Securities Law Practice Center

Gibson Dunn: Dodd-Frank Title VII Considerations

Title VII of the Dodd-Frank Act and related regulation will likely have a significant impact on both financial and nonfinancial end-users.  The CFTC, which has jurisdiction over the majority of the swaps market, has promulgated a number of final rules, while the SEC is significantly behind the CFTC’s pace in both proposing and finalizing regulations to implement Title VII. I’ve just received this memo from our friends at Gibson Dunn discussing Title VII regulation and alerting clients that they must (1) understand how the rules will affect, among other things, their trading strategies, business processes, and recordkeeping and reporting obligations; and (2) prepare to implement the changes necessary to ensure compliance with the final rules. Here is an excerpt:

I. Financial Entity Definition, Mandatory Clearing of Swaps and the End-User Exception

Title VII of the Dodd-Frank Act provides an exception to the mandatory clearing requirement for end-users (the “end-user exception”).  That is, if one party to a swap or security-based swap is an end-user that is not a “financial entity,” as described in CEA section 2(h)(7)(C) and Exchange Act section 3C(g)(3), and is using swaps or security-based swaps to hedge or mitigate commercial risk, such nonfinancial end-user, at its discretion, may elect not to clear a swap that would otherwise be required to be cleared pursuant to related regulations.  If a swap or security-based swap is not subject to the clearing mandate, then such swap will not be subject to the trade execution mandate under CEA section 2(h)(8) and Exchange Act section 3C(h).  Both the CFTC and the SEC have proposed rules relating to the end-user exception; however, neither agency has issued final rules to implement the end-user exception. (more…)

Top 5 Corporate & Securities Blog Posts

Today we continue our bi-weekly installment shining a light on the best of the corporate and securities blogosphere. Highlights include Yahoo’s resume debacle, proxy access, an in-house counsel under fire and more. If there are any corporate or securities blogs you think should be highlighted by our Top 5, please comment on this post and we’ll check them out!

1) On Securities: Responding to the Yahoo Resume Debacle - Scott Thompson, the CEO of Yahoo, was forced to resign after it was discovered that he did not in fact obtain one of the college degrees listed in company filings. To make matters worse, a discrepancy was found in the reported educational background of Patti Hart, the Chair of Yahoo’s Governance Committee. This post provides a few tips for public companies to avoid such an embarrassment.

2) Insight: Midseason Update on Proxy Access - Proxy access was one of the most highly anticipated issues of the 2012 U.S. proxy season, and here at the halfway mark of the season, this issue has lived up to its billing. This post from Sean Quinn breaks down the results of voting thus far. (more…)

Davis Polk’s Latest Dodd-Frank Progress Report

I just received the latest installment of Davis Polk’s Dodd-Frank Progress Report capturing the most recent Dodd-Frank developments. Highlights include a major Title VII rulemaking in which the CFTC and SEC approved final rules further defining the terms “swap dealer,” “security-based swap dealer,” “major swap participant,” “major security-based swap participant” and “eligible contract participant.” In addition, the FDIC and Treasury released a final rule that will govern the maximum obligation the FDIC may incur in liquidating a covered financial company. The SEC also released a study on the extraterritorial scope of private rights of action under Section 10(b) of the Securities Exchange Act of 1934. Some other interesting stats from the Davis Polk Report are:

• As of May 1, 2012, a total of 221 Dodd-Frank rulemaking requirement deadlines have passed. This is 55.5% of the 398 total rulemaking requirements, and 78.9% of the 280 rulemaking requirements with specified deadlines.
• Of these 221 passed deadlines, 148 (67%) have been missed and 73 (33%) have been met with finalized rules. Regulators have not yet released proposals for 21 of the 148 missed rules. (more…)

Sullivan & Cromwell on New Volcker Rule Guidance

Last week, the Federal Reserve issued important guidance regarding compliance with Section 13 of the Bank Holding Company Act, the so-called “Volcker Rule.”  The Volcker Rule, which becomes effective on July 21, 2012, imposes broad restrictions on proprietary trading and sponsoring and investing in hedge funds and private equity funds by banking entities.  The Rule provides a  two year Conformance Period from that effective date for banking entities to bring their activities into compliance. I received this memo from our friends at Sullivan & Cromwell discussing the guidance and what it means for banking entities. Here is an excerpt:

In response to questions raised by commenters, the Guidance confirms that banking entities have the full two-year statutory Conformance Period to conform fully their activities and investments to the prohibitions of the Volcker Rule. Although the need for full compliance by the end of this two-year period may impose limitations on the continued conduct of the prohibited activities during the Conformance Period, there would otherwise be no limitations on the extent or scope of these activities during the two years. A joint interagency press release accompanying the Guidance states that each of the agencies responsible for enforcing the Volcker Rule will do so in accordance with the Guidance and the final rule issued by the Federal Reserve in February 2011 to implement the Conformance Period (the “Conformance Rule”). (more…)

U.S. Sentencing Commission Approves Increased Penalties for Certain Fraud Offenses

In the Dodd-Frank Act, Congress issued directives to the United States Sentencing Commission to “review and, if appropriate, amend” various sentencing guidelines and policy statements applicable to fraud offenses. On April 13th, the Commission responded, promulgating amendments to the federal sentencing guidelines for securities fraud, mortgage fraud, and financial institution fraud. I just received this memo from our friends at Gibson Dunn detailing the changes to insider trading guidelines, loss calculations for securities fraud and more. Here is an excerpt:

In announcing these amendments, Judge Patti B. Saris, Chair of the Commission, explained their importance, noting that “fraud offenses represent almost ten percent of the federal criminal docket annually.”  The newly adopted amendments, which will take effect November 1, 2012 unless Congress modifies them through legislation, are likely to stiffen sentences for many defendants convicted of fraud offenses, particularly insider trading.  At the same time, the Commission has continued its recent trend toward the use of rebuttable presumptions, rather than inflexible rules, in determining certain aspects of offense seriousness.  That emerging approach gives criminal defense counsel greater latitude to advocate for sentence calculation methodologies more carefully tailored to each particular case.  (more…)