U.S. District Court Upholds the Conflict Minerals Rule, but Vacates the Resource Extraction Rule

The U.S. District Court for the District of Columbia has released two important rulings this month that speak to the SEC’s ability to promulgate rules.   On July 23rd, the court upheld the SEC’s conflict minerals rule (see here) and on July 2nd, the court vacated and remanded the SEC’s resource extraction payment rule (see here).  Both rules were implemented pursuant to the Dodd-Frank Act.

Covington & Burling has prepared useful summaries of each opinion available here and here.… Read more

Evaluating Dodd-Frank and International Approaches to Clearinghouses, Central Banks, and Swap Lines

On June 26, in a House Committee on Financial Services hearing, “Examining How the Dodd-Frank Act Could Result in More Taxpayer-Funded Bailouts,” former FDIC Chair Shelia Bair testified to being “surprised at the lack of concern over the designation of “financial market utilities,” and particularly Section 806 which permits the Federal Reserve to provide safety net access to designated financial market utilities.”

Indeed, these reforms in Dodd-Frank’s Title VIII have received little attention.  Related provisions in Dodd-Frank’s Title XI mandating disclosure of the use of the Federal Reserve’s currency swap line authority with nongovernmental third parties have similarly been largely … Read more

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The Marketplace of Ideas: Cathy M. Kaplan and Jeremiah S. Pam Weigh in on Pistor’s Legal Theory of Finance

The CLS Blue Sky Blog presents Part II of the second installment of our new series, entitled “The Marketplace of Ideas.”  Part I can be found here.  Earlier installments are available here.  The intent is to present different perspectives on the same subject by two or more authors.

The subject is Professor Katharina Pistor’s Legal Theory of Finance (LTF).  For a short description of her theory and the format of the commentary we are releasing, please see here.

Our second and third releases comes to us from Cathy M. Kaplan of Sidley Austin and Jeremiah S. Pam … Read more

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‘Neither Admit Nor Deny’: Practical Implications of SEC’s New Policy

In a move that appears at once to be shrewd, savvy and largely symbolic, the SEC has modified its longstanding policy that it will not require a defendant to admit or deny liability, or facts that might establish its liability, in a settlement with the SEC. Now, such an admission may be required “when appropriate.”1 Whatever the outcome in the SEC’s mandamus appeal of Judge Jed S. Rakoff’s Citigroup decision,2 Rakoff has effectively won the war, even if he loses the Citigroup battle. Although denying that Rakoff influenced them, the SEC conceded (effectively, if not formally) that its policy was

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Editor's Tweet: Prof. John C. Coffee, Jr. of Columbia Law School discusses 'Neither Admit Nor Deny': Practical Implications of SEC's New Policy

SEC Adopts Bad Actor Disqualifications for Private Placements under Regulation D

The following post comes to us from Bradley Berman, Of Counsel at Morrison & Foerster LLP.  

On July 10, 2013, the Securities and Exchange Commission (the “SEC” or “Commission”) adopted amendments to rules promulgated under Regulation D to implement Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).  The amendments add “bad actor” disqualification requirements to Rule 506 of the Securities Act of 1933 (the “Securities Act”), which prohibit issuers and others such as underwriters, placement agents, directors, executive officers, and certain shareholders of the issuer from participating in exempt securities offerings, if they … Read more

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Editor's Tweet: MoFo's Brad Berman discusses SEC Adoption of the Bad Actor Disqualifications for Private Placements under Regulation D

The Marketplace of Ideas: Kathryn Judge takes on Katharina Pistor’s Legal Theory of Finance

The CLS Blue Sky Blog presents the second installment of our new series, entitled “The Marketplace of Ideas.”  Earlier installments are available here.  The intent is to present different perspectives on the same subject by two or more authors.

Today, the subject is Professor Katharina Pistor’s Legal Theory of Finance (LTF).  Her theory grew out of a two year research project – the Global Finance and Law Initiative (further described here) – that set out to critique existing theories in economics and sociology on the relation of law to finance and developed an alternative approach.  It was distilled … Read more

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Editor's Tweet: The Marketplace of Ideas: Kathryn Judge takes on Katharina Pistor's Legal Theory of Finance

Systemic Stability and Fairness: An Analysis of Pistor’s Legal Theory of Finance

In A Legal Theory of Finance, Katharina Pistor introduces a provocative new theory about the relationship between law and finance and the role of law in producing and addressing financial instability.   Pistor shows that law plays a constitutive role in the financial system; yet, because of irreducible uncertainty and uneven liquidity, legal obligations, fully enforced, “would inevitably bring down the financial system.”  Hence, the law-finance paradox.  Collapse is avoided, and predictably so, by the relaxation or suspension of legal obligations, revealing law to be inherently elastic.  Significantly, however, law’s elasticity is not uniform.  “Law tends to be relatively elastic … Read more

