Federal Reserve Board Seeks Public Comment on the Application of Enhanced Prudential Standards to General Electric Capital Corporation

On November 25, the Federal Reserve Board (the “Board”) released proposed enhanced prudential standards and reporting requirements to be applied to General Electric Capital Corporation (“GECC”) and requested public comment on the application thereof.  GECC is designated by the Financial Stability Oversight Counsel as a non-bank systemically important financial institution that needs to be supervised by the Board and be subject to enhanced prudential standards similar to those applicable to certain bank holding companies.  Release.

Council of EU Agrees General Approach on Proposed Regulation on Securities Financing Transactions

On November 20, the Council of the EU published a press release reporting that its Permanent Representatives Committee (COREPER) has agreed its approach on a draft regulation on reporting and transparency of securities financing transactions (SFTs) (the SFT Regulation).

SFTs are often carried out by the shadow banking sector and rely on assets belonging to the counterparty to generate financing.  They mostly involve lending or borrowing of securities and commodities, repurchase or reverse repurchase transactions, or buyback/sell-back transactions.

The SFT Regulation is intended to enhance financial stability by ensuring that information on SFTs is efficiently reported to trade repositories and investors in collective investment undertakings.

The Commission published its legislative proposal for the SFT Regulation in January 2014 and the Council published its first compromise proposal in October 2014. The Council’s agreement enables negotiations to commence as soon as the negotiating team of the European Parliament is entrusted with a mandate. The aim is to adopt the SFT Regulation at first reading. Press Release.

Financial Services and Markets Act 2000 (Market Abuse) Regulations 2014 Published

On November 20, the Financial Services and Markets Act 2000 (Market Abuse) Regulations 2014 were published with an accompanying explanatory memorandum.  The Regulations were made on November 19, and come into force on December 15.  They amend the Financial Services and Markets Act 2000 (FSMA) to extend until July 3, 2016 the expiry dates of:

  • the prohibition on market manipulation (s118(8) FSMA);
  • the associated provisions (s118A(2) and (3) FSMA); and
  • the definition of “regular user” (s130A FSMA).

On July 3, 2016, the Market Abuse Regulation (MAR) will take effect and the above FSMA provisions will then expire.  The s118(8) prohibition will be replaced by a prohibition with similar scope under MAR.  RegulationExplanatory Memorandum.

ECON Publishes Draft Report on MMF Regulation

On November 17, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) published a draft report on the proposed Regulation on Money Market Funds (the MMF Regulation).

Money market funds are a type of investment fund that invests in short-term debt such as money market instruments issued by banks, governments and companies (MMFs).  If adopted, the MMF Regulation will introduce a general framework of requirements to enhance the liquidity and stability of MMF funds.

The draft report sets out suggested amendments to the European Commission’s original proposal and an explanatory statement. The statement comments that:

  • there is still significant scope for improvement relating to liquidity and maturity transformation and in making MMFs more stable;
  • a new category of EU government constant net assets value money market fund (CNAV MMF) should be established, which would invest a majority of assets into EU government debt; and
  • the net asset value of CNAVs should be subject to daily disclosure requirements, stress tests should take place on a quarterly basis and there should be stronger investor warnings.

The Parliament is scheduled to consider the MMF Regulation at its plenary session on March 25, 2015. Draft report.

Detroit Confirms Chapter 9 Plan of Adjustment

Approximately 16 months after filing the largest chapter 9 bankruptcy in history, Detroit received approval November 7 of its chapter 9 plan of adjustment.  Bankruptcy Judge Stephen Rhodes of the Eastern District of Michigan Bankruptcy Court, confirmed the plan at a several-hour hearing where he read into the record an “oral opinion.”  Judge Rhodes held that the plan “meets the legal requirements for confirmation” and lauded the plan, describing it as an “extraordinary accomplishment in bankruptcy and an ideal model for future municipal restructurings.”  In re City of Detroit, Case No. 13-53846 (Bankr. E.D. Mich., November 7, 2014). Click here to read more.

ResCap’s Claims Against Mortgage Originators in Minnesota Will Proceed

On November 12, Judge Susan Richard Nelson of the United States District Court for the District of Minnesota declined to dismiss claims by the Residential Capital LLC (ResCap) bankruptcy trust against six mortgage originators.  ResCap alleges that the six originators—Academy Mortgage Corp., First California Mortgage Corp., Provident Funding Associates, L.P., T.J. Financial, Inc., Universal American Mortgage Company, LLC, and Wells Fargo Financial Retail Credit, Inc.—breached representations and warranties in regard to almost $4 billion in RMBS.  ResCap asserts claims for breach of representation and warranty and for indemnification. Judge Nelson held that ResCap’s allegations stated a claim for breach of warranty without identifying specific allegedly breaching loans. The Court further held that ResCap had standing to bring these claims, and the claims were not time-barred because they were brought within the two-year period for debtor claims under the Bankruptcy Code.  Order.

Assured Guaranty Discontinues Lawsuit Against DB Structured Products

On November 17, 2014, Justice Shirley Werner Kornreich of the Supreme Court for the State of New York, New York County approved the stipulation of voluntary discontinuance between Assured Guaranty Municipal Corp., DB Structured Products, Inc., and ACE Securities Corp. DB Structured Products’s third-party claim against Greenpoint Mortgage Funding, Inc. was also voluntarily discontinued.  Monoline insurer Assured filed the action in 2010, alleging breaches of representations and warranties in a 2006 RMBS transaction.  Stipulation of Voluntary Discontinuance.

Court Finds FHFA Claims Against Nomura Are Not Time-Barred

On November 18, Judge Denise Cote of the United States District Court for the Southern District of New York granted the Federal Housing Finance Agency’s motion for partial summary judgment on the statute of limitations defense asserted by Nomura and related entities.  FHFA, as conservator for Fannie Mae and Freddie Mac, alleges that Nomura made materially false statements in offering documents for RMBS between 2005 and 2007 in violation of Sections 11 and 12(a)(2) of the Securities Act of 1933.   Judge Cote found that Fannie and Freddie did not have sufficient information by September 2007 to determine whether the offering documents contained misstatements, and that a reasonably diligent investor in their position would not have investigated the offering documents or discovered the misstatements by that date.  As a result, the Court held that FHFA’s claims were not barred by the statute of limitations.  Opinion & Order.

Bank of America and Merrill Lynch Settle RMBS Lawsuit with FDIC

On November 17, Bank of America and Merrill Lynch settled securities claims brought by the FDIC related to RMBS sold to United Western Bank.  The FDIC, as the receiver for United Western Bank, alleged claims under the Securities Act of 1933 and the Colorado Securities Act against Bank of America, Merrill Lynch, Morgan Stanley, and RBS Securities related to $110 million in RMBS. The case against Morgan Stanley and RBS remains pending.  Stipulation.

FINRA and MSRB Release Proposals to Provide Pricing Reference Information for Investors in Fixed Income Markets

On November 17, the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB) released companion proposals that would require disclosure of pricing reference information on customer confirmations for transactions in fixed income securities. The proposals are substantially similar, but seek input on factors unique to the corporate and municipal bond markets.

Under the two proposals, bond dealers in retail-sized fixed income transactions would be required to disclose on the customer’s confirmation the price of certain same-day principal trades in the same security, as well as the difference between this reference price and the customer’s priceNews Release.