Clifford Chance on Exemptions for Inter-Affiliate and Intragroup Transactions Under Dodd-Frank and EMIR

On January 16, 2014, Clifford Chance released a briefing, available  here, on exemptions for inter-affiliate and intragroup transactions under the U.S. Dodd-Frank Act and the European Market Infrastructure Regulation (“EMIR”).  Both impose obligations requiring the clearing and reporting of certain derivative transactions and the margining of uncleared trades. However, there are differences as to how the U.S. and the EU regimes apply to inter-affiliate or intragroup transactions.

Our briefing summarizes and compares the relevant U.S. Commodity Futures Trading Commission (“CFTC”) rules against the relevant E.U. rules.  It is not intended to be comprehensive or to provide legal advice.

The … Read more

Rise of IntercontinentalExchange and Implications of its Merger with NYSE Euronext

The following comes to us from Latoya C. Brown, a practicing attorney in Florida and a former intern at the US Securities & Exchange Commission. The views expressed herein are those of the author and not necessarily those of the Commission.

On November 8, 2013, NYSE Euronext (“NYSE”) announced the timeline for the completion of its acquisition by IntercontinentalExchange (“ICE”).  As discussed in my recent article, Rise of IntercontinentalExchange and Implications of its Merger with NYSE Euronext, the combination of these two companies exemplifies a trend toward the creation of mega-exchanges that permit electronic trading of broad groups of … Read more

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The Volcker Rule Prohibitions on Proprietary Trading: Considerations for Broker-Dealer Affiliates of Foreign Banking Organizations

The Volcker Rule imposes significant restrictions on “proprietary trading” by banking organizations and their affiliates. The purpose of this Memorandum is to discuss how these restrictions may impact broker-dealer affiliates of foreign banking organizations that conduct business in the United States or with U.S. customers. For an overview of the Volcker Rule, see A User’s Guide to the Volcker Rule, available here and for a discussion of the general impact of the Volcker Rule on foreign banking organizations, see The Volcker Rule: Impact of the Final Rule on Foreign Banking Organizations, available here.

Overview of the Restrictions

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Rules, Standards, and Complexity in the Cost Benefit Analysis of Capital Regulation

The following comes to us from Prasad Krishnamurthy, Assistant Professor of Law, U.C. Berkeley Law School.

The prudential regulation of banks by the federal banking agencies has traditionally been grounded in discretionary standards.  Recent calls for cost-benefit analysis of agency regulations have arisen, in part, from a deep skepticism toward broad grants of discretionary authority.  Under current law, the federal banking agencies are not required to give an explicit, efficiency-based justification for proposed regulations.

In my article “Rules, Standards, and Complexity in the Cost Benefit Analysis of Capital Regulation,”  which is forthcoming in Journal of Legal Studies for … Read more

Clifford Chance discusses new EU securitisation risk retention rules – redrawing the roadmap

The new EU regulatory capital regime came into force on 1 January 2014 and with it a recasting of the securitisation risk retention rules. To accompany these new rules, the European Banking Authority (EBA) published final draft regulatory technical standards (RTS) in December 2013. The RTS and the accompanying implementing technical standards (ITS) are expected to be adopted in the first half of 2014 after consideration by the EU Commission and together will form an integral part of the final securitisation risk retention rules.

In this briefing we set out the key differences between the final draft RTS/ITS and the … Read more

The Philosophies of Capital Requirements

The following remarks were delivered by Commissioner Daniel M. Gallagher of the U.S. Securities and Exchange Commission in Washington D.C. on January 15, 2014. 

Thank you, Sarah [Kelsey, Exchequer Club Secretary], for that introduction.  I’m very pleased to be here this afternoon.

Today, I’d like to talk about regulatory capital.  Given the usual reaction I get when I raise this subject, just to be safe, I’ve barred the exits!

In all seriousness, though, there’s been a great deal of attention paid to regulatory capital recently, including new Dodd-Frank requirements, Basel III implementation (or non-implementation) issues, and even bipartisan Congressional efforts … Read more

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Increasing Transparency, Consistency, and Fairness in Pre-Trial Bargaining Under the Foreign Corrupt Practices Act

The following comes to us from Peter Reilly, Associate Professor of Law, Texas A&M School of Law. 

