Month: December 2012

CFTC No-Action Relief for Reporting Entities and Reporting Counterparties

On December 10, the CFTC issued a letter providing reporting parties under Parts 20, 45 and 46 of the CFTC’s regulations with time-limited no-action relief from requirements to report certain identifying information regarding their non-reporting counterparties.  The no-action letter addresses Legal Entity Identifiers, other identifying swap data fields pursuant to Parts 45 and 46, and large swap trader counterparty identification information pursuant to Part 20.  The relief expires no later than June 30, 2013.  CFTC Release.  No-Action Letter.

CFTC No-Action Relief for Futures Commissions Merchants

On December 11, the CFTC issued a no-action letter that provides certain futures commission merchants (FCMs) with limited relief surrounding the requirement that chief compliance officers of such FCMs prepare and submit an Annual Report, pursuant to Commission Regulation 3.3.  The relief applies to FCMs that: (i) were registered with the CFTC as of June 4, 2012 and (ii) are currently regulated by a U.S. prudential regulator or registered with the SEC.  CFTC Release.  No-Action Letter.

CFTC No-Action Relief from Post-Allocation Swap Timing Requirements

On December 13, the CFTC issued a letter providing relief from the post-allocation swap timing requirement of § 45.3(e)(ii)(A).  The no-action letter permits parties to a swap to fulfill reporting obligations for post-allocation swaps in a timely manner while acknowledging jurisdictional, global time zone, and legal holiday differences.  The relief expires no later than June 30, 2013.  CFTC Release.  No-Action Letter.

CFTC No-Action Relief for Securitizations from Commodity Pool Operator Registration

On December 7, the CFTC provided guidance to securitization vehicles on whether they may be excluded from the definition of commodity pool.  The CFTC will not recommend taking enforcement action against the operators of certain securitization vehicles that have not and will not issue new securities on or after October 12, 2012 for failure to register as a commodity pool operator, provided certain criteria are satisfied.  Also, for securitization vehicles that cannot claim relief either under this letter or CFTC Letter No. 12-14, which was issued on October 11, 2012, the CFTC will not recommend enforcement action against operators of securitization vehicles for failure to register as a commodity pool operator until March 31, 2013.  CFTC Release.  No-Action Letter.

CFTC No-Action Relief for Mortgage REIT Operators from Commodity Pool Operator Registration

On December 7, the CFTC issued a no-action letter to mortgage real estate investment trusts which provides that the Division of Swap Dealer and Intermediary Oversight will not recommend that the CFTC take enforcement action against the operators of mortgage REITs for failure to register as commodity pool operators under the Commodity Exchange Act and the CFTC’s regulations, provided that the mortgage REIT satisfies certain criteria including compliance with a de minimis threshold.  CFTC Release.  No-Action Letter.

Council of the EU – General Approach Document on Freezing and Confiscating Proceeds of Crime in the EU

On December 5, the Council of the EU published a general approach document on the European Commission’s proposed Directive on freezing and confiscating proceeds of crime in the EU.  Changes made to the Commission’s proposal include:

  •  limiting provisions relating to extended powers of confiscation to serious criminal offences which may give rise to economic benefit;
  • recognising that freezing may be ordered by certain competent authorities as well as judicial authorities; and
  • limiting the scope of the proposed Directive to offences listed in Article 83(1) of the Treaty on the Functioning of the European Union which are already subject to EU level approximation.

It is intended that a compromise on the text of the proposed Directive will be reached by the end of 2012.

ESMA Statement on Regulation of Cross-Border OTC Derivatives

On December 4, the European Securities and Markets Authority issued a statement following a meeting with a number of global regulators regarding the reform of the OTC derivatives market.  The authorities identified several inconsistencies, duplications and potential conflicts within their current rules, acknowledging that such issues may result in confusion and regulatory arbitrage.  As a start to addressing these issues, the authorities reached a number of understandings in the following areas:

  •  Clearing – to consult further prior to bringing in rules relating to mandatory clearing of derivative contracts and to consider implementing clearing requirements in respect of products or product classes which certain authorities may identify should be subject to clearing.
  • Transitional provisions – in order to prevent regulatory arbitrage and market confusion, to consider the provision of transitional implementation periods for jurisdictions which are later in implementing OTC derivatives reform.

Consultation on Temporary Product Intervention Rules

On December 3, the FSA published a consultation paper detailing proposals relating to the new Financial Conduct Authority’s (FCA) power to ban financial products without consultation in certain circumstances. Such temporary product intervention powers cannot last longer than 12 months, during which time the FCA may either consult on a permanent remedy or find an alternative resolution to the issue.  The policy statement will set out the FCA’s policy and is not intended to constitute new rules.  
The consultation sets out a number of circumstances where such powers may be invoked, including:

  •   where there is a risk of mis-selling, particularly in the case of complex and niche products;
  •   where the product itself is flawed; and
  •  where certain non-essential features of the product are seen to cause problems for consumers.

Comments are invited on the consultation until 4 February 2013.  It is intended that a final policy statement on the use of this new power will be in place by the ‘legal cutover’ date of 1 April 2013 on which the new regulatory regime is anticipated to come into force.

Court Denies Challenge to FHFA Loan Sampling Methodology

On December 3, Judge Denise Cote of the Southern District of New York denied a joint motion by all defendants across fifteen related RMBS actions brought against major financial institutions by the Federal Housing Finance Agency, as conservator for Fannie Mae and Freddie Mac (“GSEs”).  The claims in the case arise out of certificates purchased by the GSEs from 449 different securitizations backed by roughly 1.1 million mortgage loans.  The FHFA plans to reunderwrite a sample of those loans and seeks to extrapolate the results of that sample to the entire loan pools; the defendants’ motion sought an order excluding the results of the sampling from evidence at the trial of the actions, challenging the methodology that the FHFA intends to use to select the sample.  The Court rejected the defendants’ arguments, finding that at most they raised questions about the evidentiary weight that should be assigned to the samples, rather than the question whether they should be admitted into evidence.  Order.

Goldman Sachs Sued by CIFG Assurance

CIFG Assurance North America, Inc. (CIFG) filed a summons with notice against Goldman, Sachs & Co. (Goldman) in New York State Supreme Court on December 4, 2012.  CIFG alleges that Goldman fraudulently induced CIFG to provide a financial guaranty insurance policy on a credit default swap in connection with the Fortius II CDO.  CIFG alleges that Goldman did not disclose that the CDO manager, Aladdin Capital Management, was acting at Goldman’s behest to include in the CDO particular collateral, including RMBS that Goldman wanted to sell.  CIFG asserts claims for fraud and for material misrepresentation in the inducement of an insurance contract.  It is seeking reimbursement of the nearly $34 million dollars it allegedly paid under the policy it issued when the Fortius II CDO failed.  Summons.