On July 13, pursuant to Section 742(c) of the Dodd-Frank Act, the SEC issued interim final temporary Rule 15b12-1T to allow a registered broker-dealer to engage in certain foreign exchange transactions with non-eligible contract participants, commonly referred to as retail forex transactions, as long as the broker-dealer complies with ’34 Act rules and regulations and the applicable rules of the SRO of which the broker-dealer is a member. The rule is effective on July 15 and will remain in effect until July 16, 2012. Comments on the interim final temporary rule must be submitted within 60 days after publication in the Federal Register. SEC Interim Final Temporary Rule.
Month: July 2011
Fed Repeal of Regulation Q
On July 14, the Fed, pursuant to Section 627 of the Dodd-Frank Act, approved a final rule to repeal Regulation Q, which prohibits the payment of interest on demand deposits by member banks of the Federal Reserve System. The rule becomes effective on July 21. Fed Release. Final Rule
CFTC Clarification Order on Effective Date for Swaps Regulations
On July 14, the CFTC issued an order clarifying the effective date of the provisions in the swap regulatory regime established by Title VII of the Dodd-Frank Act. The order provides temporary exemptions from certain provisions of the Commodities Exchange Act and will become effective on July 16. The order will expire upon the earlier of the effective date of final rules specified in the order or December 31. CFTC Release.
New York Court Orders Rating Agencies to Produce Internal Communications Regarding RMBS Ratings in Monoline Insurer Lawsuit
Justice Eileen Brantsen of the Supreme Court of the State of New York ordered non-parties Standard & Poor’s Rating Services and Moody’s Investors Service, Inc. to produce their internal communications concerning their “shadow ratings” of certain RMBS certificates at issue in an action between monoline insurer MBIA and several Countrywide affiliates. MBIA maintains that it received and relied upon the “shadow ratings” in deciding whether to insure the Countrywide RMBS. MBIA argued that the requested documents were directly relevant to Countrywide’s alleged misrepresentations and the reasonableness of MBIA’s reliance on Countrywide’s representations regarding the quality of the loans underlying the RMBS. Order.
New York Appellate Court Preserves MBIA’s Fraud Claim in RMBS Suit Against Countrywide
On June 30, 2011, a New York appellate court affirmed the denial of Countrywide Home Loans, Inc.’s and certain of its affiliates’ (“Countrywide”) motion to dismiss MBIA, Inc’s (“MBIA”) claim that it had been fraudulently induced to insure 15 Countrywide RMBS securitizations. The court held that MBIA’s fraudulent inducement claim was not duplicative of its contract claims and that the fraudulent inducement claim adequately alleged misstatements of fact that could be argued to have caused MBIA’s losses. The court, however, sustained the dismissal of MBIA’s negligent misrepresentation claim, holding that an arm’s length business transaction does not create the special relationship of trust or confidence required to establish such a claim. The court also dismissed MBIA’s claim for breach of the implied duty of good faith and fair dealing, holding that the claim was duplicative of MBIA’s breach of contract claim. Decision.
Final Rules Affecting Private Fund Advisers Adopted Under the Dodd-Frank Act
On June 22, 2011, the Securities and Exchange Commission (the “SEC”) adopted final rules and rule amendments implementing the provisions of Title IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) through the issuance of two Releases. Release IA-3222 (the “Exemptions Release”) defines terms and addresses certain issues with respect to the new exemptions from registration provided to investment advisers. Release IA-3221 (the “Implementing Release” and, together with the Exemptions Release, the “Releases”) implements companion amendments to the Investment Advisers Act of 1940 (the “Advisers Act”).
The exemption provided by Section 203(b)(3) of the Advisers Act (the “Private Adviser Exemption”), on which many advisers to “Private Funds” have relied, was repealed by the Dodd-Frank Act, effective July 21, 2011. As anticipated, the SEC granted relief to such advisers by providing, pursuant to new subsection (e) of Rule 203-1, that such an adviser is “exempt from registration with the [SEC] as an investment adviser until March 30, 2012,” provided that such adviser satisfies conditions which closely follow the requirements of the Private Adviser Exemption. This Alert provides an overview of how the new exemptions will be interpreted under the Exemptions Release and implemented under the Implementing Release.
Rating Agency Developments
On July 8 and July 6, DBRS released a number of European securitization methodologies. DBRS Methodologies.
On July 7, Moody’s updated its approach to rating consumer loan ABS transactions. Moody’s Report.
On July 5, S&P updated its methodology for rating Mexican tax participation transactions. S&P Release.
On July 5, Fitch updated its criteria for assessing tax risk in German structured finance transactions. Fitch Release. Fitch Report.
Note: Free registration is required for Fitch, Moody’s and S&P releases and reports.
Joint Agency Guidance on Counterparty Credit Risk Management
On July 5, the Fed, FDIC, OCC, and OTS issued guidance for banking organizations relating to counterparty credit risk management. The guidance is intended for use by banking organizations with large derivatives portfolios. Joint Release. Interagency Guidance.
Final Rules on Credit Score Disclosure Requirements
On July 6, the Fed and FTC issued final rules under Regulation V (Fair Credit Reporting) and Regulation B (Equal Credit Opportunity) to implement the credit score disclosure requirements of the Dodd-Frank Act. The rules will be effective 30 days after the date of publication in the Federal Register. Fed Release. Final Rule (Reg V). Final Rule (Reg B).
SEC Rule on Filing Requirements for Dually-Registered Clearing Agencies
On July 7, the SEC adopted an interim final rule to amend Rule 19b-4 under the Exchange Act which expands the list of categories that qualify for summary effectiveness under Section 19(b)(3)(A) of the Exchange Act to include any matter effecting a change in an existing service of an SEC-registered clearing agency that primarily affects its futures clearing operations with respect to non-security futures and does not significantly affect any securities clearing operations of the clearing agency or the rights or obligations of the clearing agency or persons using such servicer. Comments must be submitted by September 15. SEC Rule.