On October 19, 2011, Citigroup agreed to pay $285 million to settle charges that it structured and marketed a $1 billion collateralized debt obligation without disclosing that it had taken a $500 million short position against the CDO. In particular, the complaint, filed as a settled action by the SEC in federal court in New York, alleges that Citigroup Global Markets, Inc. failed to disclose to investors that it influenced the selection of a large portion of the mortgage loans underlying the CDO and then retained a short position in the assets it had helped select. The SEC alleges that this conduct violated Sections 17(a)(2) and (3) of the Securities Act of 1933. The SEC’s related claims against Brian Stoker, a former Citi employee who allegedly structured the CDO, are still pending. Press Release.
Month: October 2011
Amendments to the Market Abuse Directives – 10 Key Points
On October 20, the European Commission tabled proposals to revise the Market Abuse Directive (MAD). The proposals seek to address five broad problems with MAD identified by the European Commission: (i) gaps in the regulation of new markets, platforms and OTC trading in financial instruments; (ii) gaps in the regulation of commodities and commodity derivatives; (iii) a current inability on the part of Regulators to enforce MAD; (iv) a lack of legal certainty which is currently undermining the effectiveness of MAD and (v) current administrative burdens placed on small and medium sized companies by MAD. Click here to read more.
The MiFID II Proposals – 10 Key Points
On October 20, the European Commission tabled proposals to significantly revise the Markets in Financial Instruments Directive (MiFID). These proposals (known as MiFID II) are intended to: (i) make financial markets more efficient and resilient; (ii) take account of technological developments since MiFID was implemented in November 2007; (iii) increase transparency of both equity and non-equity markets and (iv) reinforce supervisory powers and introduce a stricter framework for commodity derivatives markets and strengthen investor protection. Click here to read more.
Implementation of the Volcker Rule Provisions Affecting Private Fund Sponsorship and Ownership
During the week of October 10, the Fed, the FDIC, the OCC, and the SEC proposed rules implementing Section 619 of the Dodd-Frank Act, otherwise known as the “Volcker Rule”. The Volcker Rule generally prohibits a banking entity from engaging in proprietary trading or acquiring or retaining any ownership interest in, or sponsoring a private fund. This Alert provides a summary of some of the most significant provisions of the rulemaking that directly impact the sponsorship of, and ownership of interests in, private funds by banking entities, including securitization transactions. Click here to read the full alert.
Rating Agency Developments
On October 18, Moody’s published its approach to rating market value CLOs. Moody’s Release.
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Freddie and Fannie Foreclosure Attorney Networks
On October 18, the FHFA directed Fannie Mae and Freddie Mac to adopt a system for foreclosure attorneys where mortgage servicers select qualified law firms that meet certain minimum, uniform criteria. The changes will be implemented after a transition period during which input will be taken by the FHFA from servicers, regulators, lawyers, and other market participants. FHFA Release.
Federal Insurance Office Request for Comments on Insurance Regulation
On October 17, Treasury’s Federal Insurance Office requested comments to assist it in conducting a study and preparing a report, as mandated by the Dodd-Frank Act, on how to modernize and improve insurance regulation. Comments must be submitted by December 16. Treasury Release. Request for Comment.
SEC Guidance on Legality and Tax Opinions in Registered Offerings
On October 14, the Division of Corporation Finance of the SEC issued guidance on preparing legality and tax opinions filed in connection with registered offerings of securities. The bulletin outlines: (i) the requirements for such opinions; (ii) the SEC’s opinion review practices; and (iii) the nature of the written consent that must be filed by counsel with each registration statement. SEC Bulletin.
CFTC Proposed Extension of the Effective Date for Swap Regulation
On October 18, the CFTC proposed to amend a final order issued on July 14 granting temporary exemptive relief from certain provisions of the Commodity Exchange Act that would have taken effect on July 16. The proposed order would extend such exemptive relief from December 31 to July 16, 2012. The original order grants relief from: (i) provisions added or amended by Title VII of the Dodd-Frank Act that reference one or more terms regarding entities or instruments that Title VII requires to be further defined and (ii) provisions that may apply to certain agreements, contracts, and transactions in exempt or excluded commodities as a result of the repeal of various CEA exemptions and exclusions. CFTC Fact Sheet.
CFTC Final Rules on Position Limits for Futures and Swaps
On October 18, pursuant to Section 737 of the Dodd-Frank Act, the CFTC adopted final rules requiring limits on speculative positions in 28 core physical commodity contracts and their economically equivalent futures, options, and swaps. The position limits established under the final rules will be effective 60 days after the term “swap” is further defined by CFTC rulemaking. CFTC Fact Sheet.