On July 18, 2013, the City of Detroit, Michigan became the largest city to file for rehabilitation under Chapter 9 of the United States Bankruptcy case. Detroit, through its financial manager, is seeking to restructure approximately $18 billion in accrued liabilities, including unsecured debt and other liabilities of $11.5 billion, and secured obligations—including swap obligations—of $7.3 billion. READ MORE
On August 2, the IRS issued temporary regulations relating to accrued gain or loss associated with a position that becomes part of section 1092(b)(2) identified mixed straddle. The temporary regulations segregate pre-identification gain and loss on a mixed straddle position from post-identification gain and loss, preventing taxpayers from using identified mixed straddles as an alternative to selling assets to accelerate gain or loss. For additional information on this development, click here to read the Orrick Alert.
A fundamental component of the Dodd-Frank Act is to require central clearing of standard swaps in order to decrease systemic risk. Pursuant to Section 2(h) of the Commodity Exchange Act, the Commodity Futures Trading Commission (“CFTC”) may determine that a group, category, type, or class of swap must be centrally cleared by a derivatives clearing organization (“DCO”). The CFTC may then exercise its discretion in applying a compliance schedule in connection with a particular clearing requirement determination. To date, the CFTC has issued such a determination only with respect to certain classes of interest rate swaps and credit default swaps.[1] Pursuant to the relevant compliance schedule for this determination, subject swaps that are entered into between “financial entities” and swap dealers generally are required to be cleared beginning June 10, 2013. READ MORE
The second and latest International Swaps and Derivatives Association, Inc. (“ISDA”) Dodd-Frank Protocol (“DF Protocol 2.0”) opened for adherence on March 22, 2013. DF Protocol 2.0 is intended to address the following requirements related to certain business conduct standards under the Dodd-Frank Act:
In recent years, the governments of Europe have repeatedly considered and debated the application of a financial transaction tax (“FTT”) on bond, equity and derivatives transactions for purposes of generating revenue and discouraging excessive risk-taking.[1] Most recently, the European Commission (“EC”) published an FTT directive on February 14, 2013.[2] This directive follows the FTT directive initially published by the EC on September 28, 2011, which failed to attract the necessary unanimous support of the twenty-seven European Union (“EU”) member-states. Eleven EU member-states subsequently applied, through an “enhanced cooperation procedure” approved by the European Parliament on December 12, 2012, to impose an FTT themselves, which resulted in the revised directive.[3] READ MORE
The enactment of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and its implementation by the Commodity Futures Trading Commission (“CFTC”) has ushered in a new era of regulation of managers of “private funds.” This White Paper provides a survey of some of the most significant aspects of the new swaps regulatory regime mandated by the Dodd-Frank Act that directly impact private fund managers. Specifically, this White Paper focuses on the regulatory actions of the CFTC, many of which have been taken in close coordination with the SEC. Click here to read more.
On June 7, 2013, a federal district court dismissed a lawsuit[1] brought by Bloomberg L.P. (“Bloomberg”) against the Commodity Futures Trading Commission (“CFTC”) challenging the recent adoption of CFTC Rule 39.13(g)(2)(ii) (the “Rule”), which establishes minimum initial margin requirements to be assessed by derivatives clearing organizations (“DCOs”) on customers. The court ruled that Bloomberg lacked standing because it had failed to demonstrate an actual or imminent injury-in-fact caused by the Rule that the court could redress.[2] The court also stated that Bloomberg, apart from its lack of standing, could not satisfy the “high standard for irreparable injury” required for a preliminary injunction. READ MORE
Title VII of the Dodd-Frank financial reform, titled the “Wall Street Transparency and Accountability Act of 2010” (the “Act”), was enacted on July 21, 2010.[1] Under the Act, which is generally intended to bring the $650 trillion over-the-counter derivatives market under greater regulation, the Commodity Futures Trading Commission (“CFTC”) has primary responsibility for the regulation of “swaps” and the Securities Exchange Commission (“SEC” and, together with the CFTC, the “Commissions”) has primary responsibility for the regulation of “security-based swaps.” Since our last update, the Commissions have continued to finalize rules in connection with the implementation of the Act. A summary of certain noteworthy developments since our last update follows. READ MORE
On August 13th, the International Swaps and Derivatives Association, Inc. (“ISDA”) and Markit announced the launch of the Dodd-Frank Protocol (the “DF Protocol”). The DF Protocol focuses primarily on the many “business conduct standard” requirements of the Dodd-Frank legislation and is being used as a mechanism for market participants to more efficiently amend existing swap documents to address changes required by (or relating to) the legislation. Among other things, the DF Protocol is intended to: (i) assist dealers in gathering information needed to satisfy certain compliance obligations (especially “know your customer” rules); (ii) provide for certain representations and agreements between the parties necessary to get the benefit of certain safe harbors (for example, dealers are required to confirm that governmental or other “special entity” counterparties have qualified independent representatives and will rely on the advice of those representatives); and (iii) serve as a method for dealers to deliver certain new disclosures. READ MORE
On July 6th, the Serious Fraud Office of the United Kingdom announced an investigation into alleged manipulation of the London interbank offered rate (“LIBOR”), which is the benchmark rate referenced in hundreds of trillions of U.S. dollars of securities, loans and transactions, including interest rate derivatives having some US$350 trillion in outstanding notional amount.
In June, U.S. and U.K. regulators agreed to a US$450 million settlement with Barclays plc in connection with allegations relating to the manipulation of LIBOR. Since the announcement of that settlement, dozens of civil lawsuits have been filed against dealers. Many of those filing suit are municipal issuers that receive LIBOR-based payments under interest rate swaps with dealers, typically related to their variable rate debt obligations. These issuers argue that suppression of the LIBOR rate has led to artificially low amounts being calculated on the floating rate legs of their swaps, resulting in losses. READ MORE
