On May 13, 2015, the Securities Exchange Commission (“SEC”) proposed a rule and rule amendments relating to certain security-based swaps[1] arranged, negotiated, or executed by U.S. personnel (the “Proposed Rule”).[2] READ MORE
NYDFS Releases Revised BitLicense Proposal
On February 4, 2015, the New York State Department of Financial Services (“NYDFS”) released a revised version of its proposed virtual currency regulations (commonly referred to as “BitLicense”), originally released in July 2014. Nearly 4,000 formal comment letters were submitted by advocacy groups, financial service providers, law firms, individuals and others on the original proposal. A 30-day public comment period began upon publication of the revised proposal in the New York State Register on February 25, 2015. Section I below summarizes significant changes that the revised version of the BitLicense proposal made to the original, and Section II provides an outline of the overall proposed BitLicense regime, as amended. READ MORE
CFTC Subcommittee Recommends Timeline for Clearing of Non-Deliverable Forwards
On December 5, 2014, the Global Markets Advisory Committee, Foreign Exchange Markets Subcommittee (the “Subcommittee”) of the Commodity Futures Trading Commission (“CFTC”) submitted its recommendation to the Global Markets Advisory Committee on the timing of mandated clearing of foreign exchange non-deliverable forward (“NDF”) transactions.[1] READ MORE
ISDA Webinar Addresses Development of a “Standard Initial Margin Model”
In February 2015, the International Swaps and Derivatives Association, Inc. (“ISDA”) released a webinar on various issues related to the margin requirements for uncleared swaps.[1] Specifically, the webinar: (i) covered the organizational structure of ISDA’s Working Group on Margin Requirements Implementation Initiative and each of the Initiative’s “workstreams” responsible for tasks associated with the margin rules (i.e., the Portfolio Integrity Workstream, the Margin & Collateral Workstream, the Risk Classification & Methodology Workstream, the Data Sources Workstream, the Dispute Resolution Workstream, and the Legal & Documentation Workstream); (ii) provided an update on ISDA’s efforts to develop, and obtain regulatory approval for, its “standard initial margin model” (“SIMM”), which is a standardized method for calculating initial margin on uncleared swaps; and (iii) discussed significant legal and operational issues related to the implementation of the recently re-proposed uncleared swap margin regulations.[2] READ MORE
Exploring Temporary Stays of Early Termination Rights
Under the Bankruptcy Code (Title 11, U.S.C., §§ 101 et seq., the “Bankruptcy Code”) non-debtor counterparties to qualified financial contracts generally are not subject to the automatic stay under section 362 and the prohibition on ipso facto clauses under section 365(e). As a result, upon the commencement of a bankruptcy case under the Bankruptcy Code, counterparties are able to exercise their contractual right to cause the liquidation, termination or acceleration of the transactions under qualified financial covenants.
The same is not necessarily true when a bank, insurance company or other similar regulated entity becomes insolvent. Such entities are not eligible to be debtors under the Bankruptcy Code.[1] While the insolvency regimes for such entities do not provide for an automatic injunction barring creditor remedies, the insolvency regime will provide a brief stay preventing counter-parties to qualified financial contracts with such entity from terminating, liquidating or accelerating a qualified financial contract during such period.
The American Bankruptcy Institute recently released its Chapter 11 Reform Report. The Reform Report proposed a number of revisions to Chapter 11 related to confirmation, valuation, financing and asset sales, among others. The Reform Report also proposed a number of revisions to the safe harbor protections, which were discussed in Part II of Orrick’s Restructuring Team’s summary and analysis of the Reform Report. As mentioned in the summary of the proposed changes to the safe harbor protections, the Commission considered, but rejected, incorporating a temporary stay on the exercise by a non-debtor counterparty of its contractual rights to terminate and liquidate qualified financial contracts. Read More.
The Bitcoin Marketplace and Regulatory Environment: An Overview
In the fourth quarter of 2014, bitcoin’s volatile price generally fluctuated between $300 and $400, about one-third of its all-time peak of around $1,200 from one year before. Despite this price drop during 2014, startup companies and financial products focused on bitcoin continue to burgeon, and, in turn, various regulators have recently proposed regulations, made pronouncements, and taken enforcement actions related to bitcoin. Section I below outlines significant companies and products in the bitcoin space, and Section II summarizes the state of bitcoin regulation.[1] READ MORE
English Court Addresses Derivatives Close-outs
On July 29th, the High Court of Justice, Queen’s Bench Division, Commercial Court, issued an opinion[1] that addressed several issues regarding the calculation of early termination amounts under a standard derivatives master agreement, as well as the calculation of default interest under the master agreement.
In the case at issue, Lehman Brothers Finance S.A. (“LBF”) claimed that Sal. Oppenheim Jr. & Cie, KGAA (“Oppenheim”) had improperly calculated the early termination amount payable to LBF in connection with the termination of transactions governed by a 1992 ISDA Master Agreement under which “Market Quotation” had been selected as the payment measure. The transactions at issue were equity puts and calls that referred to the Nikkei 225 Stock Average Index (the “Index”). Pursuant to the terms of the master agreement between the parties, all transactions thereunder automatically terminated upon the bankruptcy filing of LBF’s parent, Lehman Brothers Holdings Inc. (“LBHI”), at 1:44 a.m. New York time on Monday, September 15, 2008. LBF itself went into liquidation in December 2008. READ MORE
SFIG Provides Comment Letter on Re-Proposed Margin Rules for Uncleared Swaps
On November 24th, the Structured Finance Industry Group (“SFIG”) submitted a comment letter[1] to the Board of Governors of the Federal Reserve System and other prudential regulators (the “Prudential Regulators”) and to the Commodity Futures Trading Commission (“CFTC”) relating to proposed margin requirements for securitization transaction swaps. READ MORE
Prudential Regulators and CFTC Re-Propose Rules for Uncleared Swap Margin
The “prudential regulators” (i.e., the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Farm Credit Administration, and the Federal Housing Finance Agency) re-proposed their April 2011 proposed rule imposing initial and variation margin requirements on banks and their counterparties in connection with uncleared swaps. The April 2011 proposed rule has been re-proposed rather than simply finalized in light of significant differences from the original proposal and the issuance of the 2013 final policy framework by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions. READ MORE
Major Banks Agree to Protocol “Staying” Exercise of Termination Rights
On October 18, the International Swaps and Derivatives Association, Inc. (“ISDA”) announced that eighteen major global banks had agreed to sign a protocol (the “Protocol”) that imposes a stay on cross-default and termination rights under standard derivatives contracts governed by an ISDA master agreement. The terms of the Protocol, which was developed in close coordination with regulators to facilitate cross-border resolution efforts and to address risks associated with the disorderly unwind of derivatives portfolios, would apply where one of the Protocol signatories becomes subject to resolution action in its jurisdiction. READ MORE