Month: May 2009

Authorizing the Regulation of Swaps Act

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On May 4, 2009, U.S. Senators Carl Levin and Susan Collins introduced a bill entitled “Authorizing the Regulation of Swaps Act” (the “Proposed Act”) relating to the regulation of derivatives transactions. The Proposed Act is another effort to increase regulatory oversight of the over-the-counter (“OTC”) derivatives market. (Another such attempt was the Derivatives Markets Transparency and Accountability Act, which was summarized in an Orrick Client Alert on February 19, 2009.) The lack of oversight of the derivatives market has been perceived by some as one of the underlying causes of the current financial crisis, primarily as a result of the losses that American International Group and other major financial institutions have attributed to their portfolios of credit default swaps.

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Bank Assets Seized in City of Milan Derivatives Probe

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On April 27, 2009, Italian financial police, acting on the order of a judge, seized the assets of four large banks, valued at approximately €476 million, in connection with a probe relating to a derivatives transaction entered into by the city of Milan. The seized assets of the banks include the banks’ stakes in Italian companies, real estate assets and bank accounts. READ MORE →

ISDA Announces Successful Implementation of the Big Bang Protocol

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On April 8, 2009, the International Swaps and Derivatives Association, Inc. (“ISDA”) announced the successful implementation of its 2009 ISDA Credit Derivatives Determinations Committees and Auction Settlement CDS Protocol (known as the “Big Bang Protocol”). Implementation of the Big Bang Protocol was the final step in the important industry initiative to incorporate (commonly referred to as “hardwire”) auction settlement terms into standard credit default swap (“CDS”) documentation. According to ISDA, over 2,000 parties signed up to the Big Bang Protocol, after an almost month-long period during which market participants could elect to adhere to its terms. READ MORE →

SEC Brings First Insider Trading Case Involving Credit Default Swaps

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On May 5, 2009, the Securities and Exchange Commission (the “SEC”) charged a portfolio manager at hedge fund investment advisor Millennium Partners L.P. (“Millennium”) and a bond and credit default swap (“CDS”) salesman at Deutsche Bank Securities Inc. (“DBSI”) with insider trading in CDS. The SEC’s complaint alleges that the DBSI salesman became privy, through his employment at DBSI, to confidential information concerning the restructuring of an upcoming bond issuance by VNU N.V. (“VNU”), a Dutch media holding company, and passed that information on to a Millennium portfolio manager, who traded based on that information. READ MORE →

ISDA Survey Results Released

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ISDA announced the results of two of its recent surveys, the 2009 Margin Survey (the “Margin Survey”) and the survey of derivatives usage by the world’s 500 largest companies (the “Derivatives Usage Survey”), at its 24th Annual General Meeting in Beijing at the end of April. The Margin Survey results were not surprising in light of the ongoing credit crisis. In particular, the survey reported an increase of almost 86% in the use of collateral in privately-negotiated derivatives transactions over last year’s survey, or approximately $4.0 trillion in collateral currently in circulation. Cash remained the dominant item of collateral being delivered, amounting to 84% of the collateral reported received. The results of the Margin Survey were derived from the responses of 67 firms, 58 of which are banks or broker-dealers. READ MORE →

Equity Swap Withholding

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On May 11, 2009, the Obama Administration, responding to concerns about dividend withholding abuse, released legislative proposals that include a provision requiring withholding on certain equity swaps where the underlying position relates to a U.S. corporation. Our next issue will contain a detailed explanation of this provision and its implications.