Month: February 2012

Dodd-Frank Act Implementation Update

 

Title VII of the Dodd-Frank financial reform, titled the “Wall Street Transparency and Accountability Act of 2010” (“Title VII”), was enacted on July 21, 2010.[1] Under Title VII, which is generally intended to bring the $700 trillion over-the-counter (“OTC”) derivatives market under greater regulation, the Commodity Futures Trading Commission (“CFTC”) has primary responsibility for the regulation of “swaps” and the Securities and Exchange Commission (“SEC” and, together with the CFTC, the “Commissions”) has primary responsibility for the regulation of “security-based swaps.” The Commissions share responsibility for the regulation of “mixed swaps.” A summary of several noteworthy developments in the implementation of Title VII since our last update follows. READ MORE

Greece Inches Closer to Triggering a Credit Event

 

With an enormous €14.5 billion bond maturing on March 20th, Greece continues to negotiate with its private sector investors on the reduction of approximately €100 billion of its total €350 billion of debt. Agreement with these investors is intended to reduce the country’s debt from 160% of GDP to 120% of GDP by 2020 and is required in order for Greece to secure from the European Union and International Monetary Fund the second installment of bailout funds, approximately €130 billion, necessary for the country to avoid default. However, the negotiations have been complicated and, perhaps, compromised, not only by Greece’s economic deterioration, but also, at least to some extent, by the involvement of smaller private investors who have purchased Greek debt—and, in some cases, credit default swap (“CDS”) protection on Greece—since the deal was announced in October 2011. At that time, the expectation was that approximately 90% of debt holders would voluntarily agree to the terms of the restructuring, which generally entailed an exchange of existing debt for new, longer-dated bonds. There is now concern that, as currently contemplated, significantly fewer debt holders will voluntarily agree to the proposed terms of the restructuring. One reason for this appears to be the purchase (at a deep discount) of large amounts of Greek debt from banks by funds and others more insulated from political and other pressures to accept a restructuring. This has resulted not only in a decline in debt holders willing to participate in an exchange of debt, but also in the tougher negotiation of terms for the new debt. READ MORE

ISDA Publishes Industry Provisions for Collateral Segregation of Uncleared Swaps

 

On December 6, 2011, the International Swaps and Derivatives Association, Inc. (“ISDA”) published sample tri-party provisions intended to assist market participants in the negotiation of provisions relating to the segregation of excess collateral, or “independent amounts.” The Dodd-Frank Act (the “Act”) imposes certain requirements for dealers to collect initial and variation margin from their counterparties. The sample provisions effectively provide market participants with suggested mechanics to implement Sections 724(c) (regarding “swaps”) and Section 763(d) (regarding “security-based swaps”) of Title VII of the Act, which generally require that dealers provide their end-user counterparties with the option of having independent amount collateral they deliver be segregated and held by a third-party custodian. READ MORE

CFTC Issues Final Rule on CPO/CTA Registration and Compliance Regulations

 

On February 9th, the CFTC approved certain rule changes intended to increase transparency to the CFTC of commodity pool operators (“CPOs”) and commodity trading advisors (“CTAs”) active in the futures and swaps markets. One such change was to rescind an exemption from CPO registration on which hedge fund managers often rely. Specifically, the CFTC rescinded the exemption set forth in Rule 4.13(a)(4), which exempts from CPO registration hedge fund managers that advise funds whose investors are solely “qualified eligible persons” (as defined in Rule 4.7(a)(2)) or “accredited investors” (as defined in Regulation D under the Securities Act of 1933)). The rescission of this rule will become effective 60 days after its publication in the Federal Register. READ MORE

Financial Transaction Tax

 

The application of a financial transaction tax on bond, equity and derivatives transactions in Europe continues to be intensely debated. As noted in a previous alert,[1] several months ago the European Commission proposed the introduction of a plan to tax derivatives and other financial transactions each time at least one of the parties to a transaction is located within the 27 member-state European Union (the “EU”). Equity and bond transactions would be assessed a 10 basis point tax and derivatives transactions would be assessed a 1 basis point tax. The tax under this plan would become effective in 2014 and was expected to raise approximately €57 billion per year. READ MORE