WMC Mortgage and GE Mortgage Holding Settle RMBS Repurchase Case

On September 21, 2015, Judge Denise L. Cote of the United States District Court for the Southern District of New York endorsed Bank of New York Mellon’s (“BNYM”) September 18, 2015 letter reporting that the parties had settled a case in which BNYM sought repurchase of a number of allegedly defective loans as trustee for the GE-WMC Mortgage Securities Trust 2006-1.  The terms of the settlement were not disclosed.  Endorsed Letter.

In a ruling last month, Judge Cote had significantly reduced the potential damages in the case by holding that the trustee’s potential damages were limited to the repurchase price defined in the relevant agreements, which included the stated principal balance of “zero” for all liquidated loans.

$600 Million RMBS Repurchase Suit Against J.P. Morgan Dismissed

On September 18, 2015, Justice Shirley Kornreich of the Supreme Court of the State of New York dismissed a $600 million suit brought by Bank of New York Mellon, as securitization trustee (“BNYM”), against WLM Mortgage, LLC, J.P. Morgan Acquisition Corporation, and J.P. Morgan Chase Bank, N.A.  BNYM brought the action as trustee for the J.P. Morgan Mortgage Acquisition Trust, Series 2006-WMC2, alleging that the defendants breached contractual representations and warranties as to 1,593 or more of the mortgage loans in the trust.  The defendants sought dismissal on the ground that BNYM’s put-back claims were time barred under the New York Court of Appeals’ decision in ACE v. DB Structured Products.  Justice Kornreich held that under ACE, BNYM’s claims were untimely because BNYM did not bring them within six years of the closing date of the transaction.  The court further held that the trustee did not have a separate claim for the defendants’ alleged failure to notify the trustee of breaches of representations and warranties.  Decision & Order.

ESMA Speech on Clearing the Way Towards an EU OTC Derivatives Union

On September 22, 2015, the European Securities and Markets Authority (ESMA) published a speech, given by Steven Majoor, ESMA Chair, on the regulation and supervision of the derivatives market.

Points of interest in the speech include the following:

  • In 2016, the bulk of ESMA’s work to create the single rulebook resulting from post-crisis regulatory reform will have been completed. In line with its 2016-20 strategy, ESMA’s focus will shift to implementation. It will allocate more resources to supervisory convergence activities, and reduce resources for single rulebook activities.
  • ESMA is currently working to finalize a number of rulemaking aspects under EMIR (European Market Infrastructure Regulation – the Regulation on OTC derivative transactions, central counterparties and trade repositories, Regulation 648/2012) relating to the clearing obligation. ESMA will continue to address the possible challenges that market participants (particularly smaller counterparties) can face in establishing clearing arrangements.
  • ESMA has, compliant with the embedded requirement for ongoing review of the operation of EMIR, already issued four reports dealing with the systemic importance of non-financial counterparties, pro-cyclicality, collateral margining and the arrangements relating specifically to segregation and portability of client collateral, and commenting on issues which have arisen to date in the implementation of EMIR e.g. the process of recognition of third country central counterparties.
  • Since the trade reporting system imposed by EMIR has been up and running there have been no “major hiccups” in terms of reporting flows and connections with trade repositories and regulators, albeit ongoing work is required in relation to data quality.
  • The “OTC Derivatives Union” achieves a high level of consistency across the EU, both in terms of regulation and supervision. As a consequence, it provides a positive model for establishing an EU-wide Capital Markets Union.

Transparency Template For Covered Bonds

On September 17, 2015, the Covered Bond Label Foundation and the European Covered Bond Council announced agreement on the implementation of a Harmonized Transparency Template (HTT) across jurisdictions for all covered bond issuers that hold the Covered Bond Label. The HTT will be implemented by all relevant issuers with a phase-in period of one year starting from January 1, 2016.

The implementation of the HTT is in response to the European Commission’s Capital Markets Union initiative and its call for an increased level of harmonization in the covered bond space, as well as the European Banking Authority’s recommendations on EU covered bond frameworks and capital treatment. It will offer market participants a complete set of data directly linking every covered bond to the legislative framework under which it is issued and to the cover pool assets.

Issuers will be required to post the completed HTT on their websites at least quarterly.

Source: ECBC press release September 17, 2015.

SEC Proposes Liquidity Management Rules for Mutual Funds and ETFs

On September 22, The Securities and Exchange Commission (SEC) proposed a comprehensive package of rules that would require open-end funds, including mutual funds and exchange-traded funds, to implement liquidity risk management programs and to enhance disclosure regarding fund liquidity and redemption practices. The proposal is generally designed to limit the risks that funds would be unable to meet investor redemption requests. The comment period for the proposed rules will end 90 days after publication in the Federal Register.  Press ReleaseProposed Rule.


SEC Updates Compliance and Disclosure Interpretations for Legacy Deals

On September 16, the SEC  released its updated compliance and disclosure interpretations for the rules adopted under Regulation AB, the Securities Act and the Exchange Act. Among others, the updated interpretation clarified that securitizations for which offers are made prior to November 23, 2016 are not required to provide asset-level disclosures in the prospectus or on an ongoing basis with each Form 10-D.  Compliance and Disclosure Interpretation.

Rating Agency Developments

On September 23, DBRS published the methodologies it will use to rate and monitor U.S. Property Assessed Clean Energy securitizationMethodology.

On September 22, Moody’s published its updated rating methodology for consumer loan-backed ABSRelease.

On September 21, DBRS published an updated legal criteria for European structured finance transactionsMethodology.

On September 17, Moody’s requested comments on its proposal to retire its methodology for monitoring residential mortgage-backed securitizations in Mexico, and to replace it with the monitoring approach in its primary credit rating methodology.  Announcement.


CFTC Approves Final Regulation Regarding Requirement to be a Member of a Registered Futures Association

On September 10, the U.S. Commodity Futures Trading Commission Division issued a final rule requiring that all registered introducing brokers and commodity pool operators, and certain commodity trading advisors become and remain members of a registered futures association.  All persons subject to the rule must comply by December 31, 2015.  Release.

CFTC Announces Proposal to Amend the Definition of “Material Terms”

On September 10, the U.S. Commodity Futures Trading Commission Division announced that it will publish in the Federal Register a proposed amendment to the definition of “material terms” for purposes of swap portfolio reconciliation under Commission Regulation 23.502.  The comment period for the proposed amendment will end 60 days after the proposal is published in the Federal Register.  Release.

FHFA Issues Update on the Common Securitization Platform

On September 15, the Federal Housing Finance Agency released An Update on the Common Securitization Platform.  The Update includes details on the organizational structure of Common Securitization Solutions, LLC, the joint venture company that was established by Fannie Mae and Freddie Mac and the various modules that comprise the Common Securitization Platform.  Release.