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Editor's Tweet: Prof. Kathryn Judge of Columbia Law School Evaluates Prof. Katharina Pistor's Legal Theory of Finance

Addressing the Regulatory Sine Curve

A common denominator of regulatory responses to crises is the use of stable and presumptively optimal rules. The term “stable and presumptively optimal rules” refers to rules that, once in place, do not change other than through other rules and Acts of Congress. Congress, financial regulators, and the literature on financial regulation rely almost exclusively on such rules. However, the economic conditions and the corresponding requirements for optimal and stable rules are constantly evolving, suggesting that different sets of rules could be optimal – in contrast with previous expectations. This has played out in the reaction to the financial crisis.  … Read more

Davis Polk discusses U.S. Basel III Final Rule

The U.S. Basel III final rule is the most complete overhaul of U.S. bank capital standards since the U.S. adoption of Basel I in 1989 – nearly a quarter of a century ago.  The final rule comprehensively revises the regulatory capital framework for the entire U.S. banking sector by implementing many aspects of Basel III as well as key provisions of the Dodd-Frank Act, including the Collins Amendment capital floor in Section 171 and the ban on references to credit ratings in Section 939A.  The U.S. Basel III final rule also makes significant changes to the 2012 U.S. Basel III … Read more

Downgrading Rating Agency Reform

The financial crisis starkly exposed the need for rating agency reform, yet the most important questions of how to enhance rating agency competition, accuracy, and accountability remain largely unanswered.  My article,  Downgrading Rating Agency Reform, assesses the shortcomings in the design and implementation of the Dodd-Frank Act reforms.  It suggests how regulators can promote competition and heighten rating agency accountability by using regulatory incentives to break up the three leading rating agencies that account for 96% of the market.  It argues exposing rating agencies to investor suits for grossly negligent conduct coupled with caps on damages would balance the … Read more

Chapman and Cutler discuss CFTC No-Action Relief for End-Users from the Swaps Clearing Requirement

The Division of Clearing and Risk (the “Division”) of the Commodity Futures Trading Commission (the “CFTC”) recently issued no-action relief for certain treasury affiliates within non-financial companies from the clearing requirements of Section 2(h)(1) of the Commodity Exchange Act (“CEA”). In CFTC Letter No. 13-22 (the “No- Action Letter”), the Division indicated that it was issuing the relief in response to a number of comments received from non-financial companies with wholly-owned treasury affiliates that hedge risks for the entire non-financial company group. Absent the no-action relief, many such entities would have been required to clear swaps subject to the CEA

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Paul Weiss discusses ISDA’s March 2013 Dodd-Frank Protocol

Since the effectiveness of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the Commodity Futures Trading Commission (the “CFTC”) has finalized many of the rules that implement the detailed regulatory regime outlined by the Dodd-Frank Act. A number of these rules require market participants to update their swap trading documentation to comply with this new regulatory regime. This client alert outlines coverage and adherence mechanisms of the ISDA March 2013 Dodd-Frank Protocol (the “March Protocol”), the newest installment of ISDA’s well-tested mechanism aimed at facilitating the multilateral and standardized amendment of swap trading documentation.

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CFTC Adopts Long-Awaited Rule on Swap Execution Facilities (SEFs) and Other Swaps Trading Rules

The US Commodity Futures Trading Commission (CFTC), on May 16, 2013, took long-awaited action to approve four separate rules and guidance.  The rulemakings, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) concern:

• Core principles and other requirements for swap execution facilities (SEFs);
• The process for a designated contract market (DCM) or SEF to make a swap available to trade under Section 2(h)(8) of the Commodity Exchange Act (CEA); and
• Procedures to establish the appropriate minimum block size for large notional off-facility swaps and block trades.