Wal-Mart is one of the wealthiest and most powerful companies in the world.  And billionaire gambling magnate Sheldon Adelson is one of the wealthiest and most powerful individuals in the world.  So what do these two have in common besides wealth and power?  They are both being investigated for possible violations of the U.S. Foreign Corrupt Practices Act (“FCPA”), a federal law prohibiting the payment of bribes to foreign government officials to obtain (or retain) business.[1]  If either party is ultimately indicted, … Read more

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Shadow Banking: The Regulatory Landscape at the Dawn of 2014

In the wake of the 2008 crisis, it soon became apparent that the fault lines of the global financial system extended far beyond the regulated banking sector to the less regulated “shadow banking” sector.  Nonbank financial entities including (but not limited to) money market funds, special purpose vehicles, insurance companies, and asset management firms, engaged in activities analogous to traditional bank deposit taking and lending, such as securities lending, repurchase agreements (“repos”), and securitization, yet were not subject to similar prudential regulations.  Failures at these institutions, which led to cascading failures throughout the financial system, prompted financial regulators to reevaluate … Read more

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Shearman & Sterling discusses Basel III Framework: The Credit Valuation Adjustment (CVA) Charge for OTC Derivative Trades

The credit valuation adjustment charge in Basel III appears, at first glance, to be the preserve of quantitative analysts and the like. However, while complex, the CVA charge requires more widespread attention as it materially increases the required capital for OTC derivative trading activities and is driving significant change in that sector. The divergence between the US and EU approaches to the adoption of the CVA charge highlights how the Basel standards have been interpreted differently in this important area, creating uncertainty and opportunities for arbitrage. 

Two-thirds of counterparty credit losses in the financial crisis were suffered not as a

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Morrison Foerster’s Regulatory Reform Glossary

On Monday, December 16th, Morrison Foerster released what may be a first-of-its-kind regulatory reform glossary.  The glossary, which is not comprehensive,  is intended to serve as a helpful summary of neologisms and other acronyms (e.g., SIFI), nicknames (e.g., repo), and definitions (e.g., private funds), that have become frequently used in the industry.

The Regulatory Reform Glossary is available here.… Read more

Federal Agencies Adopt the Long-Awaited Volcker Rule

The following is the SEC’s press release and fact sheet on the adoption of the Volcker Rule, originally available here.  The adopting release and text of the final rule is available here.  Public statements from each of the five SEC Commissioners, including two dissents, are available here.  

Five federal agencies on Tuesday issued final rules developed jointly to implement section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Volcker Rule”).

The final rules prohibit insured depository institutions and companies affiliated with insured depository institutions (“banking entities”) from engaging in short-term proprietary trading of … Read more

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Debevoise & Plimpton discusses the Proposed Leverage Coverage Ratio (LCR) Rule

The following is based on a memo from Debevoise & Plimpton, published on November 1, 2013, which is available here.  The original memo contains a useful graphic representation of the LCR equation which has been omitted from this post.

On October 24, the Federal Reserve, followed on October 30 by the Federal Deposit Insurance Corporation (the “FDIC”) and the Office of the Comptroller of the Currency (the “OCC”) (collectively, the “Agencies”), released a proposed rule (the “Proposed Rule”) that would apply a Liquidity Coverage Ratio (the “LCR”) to certain

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Why Have No High Level Executives Been Prosecuted In Connection With The Financial Crisis?

The following comes to us from the Honorable Judge Jed S. Rakoff, who sits in the U.S. District Court for the Southern District of New York.  Judge Rakoff is also an adjunct professor at Columbia Law School and will be speaking on a panel today at Columbia on Securities Regulation and Enforcement (see here).

Five years have passed since the onset of what is sometimes called the Great Recession. While the economy has slowly improved, there are still millions of Americans leading lives of quiet desperation: without jobs, without resources, without hope.

