SEC to Allow Issuers to File Draft Initial Registration Statements on a Nonpublic Basis

 

On June 29, 2017, the Securities and Exchange Commission (“SEC“) announced that it would begin to allow issuers to file draft initial registration statements under the Securities Act of 1933 (the “Securities Act“) on a nonpublic basis. Any company, foreign or domestic, will be allowed to submit registration statements for nonpublic review, similar to the benefit granted to emerging growth companies under the Jumpstart Our Business Startups Act (JOBS) as long as it confirms in a cover letter that it will publicly file its registration statement at least 15 days prior to any road show or, in the absence thereof, at least 15 days prior to the requested effective date of its registration statement. The SEC also announced that it would begin to accept draft registration statements submitted prior to the end of the 12th month following the effective date of an issuer’s initial Securities Act registration statement, or its registration statement under Section 12(b) of the Securities and Exchange Act of 1934, for nonpublic review so long as the issuer confirms in a cover letter that it will publicly file its registration statement and nonpublic draft submission on EDGAR at least 48 hours prior to any requested effective time and date. Report. Press Release.

Federal Reserve Releases Results of CCAR

 

On June 28, 2017, the Federal Reserve Board announced that it has completed its annual review of the capital planning processes and capital adequacy of the largest U.S.-based bank holding companies and did not object to the capital plans of all 34 bank holding companies participating in the Comprehensive Capital Analysis and Review (CCAR). However, the Federal Reserve Board is requiring one firm to address weaknesses in its capital planning process and resubmit its capital plan by the end of 2017. Report. Press Release.

Federal Reserve Board Releases Results of Supervisory Bank Stress Tests

 

On June 22, 2017, the Federal Reserve Board released the results of its annual supervisory stress tests conducted on 34 bank holding companies. According to the results, the nation’s largest bank holding companies have strong capital levels and retain their ability to lend to households and businesses during a severe recession. The supervisory stress tests are carried out pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act and is one component of the Federal Reserve’s analysis during the Comprehensive Capital Analysis and Review (CCAR), which is an annual exercise to evaluate the capital planning processes and capital adequacy of large bank holding companies. Report. Press Release.

CFTC Unanimously Approves Revisions to Delegated Authorities and Technical Amendments

 

On June 20, 2017, the U.S. Commodity Futures Trading Commission (“Commission“) unanimously approved a Final Rule on Revisions to Commission Delegated Authority Provisions and Technical Amendments (“Final Rule“). As a result of the recent Commission restructuring, the Final Rule amends certain Commission organizational and procedural provisions to facilitate the movement of the Division of Market Oversight Surveillance Branch to the Division of Enforcement. Specifically, the Final Rule establishes new, and amends certain existing, delegations of authority to Commission staff and makes a limited number of conforming technical corrections to certain Commission regulations. The Final Rule is effective upon publication in the Federal Register. Release.

EMMI Consults on New Reference Index for Euro Repo Market

 

The European Money Markets Institute (“EMMI“) published a consultation paper on June 15, 2017, concerning a new reference index for the euro repo money market.

EMMI has been working to find suitable risk-free (or nearly risk-free) rates based on robust and liquid underlying markets to complement the Euro Interbank Offered Rate (EURIBOR) and the Euro Overnight Index Average (EONIA), in line with regulatory recommendations put forward by the Financial Stability Board (FSB), among others. It aims to provide the market with a credible and robust index that is aligned with regulatory requirements and fills the gap left by the discontinuation, in January 2015, of Eurepo.

As money market patterns moved towards a greater reliance on secured funding, EMMI established a task force to explore the feasibility of a transaction-based benchmark for the secured segment of the euro money markets.

Transaction data from the three most active automatic trading systems in Europe covering the period 2006 to 2015 were analyzed to assess whether it is sufficient to support the determination of a new pan-European index, and the design considerations to be taken into account.

EMMI’s analysis identified that activity for the electronically traded repo market in euro is concentrated on the short term of the curve, which allows for the development of a purely transaction-based benchmark for the one-day tenor.

The consultation paper sets out, and seeks views on, its proposal for a pan-European transaction-based repo benchmark. It addresses the new repo index’s calculation methodology and its definition. Matters such as governance, publication, or potential or future licensing of the new repo index are not part of the consultation. The consultation closes to responses on July 14, 2017. EMMI expects to obtain a reliable indication of the market’s interest in, and need for, the proposed new repo index. In developing its proposal, EMMI focused on four design principles:

  • The new repo index should measure pan-European secured funding rates based on security-financed euro repo transactions.
  • The new index must be an accurate representation of the underlying interest it seeks to measure.
  • The source data for the new index should be sufficient to reliably measure this underlying interest.
  • The benchmark design should capture the majority of all eligible euro repo transactions.

The consultation paper summarizes EMMI’s work toward the development of a new repo index that satisfies these four principles, which are in line with regulatory best practices, such as the IOSCO principles for financial benchmarks and the Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (Regulation (EU) 2016/1011).

Council of EU Agrees on Approach to Legislative Proposals for Insolvency Hierarchy Directive and IFRS 9 Regulation

 

The Council of the EU has agreed on a general approach to the legislative proposals for a directive (which will relate to the ranking of unsecured debt instruments in insolvency) amending the Bank Recovery and Resolution Directive (2014/59/EU) (“BRRD“) and a Regulation amending the Capital Requirements Regulation (Regulation 575/2013) (“CRR“) (which concerns transitional periods under the International Financial Reporting Standard 9 (“IFRS 9“)).

