On September 6, 2012, the United States Court of Appeals for the Second Circuit reversed the dismissal of RMBS claims against Goldman Sachs and related entities based on lack of standing and failure to state a claim. The court addressed a named plaintiff’s standing to assert class claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 based on mortgage-backed securities from offerings or tranches it did not purchase. Reversing the district court’s decision, the Second Circuit held that plaintiffs have standing to represent classes of investors who purchased mortgage-backed securities from different tranches than those purchased by the named plaintiff, or even under different prospectus supplements, as long as the securities were backed by mortgages originated by the same lenders and the claims are based on “similar or identical misrepresentations in the Offering Documents.” The court also held that the plaintiff had adequately pled a decline in the value of the securities, despite the absence of any allegation that the relevant trusts had defaulted on any distribution of principal or interest. Decision.
Month: September 2012
FINRA Rule Requiring Filing of Private Placement Offering Documents
On September 5, the SEC approved new FINRA rule 5123 requiring each member firm that sells an issuer’s securities in a private placement to file with FINRA a copy of any private placement memorandum, term sheet or other offering document within 15 days of the date of sale. The rule exempts some private placements sold solely to qualified purchasers, institutional purchasers and other sophisticated investors. The rule becomes effective on December 3. FINRA Notice and Rule.
Rating Agency Developments
On September 5, S&P released its methodology for U.S. and Canadian CMBS. S&P Report.
On September 5, S&P released its CMBS global property evaluation methodology. S&P Report.
On September 5, DBRS released its criteria for holding companies and their subsidiaries. DBRS Report.
On August 31, DBRS released its solar power project criteria. DBRS Report.
Note: Free registration is required for rating agency releases and reports.
European Commission Consultation on Benchmarks and Market Indices
On September 5, the European Commission launched a consultation inviting stakeholders to comment on possible new rules for the production and use of indices servicing as benchmarks in financial contracts. The consultation covers all benchmarks, including commodities and real estate price indices, in addition to interest rate benchmarks such as LIBOR. The consultation will run through November 15. EC Release. EC Consultation.
SEC Risk Alert on Pay-to-Play and MSRB
On August 31, the SEC issued an alert on compliance with MSRB Rule G-37, which limits political contributions by municipal securities professionals to campaigns of public officials of issuers with whom they are doing or seek to do business. The SEC’s concerns include: (i) compliance with the rule’s ban on doing business with a municipal issuer within two years of a political contribution to officials of the issuer by any of the firm’s municipal finance professionals; (ii) possible recordkeeping violations; (iii) failure to file accurate and complete forms with regulators; and (iv) inadequate supervision. SEC Release. SEC Risk Alert.
Increase in Fannie Mae and Freddie Mac Guarantee Fees
On August 31, the FHFA announced that it has directed Fannie Mae and Freddie Mac to raise guarantee fees on single family mortgages by an average of 10 basis points. For loans exchanged for mortgage-backed securities, the increases will be effective with settlements starting December 1. For loans sold for cash, the increases will be effective with commitments starting November 1. FHFA Release.
FSA to Commence Further Thematic Work on Wealth Management
On August 29, the FSA published a statement saying that it has launched further thematic work into the wealth management sector. Statement.
Following a review of a sample of wealth management firms, in June 2011, the FSA wrote “Dear CEO” letters to all Chief Executive Officers of firms that offer wealth management services to retail clients highlighting that the FSA’s work had identified “significant, widespread failings” in the industry.
The FSA will interview key individuals from firms that formed part of its previous work to review the approach firms have taken to remediate problems identified in client portfolios and to assess whether they have taken sufficient steps in identifying and dealing with past detriment that consumers may have suffered.
Following these interviews the FSA will consider whether to take any regulatory action. The FSA will publish its report in 2013.
EU Commission’s “Banking Union” Proposal
On August 31, the EU Commission issued a press release stating that it will publish its proposals for a single banking supervision mechanism in the euro area on September 12. Press Release.
The proposals include:
- The new supervisory role for the European Central Bank (ECB)
- The relationship between national supervisors and the ECB
- Clarifying the role of the European Banking Authority (EBA)
The Commission expects these proposals to be adopted by the end of 2012, in order for the new system to enter into force early in 2013.
FSA Consultation Paper on the EU Short Selling Regulation
On August 30, the FSA published a consultation paper on the proposed amendments to the FSA Handbook relating to the EU Short Selling Regulation (SSR), which will apply from November 1. CP12/21.
The consultation paper proposes the repeal of the UK’s current short selling regime contained in FINMAR 2 and sets out how the UK will implement the SSR in the UK. Responses should be submitted by September 20.
ESRB Advises on EMIR
On August 29, the European Systemic Risk Board (ESRB) published advice to the European Securities and Markets Authority (ESMA) on the following two aspects of the draft regulatory technical standards (RTS) to be implemented pursuant to EMIR. Advice 1. Advice 2.
Use of over-the-counter (OTC) derivatives by non-financial counterparties
- Legislators may wish to ensure that all corporations exposed to derivative activities at a given proportion of their overall balance sheet are treated equally, whatever their size.
- The total amount of derivatives held by a non-financial corporation, irrespective of their intended use, should be appropriately reflected in the calculation of the clearing threshold.
Eligibility of collateral for central counterparties (CCPs)
- Type of collateral used – CCPs should only accept securities that are listed and publicly traded.
- The haircuts to apply to collateral – haircut practices should be designed in a way that minimises sudden and large increases in times of market stress.
Conditions under which commercial bank guarantees may be accepted as collateral – commercial bank guarantees should be subject to a limited use and lower concentration ratio than the one applicable to other eligible collateral.