Who was to blame? Was it simply … Read more

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The Pension System and the Rise of Shareholder Primacy

In my article, The Pension System and the Rise of Shareholder Primacy, which has recently appeared in the Seton Hall Law Review, I explore the influence of the pension system on corporate governance, particularly shareholder primacy and the relationship between corporations and their employees. Today it is widely accepted among business managers, scholars of corporate law and financial economists that the objective of corporate law and corporate governance should be to promote shareholder wealth (as opposed to a wider community of interests, including employees, creditors, suppliers, customers and local communities). Shareholder capitalism is, however, a relatively recent development. Large, … Read more

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Sullivan & Cromwell discusses Bank Capital Plans and Stress Tests

Federal Reserve Issues Interim Final Rules Addressing Application of New Basel III-Based Capital Framework for Purposes of the 2013-2014 Capital Plan and Stress Test Cycle

The Federal Reserve recently issued two interim final rules that clarify how covered companies must incorporate the new U.S. Basel III-based final capital rules (the “Basel III Capital Rules”) into their capital plan submissions and Dodd-Frank Act stress tests for the upcoming 2013-2014 cycle.

To address and clarify the potential issues created by the interaction of the overlap of the nine-quarter planning horizon of the Federal Reserve’s current version of the capital plan

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Goodwin Procter discusses Basel Committee and IOSCO Publication of Policy Framework Establishing Minimum Standards for Margin Requirements for Non-Centrally Cleared Derivatives

The Basel Committee on Banking Supervision (“BCBS”) and the International Organization of Securities Commissions (“IOSCO”) jointly issued a final policy framework (the “Policy Framework”) establishing minimum standards for margin requirements for non-centrally cleared derivatives. The Policy Framework is a result of a 2011 G20 agreement calling upon BCBS and IOSCO to develop, for consultation, global standards for margin requirements for non-centrally cleared derivatives; BCBS and IOSCO released two consultative versions prior to releasing the current final version of the Policy Framework.

The Policy Framework requires the exchange of both initial and variation margin between so-called “covered entities” that engage in … Read more

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Sullivan & Cromwell discusses Shuanghui International’s CFIUS Clearance for its Purchase of Smithfield Foods

Shuanghui International Holdings Limited (“Shuanghui”) and Smithfield Foods, Inc. (“Smithfield”) announced on Friday that the companies have received notice from the Committee on Foreign Investment in the United States (“CFIUS”) that its national security review of the proposed acquisition by Shuanghui of Smithfield is complete. Although the CFIUS process has concluded, the acquisition, which would be the largest acquisition of a U.S. company by a Chinese investor to date, remains subject to other conditions to closing, including the approval of Smithfield shareholders.

Shuanghui, a Hong Kong-based company that owns a variety of businesses in the food and logistics sectors, including

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Gibson Dunn on Recent developments and trends in corporate governance and executive remuneration in the U.K.

The following post is based on a recent Gibson Dunn memo, available here, that was originally published on August 27, 2013.

This post provides a brief summary of a number of recent developments and trends in corporate governance and executive remuneration in the UK, including changes resulting from EU regulation or guidance.  It also covers recent EU and UK-specific initiatives to increase board diversity.

Part A: UK Corporate Governance Updates

Updates to the UK Corporate Governance Code

The UK Corporate Governance Code (the “Governance Code”), which applies to UK Premium-listed companies (but not Standard-listed or AIM companies), was updated

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Pepper Hamilton on the Relationship Between New Rule 506(c), Regulation S and AIFMD

Beyond the general aspects of the U.S. Securities and Exchange Commission (SEC)’s new JOBS Act rules previously discussed in this series of articles, issuers who rely on new Rule 506(c) for an onshore offering and Regulation S and foreign private placement rules for a simultaneous offshore offering need to consider the impact of solicitation and advertising activities on the Regulation S exemption and on the private placement exemption under pertinent foreign rules.

Regulation S under the Securities Act of 1933 (the Securities Act) establishes an exemption from U.S. securities registration for certain offerings targeting non-U.S. investors. It provides an exemption … Read more

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Reed Smith discusses CFTC’s Final ‘Harmonization’ Rules

The Commodity Futures Trading Commission (CFTC) caused quite a stir in 2012 when it changed its rules to require investment advisers to mutual funds that invest to any significant degree in derivatives, to register as “Commodity Pool Operators” (CPOs). The CFTC’s actions drew the ire of the mutual fund industry to such an extent that industry groups challenged the rules in court.

Notwithstanding widespread industry opposition, the CFTC stuck to its guns, perceiving a need to regulate mutual funds employing increasingly complex derivatives strategies. At the same time, the CFTC recognized that the application of its rules could create overlapping … Read more

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