That same day, the CFTC also … Read more

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Editor's Tweet: Latham discusses CFTC Adoption of Long-Awaited Rule on Swap Execution Facilities (SEFs) and Other Swaps Trading Rules

Sullivan & Cromwell on Dodd-Frank Stress Tests

[In May], the Board of Governors of the Federal Reserve System (the “Federal Reserve”) issued summary instructions for the 2013 company-run, mid-year stress tests required by Section 165(i)(2)(A) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Under applicable Federal Reserve regulations, bank holding companies with total consolidated assets of $50 billion or more are required to conduct these mid-year stress tests using company-generated baseline, adverse and severely adverse macroeconomic scenarios. For the 2013 mid-year cycle, however, only the 18 bank holding companies that participated in the Federal Reserve’s 2009 Supervisory Capital Assessment Program are required to conduct … Read more

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Editor's Tweet: Sullivan & Cromwell on Dodd-Frank Stress Tests

SEC Proposes Cross-Border Security-Based Swap Rules

On May 1, 2013, the Securities and Exchange Commission took long-awaited action to propose rules governing cross-border activities in security-based swaps. The SEC’s proposal, developed over the course of more than two years, reflects a holistic approach that differs in key respects from that taken by the Commodity Futures Trading Commission with respect to transnational swap activities (the “CFTC Proposal”). In light of the far-ranging significance of its cross-border proposal, the SEC has reopened comment periods for many of its previously proposed security- based swap regulations and its policy statement on the sequencing of compliance with these rules.

The comment … Read more

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Editor's Tweet: Annette Nazareth discusses the SEC's Proposed Cross-Border Security-Based Swap Rules

Cross-Border at the Crossroads: The SEC’s “Middle Ground”

The following post comes from a speech delivered by John Ramsay, Acting Director of the Division of Trading and Markets at the SEC. These remarks were delivered at the New York City Bar Association on May 15, 2013. 

Thank you for inviting me to join you here today.

Before I launch into my remarks, I need to note that, as a matter of policy, the SEC disclaims responsibility for the private statements of SEC employees. The views I express today are my own, and do not necessarily reflect the views of the SEC, the Commissioners, or my colleagues on the … Read more

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Editor's Tweet: The SEC's John Ramsay discusses Cross-Border at the Crossroads: The SEC’s “Middle Ground"

Taking Gatekeeping Seriously: Financial Product Approval as a Form of Systemic Risk Regulation

One of the key lessons of the recent financial crisis, and the greatest challenge facing post-crisis regulatory reforms, is the need to control and reduce systemic risk associated with financial innovation, complexity, and the growing interconnectedness of global financial markets. The centerpiece of the U.S. reform effort, the Dodd-Frank Act explicitly targets systemic risk in the financial sector through a variety of measures, including enhanced disclosure of market data, greater standardization and central clearing of derivatives, higher minimum capital standards for financial institutions, and even controversial attempts to restrict trading activities of insured banks and their affiliates.

Despite its sweeping … Read more

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Editor's Tweet: UNC Professor Saule Omarova discusses Financial Product Approval as a Form of Systemic Risk Regulation

Sullivan & Cromwell discusses Foreign Banks and the Swap-Push Out Rule

Federal Reserve Issues Rule to Classify Uninsured U.S. Branches and Agencies of Foreign Banks as Insured Depository Institutions for Purposes of the Swaps Push-out Provision of the Dodd-Frank Act and Explain the Process for Obtaining Transition Period Relief

On June 5, 2013, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) issued an interim final rule (the “Interim Final Rule”) that places U.S. branches and agencies of foreign banks on an equal footing with U.S. banks with respect to the so-called “swaps push-out” provision of Section 716 of the Dodd-Frank Wall Street Reform and Consumer Protection Act

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Morrison and Foerster Summarizes the Status of Dodd-Frank as it approaches three years

If Aesop were still in the fable-writing business, and he had been watching the last three years of Dodd-Frank Act rulemaking, we would probably be reading the Snail and the Tortoise to our kids. In this issue of Dodd-Frank at Three, we are, once again, inclined to direct your attention to the tortoise. At each milestone since enactment of the Act, we have noted that slow and steady implementation progress was being made by the banking agencies, the SEC and the CFTC, and we were beginning to see a new regulatory framework for financial institutions take shape. On this third … Read more

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Editor's Tweet: Morrison and Foerster Summarizes the Status of Dodd-Frank as it approaches three years

Shearman & Sterling Discusses how the FSOC’s Annual Report Suggests Potential Paths Forward

The recently issued annual report of the Financial Stability Oversight Council (“FSOC” or “Council”) indicates that the members continue to review the major unfinished business of financial regulatory reform and ramp up the process by which they determine where to focus their collective efforts going forward. While progress has been slow, the financial industry should monitor the Council’s activities to see where new hot buttons might emerge, and ideally have some input while the efforts continue.

The FSOC’s 2013 annual report may be most notable for what it is missing.1 On two of the most significant issues facing the FSOC, … Read more

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Editor's Tweet: Shearman & Sterling Discusses how the FSOC’s Annual Report Suggests Potential Paths Forward