Financial Transaction Tax Developments

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The governments of Europe continue to consider the application of a financial transaction tax (“FTT”) on bond, equity and derivatives transactions.[1]  On February 14, 2013, the European Commission (“EC”) published a directive (the “FTT Directive”) that would apply to eleven member-states through an “enhanced cooperation procedure” approved by the European Parliament on December 12, 2012.[2]  Most recently, on July 3, 2013, the European Parliament, which has a consultative role in the process,[3] approved the FTT Directive, subject to several proposed amendments. READ MORE →

End-User Swap Reporting Obligations Under Dodd-Frank

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End-users in the United States traditionally have entered into swaps with counterparties that, following the implementation of the Dodd-Frank Act, registered with the CFTC as “swap dealers.”  Pursuant to CFTC regulation 45.8, where one party to a swap is a registered swap dealer, that party (known as the “reporting counterparty”) is the one required to report relevant swap data to a “swap data repository” (“SDR”).  The reporting requirements of the Dodd-Frank Act apply to new swaps, as well as swaps existing on or after the enactment of the Dodd-Frank Act but entered into before the required reporting date (known as “historical swaps”).  The exact compliance date for reporting historical swap data depends on the type of swap and the type of reporting counterparty; for example, swap dealers were required to report swap data for interest rate swaps by October 12, 2012.  However, where neither party is registered as a swap dealer, an end-user that is the sole “U.S. person” to a swap may find itself in the position of being the reporting counterparty.[1]  In such a case, the end-user has been granted additional time to comply with the Dodd-Frank reporting requirements. READ MORE →

Detroit Commences the Largest Chapter 9 Ever – What’s Next*

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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 →

IRS Issues Changes to the Mixed Straddle Regulations

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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.

Central Clearing and Securitization SPEs

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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 →

March 2013 Dodd-Frank Protocol – Protocol 2.0

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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:

  • End-User Exception Documentation. If applicable, a swap dealer (“SD”) or major swap participant (“MSP”) must obtain documentation sufficient to form a reasonable belief that its counterparty meets the conditions required for election of the end-user exception.[1]
  • Documentation of Swap Trading Relationships. SDs and MSPs must establish, maintain, and follow written policies and procedures reasonably designed to ensure (1) that they execute a confirmation for each swap transaction that they enter into and (2) that swap trading relationship documentation meets certain specified criteria with all counterparties. Additionally, SDs and MSPs must acknowledge and document swap transactions within certain specific time periods.[2]
  • Portfolio Reconciliation. SDs and MSPs must establish, maintain, and follow written policies and procedures regarding portfolio reconciliation and the resolution of portfolio value discrepancies.[3]

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Financial Transaction Tax Developments

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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 New CFTC Regulatory Regime for Private Fund Managers; First Quarter 2013 Update

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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.

Bloomberg Case Against CFTC Dismissed

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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 →

Dodd-Frank Implementation Update

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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 →