On December 5, 2011, the United States Supreme Court denied a petition for certiorari in a California state court securities class action case against Countrywide Financial. In that case, plaintiffs allege that Countrywide made false and misleading statements about the quality of loans underlying RMBS. Countrywide argued that the case should be heard in federal court because plaintiffs asserted claims solely under the Securities Act of 1933, and the Securities Litigation Uniform Standards Act of 1998 establishes exclusive federal jurisdiction in certain ’33 Act cases. The California Court of Appeal had decided the case could properly be brought in state court. Order List.
Month: December 2011
Bank of America Settles MBS Case for $315 Million
On December 5, 2011, lead plaintiff Public Employees’ Retirement System of Mississippi moved in the Southern District of New York for approval of a $315 million settlement with Merrill Lynch. In the class action lawsuit, plaintiff asserted claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, alleging that Merrill Lynch misrepresented the quality of the subprime mortgages underlying 84 different RMBS offerings. The proposed settlement was entered into after discovery had begun and following decisions of Merrill Lynch’s motion to dismiss and Plaintiff’s motion for class certification. Motion.
Rating Agency Developments
On December 9, Moody’s requested comment on proposed changes to its methodology for its RMBS collateral analysis model (MILAN). Moody’s Report.
On December 9, Moody’s requested comment on a framework for stressing house prices in RMBS transactions in EMEA. Moody’s Report.
On December 9, S&P released its U.K. RMBS methodology and assumptions. S&P Release.
On December 9, S&P provided its outlook assumptions for the U.K. residential mortgage market. S&P Release.
On December 9, S&P requested comment on its proposed methodology for assessing when a guarantor’s failure to honor a payment obligation would constitute a default and how this default would affect the guarantor’s issuer credit rating. S&P Release.
On December 8, S&P requested comment on updates to its criteria for assessing temporary investments in rated securities. S&P Release.
On December 6, DBRS released its master U.S. ABS surveillance methodology. DBRS Methodology.
On December 6, DBRS released its U.S. structured settlement ABS methodology. DBRS Methodology.
On December 5, Fitch updated its U.S. residential mortgage servicer advance receivable trust rating criteria. Fitch Report.
On December 5, Fitch updated its criteria for U.S. wireless tower transactions. Fitch Report.
On December 2, Moody’s released its fundamentals of credit analysis for lease-backed municipal obligations. Moody’s Report.
Note: Free registration is required for Moody’s, S&P and Fitch releases and reports.
CFTC Interpretation on Anti-Fraud Authority
On December 2, the CFTC announced an Interpretation related to its anti-fraud authority under the Dodd-Frank Act. The Interpretation provides: (i) the CFTC’s view of the meaning of the term “actual delivery” under Section 732(a) of the Dodd-Frank Act and (ii) guidance on how the CFTC will determine if the actual delivery exception applies to a transaction. Comments on the Interpretation must be submitted within 60 days of publication in the Federal Register. CFTC Release.
CFTC Final Rules on the Registration of Foreign Boards of Trade
On December 5, pursuant to Section 738 of the Dodd-Frank Act, the CFTC adopted final rules creating a new registration system for Foreign Boards of Trade (FBOT). The new registration system will replace the existing policy under which staff-issued no-action letters are relied upon by FBOTs providing direct access from the United States. The rule will be effective 60 days after the date of publication in the Federal Register. CFTC Fact Sheet. CFTC Final Rules.
CFTC Amendments to Regulations Governing Investment of Customer Funds by DCOs and FCMs
On December 5, the CFTC adopted amendments to Regulation 1.25 and Regulation 30.7, which govern the investment of customer and secured amount funds by derivatives clearing organizations (DCOs) and futures commission merchants (FCMs). The amendments address: (i) changes to the list of permitted investments, including the elimination of foreign sovereign debt and in-house transactions; (ii) a clarification of the liquidity requirement; (iii) the removal of rating requirements; and (iv) an expansion of concentration limits including asset-based, issuer-based, and counterparty concentration restrictions. The rule will be effective 60 days after the date of publication in the Federal Register. CFTC Q&A. CFTC Final Rules.
CFTC Proposed Rule on Designated Contract Markets and Swap Execution Facilities
On December 5, the CFTC proposed regulations in accordance with Section 723(a)(8) of the Dodd-Frank Act that would establish a process for Designated Contract Markets and Swap Execution Facilities to make a swap “available to trade”. Comments must be submitted within 60 days of publication in the Federal Register. CFTC Fact Sheet. CFTC Q&A. Proposed Rule.
Agencies Request for Comment on Market Risk Capital Rules
On December 7, the OCC, Fed, and FDIC released a notice of proposed rulemaking to seek comment on an amendment to a December 2010 notice of proposed rulemaking to modify the agencies’ market risk capital rules for banks with significant trading activities. The new notice of proposed rulemaking proposes to replace the use of credit ratings with new methodologies to determine risk-specific capital requirements for debt and securitization positions. Comments must be submitted by February 3, 2012. Joint Release. Proposed Rule.
FSA Issues £14,000 Fine and Ban Against Hedge Fund Compliance Officer
On 18 November, 2011, the Financial Services Authority fined Dr Sandradee Joseph, a former Compliance Officer at hedge fund company Dynamic Decisions Capital Management, £14,000 for failing to exercise due skill, care and diligence in managing the business of the firm for which she was responsible in her CF10 controlled function (Principle 6 of the FSA’s Statement of Principles for Approved Persons). The FSA also banned Dr Joseph from performing any significant influence function in regulated financial services, considering that she did not meet FSA’s fit and proper test. FSA Press Release. Final Notice to Dr Sandradee Joseph.
FSA Releases Proposed Guidance And Warns Against Retail Sales of ‘Toxic’ Death Bonds
On 28 November, 2011, the Financial Services Authority released proposed guidance on traded life policy investments (TLPIs) and at the same time issued a strong warning that TLPIs are not to be marketed to UK retail investors. The FSA points to serious problems with how the TLPIs are designed, marketed and sold, considering them to be “toxic products” unlikely to be suitable for the majority of retail investors. The FSA has stated that it ultimately aims to ban TLPIs from the UK retail market. FSA Press Release. Guidance Consultation.