Month: October 2012

SEC Standards for Risk Management and Operations of Clearing Agencies

On October 22, the SEC adopted rule 17Ad-22 to establish standards for how registered clearing agencies should manage their risks and run their operations.  Among other things, the rule sets standards for measurement and management of credit exposures, margin requirements, financial resources, and margin model valuation.  The rule will be effective 60 days after publication in the Federal Register.  SEC Release.  Final Rule.

CFTC Final Interpretive Guidance on Foreign Regulators’ Indemnification and Confidentiality Obligations

On October 22, the CFTC issued final interpretive guidance to, under certain circumstances, exempt foreign regulators from the indemnification and confidentiality provisions in the Dodd-Frank Act.  This exemption applies generally to data that is reported pursuant to foreign law and if the swap data repository is registered, recognized, or otherwise authorized by the country’s law and regulation.  CFTC Release.

CFTC Proposal for Enhanced FCM and DCO Protections

On October 23, the CFTC proposed new regulations and amendments to existing regulations to enhance protections for customers and to strengthen safeguards for the holding of money, securities, and other property deposited by customers with futures commission merchants (FCMs) and derivatives clearing organizations (DCOs).  The proposal would:

(i)     require FCMs to hold sufficient funds in secured accounts to meet their total obligations to U.S.- and foreign-domiciled customers trading on foreign contract markets;
(ii)    prohibit FCMs from holding certain positions in Part 30 secured accounts;
(iii)   require FCMs to hold sufficient proprietary funds in segregated accounts;
(iv)   require FCMs to maintain certain written policies and procedures;
(v)    require certain daily reporting;
(vi)   require FCMs and DCOs to provide the CFTC and designated SROs with read-only direct electronic access to bank and custodial accounts holding customer funds;
(vii)  require FCMs to adopt policies and procedures on supervision and risk management of customer funds;
(viii) require FCMs to provide potential customers with additional disclosures addressing firm specific risks; and
(ix)   enhance standards for SROs’ examination of member FCMs. 

Comments may be submitted within 60 days after publication in the Federal Register.  CFTC Release.

CFTC No-Action Letters

On October 12, the CFTC released a number of no-action letters and interpretive guidance addressing:

Responses to Consultation on Non-Bank Resolution Regime

On October 17, HM Treasury published a summary of responses in relation to its August consultation on broadening the financial sector resolution regime to systemically important non-banks.  Indicative draft legislation was also published alongside the consultation, to provide a resolution regime for entities such as investment firms, central counterparties and parent undertakings.

The UK government is considering developing the UK’s domestic regime in this area ahead of European legislation being introduced.  Following the consultation, it has amended the draft legislation and is making amendments to the Financial Services Bill 2012 – 2013.  The core changes include:

  • o    narrowing the definition of investment firms through secondary legislation;
  • o    extending stabilization powers to group companies to aid the resolution of a failing entity (subject to certain conditions);
  • o    adding an objective for intervention in a failing central counterparty in order to maintain critical services; and
  • o    excluding the initial proposal to make the members of a central counterparty liable for losses above and beyond provisions already in place (although such loss allocation rules may become part of the operational requirements that a central counterparty must have in order to operate as a clearing house in the UK).

SEC Proposed Rule for Security-Based Swap Dealers and Major Security-Based Swap Participants

On October 17, the SEC proposed capital, margin, and segregation requirements for security-based swap dealers and major security-based swap participants as required by the Dodd-Frank Act.  The proposal: (i) sets minimum capital requirements; (ii) establishes margin requirements with respect to non-cleared security-based swaps; and (iii) establishes segregation requirements for security-based swap dealers and notification requirements with respect to segregation for security-based swap dealers and major security-based swap participants.  Comments may be submitted for 60 days following publication in the Federal Register.  SEC Release.  SEC Proposed Rule.

ABS East 2012: Investor Focused. Investor Driven.

On October 21–23, Orrick will be an Associate level sponsor of this year’s IMN’s ABS East Conference.  The ABS East 2012 Conference will provide a relevant and timely program that reflects the concerns of the buy side equally along with that of other market participants, thus giving the structured finance investor community a platform to express their views on the market.  On October 22, Orrick Partner Howard Altarescu will moderate a panel on “Private Label RMBS Reform: What is Needed to Restart the Market?”  For more information, please click here.

Rating Agency Developments

On October 19, Moody’s released its approach for evaluating lender’s mortgage insurance in Australian RMBS.  Moody’s Report.

On October 18, Moody’s released its methodology for tender option bond programs.  Moody’s Report.

On October 18, S&P released a clarification on hybrid capital step-ups, call options, and replacement provisions.  S&P Release.

On October 17, KBRA released a report on evaluating credit risks in solar securitizations.  KBRA Report.

On October 16, S&P released its methodology for repackaged securities.  S&P Report.

On October 12, Moody’s released its approach to rating consumer loan ABS.  Moody’s Report.

On October 12, Moody’s released its methodology for emerging markets CDOs.  Moody’s Report.

Note: Free registration is required for rating agency releases and reports.

Indication of Regulatory Expectations for Banks Currently Making LIBOR Submissions

On October 17, the FSA published a speech by Martin Wheatley (the FSA Managing Director and Chief-Executive Designate of the Financial Conduct Authority), which indicated the regulatory expectations for banks making LIBOR submissions until the new LIBOR regime is put into place.  Mr Wheatley was clear that, in the long term, there will be high-level rules and a code of conduct to govern LIBOR submissions.

LIBOR submitters should have regard to the submission guidelines set out in the Wheatley Report, and use a combination of their judgment and transaction data.

The UK government announced in a written ministerial statement that it has accepted all the recommendations made in the Wheatley Report.

CFTC Final Rule to Incorporate Swaps into Existing Regulations

On October 16, the CFTC approved a final rule that amends regulations to implement aspects of the Dodd-Frank Act by changing certain definitions and recordkeeping regulations so that they apply to both futures and swaps.  The final rule will be effective 60 days after publication in the Federal Register. CFTC Release.