Regulations continue to reserve on whether equity interests in foreign hedge funds, private equity funds, and other non-mutual company investment funds are treated as financial accounts subject to FBAR reporting.
Feb 17, 2011 Energy Tax Provisions in the Obama Administration's Fiscal Year 2012 Budget On Monday, the Treasury Department released the Obama Administration's Fiscal Year 2012 Revenue Proposals (the "Greenbook"), which includes several significant energy-related tax proposals. The proposals are all substantially similar to the energy-related tax proposals in last year’s Greenbook, except for a new proposal to provide a tax credit in lieu of a deduction for energy-efficient commercial buildings.
Feb 17, 2011 Tax Proposals in the Obama Administration's Fiscal Year 2012 Revenue Budget On Monday, the Treasury Department released the Obama Administration's Fiscal Year 2012 Revenue Proposals. This memorandum summarizes the tax proposals that are of most interest to U.S. corporate taxpayers, financial institutions, insurance companies, hedge funds, private equity funds, and high-income individuals.
Dec 03, 2010 Final Report of President Obama's Deficit Reduction Commission Today, President Obama's bipartisan deficit-reduction commission approved its final report proposing sweeping changes to the tax, social security, and health care systems. The vote was 11 out of 18 in favor, which was fewer than the 14 votes that Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi had required for a vote by Congress. Nevertheless, because the report had bipartisan support, it is expected to be influential. The commission's report follows a prior draft proposal circulated by the Co-Chairs of the commission and another report issued by the Debt Reduction Task Force of the Bipartisan Policy Center. This memorandum summarizes and analyzes the significant tax and social security proposals of the three reports.
Nov 29, 2010 SEC Proposes New Rules Regarding Shareholder Approval of Executive Compensation and Golden Parachute Arrangements The Securities and Exchange Commission (the "SEC") recently issued proposed rules (the "Proposed Rules") to implement the provisions of Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"). Section 951 of the Act requires publicly traded companies to provide for non-binding shareholder votes on executive compensation ("say on pay" and "say when on pay" votes) and golden parachute packages ("say on golden parachutes") of named executive officers.
Sep 07, 2010 IRS Notice 2010-60: Preliminary Guidance on the "FATCA" Reporting and Withholding Rules On August 27, the Internal Revenue Service issued Notice 2010-60, which gives preliminary guidance on the "FATCA" foreign reporting and withholding regime for payments to foreign financial institutions, foreign hedge funds, foreign private equity funds, foreign CDOs, and other similar foreign vehicles. FATCA was enacted as part of the Hiring Incentives to Restore Employment Act (the "HIRE Act") and comes into effect in 2013.
Aug 27, 2010 UK Tax Summer Update 2010 The summer of 2010 has seen a number of important tax developments and initiatives which will set the context of key legislative changes for the remainder of 2010. Foremost among the raft of consultations and discussion documents which have been published by the Government have been the proposals regarding a UK bank levy, a consultation paper on the overseas branches of UK companies and further insight into the proposed anti-avoidance measures to counteract “group mismatch schemes”. We have included a summary of these initiatives in this Clients & Friends Memorandum as well as some important, but perhaps less prominent, changes such as the introduction of a double tax treaty “passport scheme” and a summary of the new guidance on the changes to the complex legislation relating to debt buybacks.
Aug 18, 2010 IRS Guidance on Release of Real Properties Securing Mortgage Loans Held by REMICs On August 17, 2010, the Internal Revenue Service (the “IRS”) released Revenue Procedure 2010-30 (the “Revenue Procedure”), which clarifies Treasury regulations issued in September 2009 (the “Modification Regulations”), concerning changes in the collateral securing mortgage loans held by real estate mortgage investment conduits (“REMICs”).
Aug 11, 2010 The Education Jobs and Medicaid Assistance Act of 2010 Yesterday, President Obama signed into law the Education Jobs and Medicaid Assistance Act of 2010 (H.R. 1586) (the “Act”). The Act allocates approximately $10 billion to local school districts to prevent teacher layoffs due to state revenue shortfalls, and approximately $16 billion to help states pay rising Medicaid costs without having to lay off public and private sector employees to raise funds.
The Act funds approximately $1.1 billion of the allocations by eliminating the advance payment option for the earned income credit, and approximately $9 billion of the allocations through several changes to the international provisions of the Internal Revenue Code. Part II of this memorandum lists these international tax law changes, and Part III explains them in greater detail.
Jul 20, 2010 Executive Compensation and Corporate Governance Provisions Under the Dodd-Frank Wall Street Reform and Consumer Protection Act The focus of this Memorandum is Title IX – Subtitle E “Accountability and Executive Compensation” and Title IX – Subtitle G “Strengthening Corporate Governance” of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). We note that the Act requires the Securities and Exchange Commission (“SEC”), or other specified federal regulator, to develop rules in order to fully implement many of these compensation and corporate governance provisions. Accordingly, the ultimate impact of such provisions will in large part depend on how such rules are implemented.
Jun 23, 2010 The Emergency UK Budget 2010: Key Taxation Aspects On Tuesday 22 June 2010, the ‘Emergency’ Budget of the UK’s new Coalition Government was delivered by the Chancellor of the Exchequer. Given that the Government has decided to achieve its aim of eliminating the bulk of the UK’s public sector structural deficit by 2014/15 through spending reductions (as to 80 per cent.) and tax increases (as to 20 per cent.), the changes announced to the UK’s tax regime appeared relatively mild in comparison and, indeed, in some cases quite encouraging.