Month: April 2012

FSA fines Ian Hannam Chairman of Capital Markets at JP Morgan Cazenove for Market Abuse

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On 3 April 2012 the FSA published a Decision Notice stating that the FSA had decided to fine Ian Hannam £450,000 for two instances of market abuse (improper disclosure). In the FSA’s opinion, Hannam disclosed inside information in two emails sent in September and October 2008 to a prospective client considering buying a stake in Heritage Oil Plc (Heritage), an existing J P Morgan client for which Hannam was the lead adviser. The September email contained information about a potential offer for Heritage and the October email contained information about a new oil find by Heritage.

The Decision Notice states that the FSA accepts that Hannam did not set out to commit market abuse but considers that Hannam’s failings were serious in view of his experience and senior position within J P Morgan. Mr. Hannam has resigned his position as Chairman of J P Morgan in order to appeal the matter to the Upper Tribunal.

Fed Mortgage Consent Order Against Morgan Stanley

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On April 3, the Fed announced a Consent Order against Morgan Stanley regarding an alleged pattern of misconduct and negligence in residential mortgage loan servicing and foreclosure processing at its subsidiary, Saxon Mortgage Services, Inc.  The Consent Order requires Morgan Stanley to retain an independent consultant to review foreclosure proceedings by Saxon in 2009 and 2010.  If Morgan Stanley re-enters the mortgage servicing business while the Consent Order is in effect, it will be required to implement servicing and foreclosure practices comparable to what the mortgage servicers subject to the 2011 enforcement actions were required to implement.  Fed Release.

FSOC Rule on Oversight of Nonbank Financial Companies

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On April 3, the FSOC approved a final rule and interpretive guidance on its authority to require supervision and regulation of certain nonbank financial companies.  Section 113 of the Dodd-Frank Act authorizes the FSOC to require a company to be subject to Fed supervision if the FSOC determines that material financial distress at the company, or the characteristics of the company, could pose a threat to U.S. financial stability.  Treasury Release.  Final Rule.

Rating Agency Developments

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On March 31, DBRS released its European CMBS rating methodology. DBRS Release.

On March 31, Fitch updated its criteria for rating non-life (property/casualty), life, U.S. health/managed care, and title insurance companies. Fitch Release.

On March 28, Fitch updated is criteria on rating U.S. public power systems. Fitch Report.

On March 25, S&P revised its loss projections for U.S. RMBS backed by prime, subprime, and Alt-A collateral issued in 2005, 2006, and 2007. S&P Release.

Note: Free registration is required for Fitch and S&P releases and reports.

Exemptions for Security-Based Swaps

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On March 30, the SEC issued final rules adopting exemptions for certain security-based swaps under the Securities Act (other than the Section 17(a) anti-fraud provisions), the Securities Exchange Act, and the Trust Indenture Act.  Exempt security-based swaps must be issued by certain clearing agencies and satisfy certain conditions.  The final rules are effective April 16.  Final Rules.

Fed Request for Comments on “Predominantly Engaged in Financial Activities”

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On April 2, the Fed requested comment on a proposed amendment to its February 11 notice of proposed rulemaking to establish requirements for determining whether a company is “predominantly engaged in financial activities“.　 Based on comments received on the NPR, the amendment is intended to clarify the definition of financial activities for purposes of Title I.  Commenters to the February 11 proposal asked whether conditions imposed under the Bank Holding Company Act and regulations should be considered in defining financial activities under Title 1.  Comments must be submitted by May 25.  Fed Release. 
Request for Comment. 

Orrick Alert: Jumpstart Our Business Startups Act – Implications for Issuers and Financial Institutions

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On March 27, 2012, the U.S. House of Representatives adopted the Jumpstart Our Business Startups Act (the “JOBS Act”) with strong bipartisan support, sending the bill to President Obama to sign. The JOBS Act is intended to stimulate economic growth by improving access to the U.S. capital markets for U.S. and foreign startup and emerging companies. The President is expected to sign the JOBS Act into law this week.

Many business groups, including the U.S. Chamber of Commerce, support the JOBS Act and believe it will facilitate capital raising by small companies, allow emerging growth companies to make a transition to public company status while continuing to grow and create jobs, and reduce some of the regulatory burdens imposed by the Sarbanes-Oxley Act of 2002. While certain provisions in the JOBS Act will provide added flexibility to such earlier stage companies, its potential impact on the capital markets remains unclear. Many industry participants are concerned that the JOBS Act may erode investor protections and leave investors susceptible to securities fraud. In addition, because the JOBS Act did not alter the liability regime under U.S. securities laws, it remains unclear how market practices will change or develop for issuers and financial institutions. Such new market practices will depend, in large part, on the rules and guidance provided by the Securities Exchange Commission and other regulatory agencies such as the Financial Industry Regulatory Authority, which we will continue to monitor.

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Rating Agency Developments

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On March 30, DBRS released its Canadian structured finance surveillance methodology. DBRS Report.

On March 30, Moody’s released its global methodology for incorporation of joint-default analysis into its bank ratings. Moody’s Report.

On March 29, S&P published its criteria for rating commercial paper programs issued by sovereign governments. S&P Release.

On March 28, S&P released its methodology for assessing the impact of interest shortfalls on U.S. RMBS. S&P Release.

On March 28, Fitch released its state housing finance agencies general obligation rating criteria. Fitch Report.

On March 27, Moody’s released its methodology for rating special tax bonds. Moody’s Report.

On March 26, DBRS released a general methodology for rating Canadian structured finance transactions. DBRS Report.

Note: Free registration is required for Fitch, Moody’s and S&P releases and reports.