A press release published on June 16, 2017, by the Council of the EU (in its configuration as the Economic and Financial Affairs Council (ECOFIN)) outlined the following general approach on the legislative proposals:

  • In relation to BRRD, the Council agreed on the text set out in the Council’s final compromise proposal dated May 31, 2017 (9479/17).
  • In relation to CRR, the Council agreed on the text set out in the Council’s final compromise proposal dated May 31, 2017 (9480/17).
  • On June 12, 2017, the Council’s Permanent Representatives Committee recommended that the Council agree on these texts as their general approach.

The press release states that EU ministers have asked the Council Presidency to start talks with the European Parliament on these proposals as soon as the Parliament has approved its own negotiating stance. It quotes the finance minister of Malta (which currently holds the Council Presidency), stating that the Council hopes that “the Parliament will be able to start negotiating by the end of this year.”

The draft Insolvency Hierarchy Directive and the IFRS 9 Regulation form part of the package of banking reforms that were adopted by the European Commission in November 2016. The EU authorities have decided to fast-track these relatively discrete measures ahead of their consideration of the remainder of the reforms.

ESAs Publish 2016 Annual Reports

 

On June 15, 2017, ESMA, EIOPA and the EBA (the European Supervisory Authorities (“ESAs“)) each published their annual reports outlining the relevant ESA’s objectives, activities and key achievements in 2016.

ESMA’s annual report summarizes the work carried out by ESMA in 2016 under each of the following activities:

  • Assessing risks to investors, markets and financial stability.
  • Creating a single rule book.
  • Promoting supervisory convergence.
  • Supervising credit rating agencies and trade repositories.

The EBA’s annual report outlines the EBA’s work in 2016, which included:

  • Completing the single rule book applicable to the EU banking sector.
  • Supporting the finalization of the Basel III package of measures and its implementation in the EU.
  • Enhancing its monitoring of different aspects of the single rule book, including on own funds, remuneration practices and significant risk transfers in securitizations.
  • Improving its role in monitoring and assessing key risks in the banking sector across the EU.
  • Monitoring financial innovation and contributing to secure and efficient retail payments in the EU.

EIOPA’s annual report outlines the EIOPA’s work associated with the implementation of the Solvency II Directive (2009/138/EC) on January 1, 2016, such as the secure collection and storage of data. Other areas of work included:

  • The calculation and publication of risk-free rates on a monthly basis.
  • An EU-wide insurance stress test.
  • The development of a macro-prudential approach to the low interest rate environment in Solvency II.

Advice to the European Commission on a number of issues, including the development of a pan-European personal pension product and, within the context of the Joint Committee of the ESAs, on the key information documents for packaged retail and insurance-based investment products.

Rating Agency Developments

 

On June 21, 2017, Moody’s published its ratings methodology assessing rated issuers in the pharmaceutical industry. Report

On June 21, 2017, Moody’s published its ratings methodology assessing rated issuers in the automobile manufacturer industry. Report.

On June 21, 2017, Moody’s issued a report entitled Global Mass Transit Enterprises Methodology. Report.

On June 20, 2017, Fitch issued a report entitled Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria. Report.

On June 15, 2017, Moody’s published its ratings methodology assessing rated issuers in the media industry. Report.

Treasury Department Report: Decreasing Regulatory Burdens, Increasing Regulatory Accountability and Fostering Economic Growth

 

On June 12, 2017, the U.S. Treasury Department released its report to the President, “A Financial System That Creates Economic Opportunities – Banks and Credit Unions,” authored by Steven Mnuchin, Secretary, and Craig Phillips, Counselor to the Secretary. The report sets forth the Treasury Department’s analysis and recommendations on a wide range of bank and credit union regulatory reform proposals, including the following with regard to certain lending and financing matters, which are set forth in a section of the report titled “Providing Credit to Fund Consumer and Commercial Needs to Drive Economic Growth.” Read the full article here.

Rating Agency Developments

 

On June 14, 2017, Moody’s released a report entitled Global Passenger Railway Companies. Report.

On June 14, 2017, Moody’s released a report entitled Global Manufacturing Companies. Report.

On June 14, 2017, Moody’s released a report entitled Medical Product and Device Industry. Report.

On June 13, 2017, Fitch issued a report entitled Fitch Updates Future Flow Securitisation Criteria; No Rating Impact. Release.

On June 13, 2017, Fitch issued a report entitled Fitch Revises Distressed Debt Exchange Rating Criteria. Release.

On June 13, 2017, Moody’s released a report entitled Regional and Local Governments. Report.

On June 13, 2017, Moody’s released a report entitled Financial Statement Adjustments in the Analysis of Financial Institutions. Report.

On June 9, 2017, Fitch issued a report entitled Fitch Updates RMBS Lender’s Mortgage Insurance Rating Criteria; No Rating Impact. Release.

On June 8, 2017, Moody’s released a report entitled Moody’s Approach to Rating Structured Finance Interest-Only (IO) Securities. Report.

On June 8, 2017, Fitch issued a report entitled Fitch Releases Updated Thermal Power Project Rating Criteria. Release.