On July 19, SIFMA announced a new policy that mortgage loans to borrowers residing in jurisdictions that have initiated condemnation proceedings to seize mortgage loans through eminent domain will not be deliverable into TBA-eligible securities on a going-forward basis. SIFMA stated that mortgage loans in areas where these eminent domain powers could be exercised would exhibit unpredictable prepayment behavior and destroy the homogeneity among mortgage loans necessary for the proper functioning of the TBA market. In the event that seizures of mortgage loans occur, SIFMA plans to review the facts and circumstances of the situation periodically and will review its policy in light of any changes. Statement.
Month: July 2012
NY Fed Releases Money Market Fund Reform Staff Report
On July 19, the NY Fed issued a staff report on money market fund reform to address the equitable distribution of withdrawals out of a distressed fund. Currently, fundholders who redeem early receive the full amount of their investments, leaving later redeemers to bear any losses. The report contains several proposals that would disincentivize runs on distressed funds. NY Fed Release. NY Fed Paper.
Renewable Backed Securities: Funding for Solar Projects
On August 1 in New York, Partner Howard Altarescu will participate in a roundtable discussion hosted by Agrion relating to securitization and other financings of solar contracts. For more information, please click here. Please contact Ania Mirek at amirek@orrick.com if you are interested in attending, and comply with the criteria that you are a “non-member who has never previously attended an AGRION event.”
EBA Report on Risks and Vulnerabilities of the EU Banking System
On the July 12, the European Banking Authority (“EBA”) published its first annual report on the risks and vulnerabilities of the EU banking system in 2011.
The report states that the situation in mid-2012 remains extremely fragile, with increasing uncertainty on asset quality, funding capacity and concerns over possible extreme events. Banks and supervisors are considering putting emergency actions in place. The report also highlights sovereign risk and funding and liquidity risk as significant risks in the short term. Annual Report.
FSA Fines Broker for Improper Disclosure
On July 9, the FSA issued a final notice, stating that it has imposed a fine of £160,000 (reduced to £30,000 due to his financial circumstances) on Jay Alan Rutland for engaging in the market abuse offence of improper disclosure under section 118(3) of the Financial Services and Markets Act 2000. He had also encouraging others to engage in similar behaviour. Final Notice.
Mr. Rutland was a senior broker at Pacific Continental Securities (UK) Limited. On four occasions, he drafted and supplied sales scripts to brokers to use when selling shares which contained diluted risk warnings and risk factors. He also improperly disclosed inside information to his colleagues. He did not obtain approval from the compliance department and was aware that he should not circulate scripts which had not been approved.
ECOFIN Discusses Banking Union, CRD IV and RRD
On July 10, the European Economic and Financial Affairs Committee (“ECOFIN”) considered the progress and timings in relation to the work on the banking union, CRD IV and the proposed Recovery and Resolution Directive (“RRD”). The Council of the EU published a press release concerning the matters discussed at the meeting. Press Release.
The press release covers the following areas:
- Banking Union: The President of the Council has been invited to assist with the development of a specific and time-bound work programme on the banking report.
- CRD IV: At the meeting, it was explained that negotiations concerning the CRD IV Directive are almost finished, and attention has now turned to the Capital Requirements Regulation. There are several outstanding issues such as bankers’ remuneration, crisis sanctions and the powers to be given to the European Banking Authority.
- RRD: The press release states that the Council aims to agree a general approach on the proposed RRD by December 2012.
Sub-Committee of House of Lords EU Select Committee Report on MiFID II Proposals
On July 10, a sub-committee of the House of Lords EU Select Committee published a report on the European Commission’s legislative proposals to amend the Markets in Financial Instruments Directive (2004/39/EC) (MiFID II). Report.
The sub-committee concludes that:
- There is a risk that, if introduced, the provisions relating to third country access could lock third country firms out of the EU markets, which would have an extremely damaging effect on European financial markets.
- While the committee understands the need for greater transparency, a “one-size-fits-all” approach to pre-trade transparency must be avoided.
- There is considerable uncertainty about the implications of the proposals for a new category of organised trading facility (OTF), and the proposal to increase regulation of algorithmic and high-frequency trading (HFT).
- The MiFID II proposals have been rushed, and risk creating confusion rather than providing clarity on the regulatory framework for investment.
Payment Services Regulations 2012 Published
On July 11, the Payment Services Regulations 2012 were published. SI 2012/1791. The Regulations address a concern that unfit persons may currently establish or manage a small payment institution. They amend the Money Laundering Regulations 2007 (MLRs) and the Payment Services Regulations 2009 (PSRs).
The Regulations will, among other things:
- Give the FSA the power to check that the owners and managers of small payment institutions are fit and proper persons, and that the directors and managers of such businesses are of good repute and possess the necessary knowledge and experience.
- Give HMRC the power to strike a business off the register of money service businesses under the MLRs, if the business is providing, or is purporting to provide, a payment service, when it is not registered or authorised to do so by the FSA.
They come into force on October 1 (with the exception of the regulations relating to the consequential amendments).
Rating Agency Developments
On July 12, S&P updated its methodology for fees, expenses, and indemnification. S&P Report.
On July 11, Fitch updated its global surveillance criteria for trust preferred CDOs. Fitch Report.
On July 11, S&P released its methodology for public and nonprofit social housing. S&P Release.
On July 10, DBRS released its capital call lending facility criteria. DBRS Report.
On July 9, S&P requested comments, due by September 9, on its insurer rating methodology. S&P Release.
On July 6, Fitch updated its U.S. RMBS surveillance criteria. Fitch Report.
Note: Free registration is required for rating agency releases and reports.
SEC Rules for Derivative Regulation
The SEC, on July 6, and the CFTC, on July 10, approved rules and interpretations for key definitions of certain derivatives products. The SEC rules and interpretations further define the terms “swap” and “security-based swap” and whether a particular instrument is a “swap” regulated by the CFTC or a “security-based swap” regulated by the SEC. The action also addresses “mixed swaps,” which are regulated by both agencies, and “security-based swap agreements,” which are regulated by the CFTC but over which the SEC has antifraud and other authority. The rules will be effective 60 days after publication in the Federal Register. However, solely for the purposes of certain interim relief granted and exemptions adopted under the Securities Act of 1933, the Securities and Exchange Act of 1934, and the Trust Indenture Act of 1939, the compliance date for the final rules further defining the term “security-based swap” will be 180 days after the publication in the Federal Register. SEC Release. CFTC Meeting Notice.