• Warren Named Special Advisor.

On September 17th, Elizabeth Warren posted on the White House blog a statement in which she accepts her appointment as an Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau. Her task will be to design and implement the new CFPB. White House Blog. On September 16th, the Los Angeles Times reported Warren's appointment will not require Senate confirmation and leaves open the possibility that she could be nominated as the CFPB's director. Appointment. The New York Times reported the response the news received. Response.

• Hedge Fund Managers Open New Funds.

On September 16th, the New York Times reported that a number of hedge fund managers who closed their funds after incurring substantial losses over the last two years are starting new funds. To encourage their former clients to return, the managers are sometimes promising to make whole earlier investor losses before taking any fees. Hedge Fund Managers.

• Assessing TARP.

On September 16th, the Congressional Oversight Panel released its September report on the Troubled Asset Relief Program, which is scheduled to expire on October 3, 2010. It concludes that although TARP provided critical government support to the financial system when the financial system was in severe crisis, its effectiveness at pursuing its broader statutory goals has been far more limited. September Oversight Report.

• SEC-CFTC Roundtables on Swap and Security-Based Swap Matters.

On September 15th, Bloomberg and Reuters reported on the SEC-CFTC roundtable on swap execution facilities. On September 14th, Reuters reported on the agencies' roundtable on swap data, reporting and repositories. Swap Data Roundtable.

• Senate Committee Holds Hearings on Covered Bonds.

On September 15th, the Senate Banking Committee held hearings on the potential uses and regulatory issues concerning covered bonds. Senate Hearings Webpage (with links to testimony and prepared remarks). See also Reuters.

• FHFA Wants Banks to Repurchase Ineligible Home Mortgages.

On September 15th, Edward J. DeMarco, Acting Director of the Federal Housing Finance Agency testified before the House capital markets subcommittee. DeMarco expressed concern for financial institutions' delay in repurchasing home loans that did not meet Fannie Mae and Freddie Mac eligibility standards. He also noted that the agency is investigating whether other institutions may also responsible for repurchasing loans. DeMarco Testimony. On September 16th, the Boston Globe reported Congressional and bank response to DeMarco's testimony. Response.

• Consumer Financial Protection Bureau.

On September 14th, Reuters summarized the authority granted to the Consumer Financial Protection Bureau by the Dodd-Frank Act. Authority.

• Former Moody's Executive Sues for Defamation.

On September 13th, the New York Times reported that a former Moody's Investor Services executive has sued the ratings agency for defamation. Ilya Eric Kolchinsky was in charge of assigning ratings for subprime securitizations. He alleges Moody's blacklisted him after he publicly questioned its ratings methodology. Defamation Lawsuit.

• Basel III Capital Requirements.

On September 12th, the Basel Committee on Banking Supervision announced the approval of new capital requirements and a global liquidity standard. The new requirements will increase the minimum common equity requirement from 2% to 4.5%. In addition, banks will be required to hold a capital conservation buffer of 2.5% to withstand future periods of stress bringing the total common equity requirements to 7%. Institutions will have up to eight years to comply with the new requirements. BIS Press Release. See also Annex (summary of provisions) Annex 1 (capital requirements and buffers); Annex 2 (phase-in arrangements). Related news articles: New York Times; Reuters.

• Federal Reserve Board Governor Addresses Brookings Institution.

On September 17th, Federal Reserve Board Governor Daniel K. Tarullo discussed a paper by Gary Gorton and Andrew Metrick entitled "Regulating the Shadow Banking System," which suggests an alternative means of providing liquidity to the asset backed securities market. Tarullo Remarks.

• Federal Reserve Board Releases Agenda for September 24 HMDA Hearing.

On September 16th, the Federal Reserve Board announced the agenda and panelists for the last of four public hearings this year on potential revisions to Regulation C, which implements the Home Mortgage Disclosure Act. The final hearing will be held Friday, September 24, at the Federal Reserve Board in Washington, D.C. Those who want to attend in person must register online by 5:00 PM (EDT) on Wednesday, September 22. Federal Reserve Board Press Release.

• OCC Issues Bulletin on HOEPA Annual Trigger Amounts.

On September 16th, the OCC issued a Bulletin on the Federal Reserve Board's annual amendment to its Regulation Z Commentary related to the dollar amount that triggers requirements for certain home mortgage loans subject to 12 CFR 226.32. OCC Bulletin 2010-36.

• Counterfeit and Stolen Instruments.

On September 13th, the OCC provided 2002-2010 information about counterfeit and stolen instruments affecting the national banking system. OCC Alert 2010-13.

• Unauthorized Banking.

On September 13th, the OCC provided an alphabetical listing of entities engaged in unauthorized banking activities, both offshore and domestic. OCC Alert 2010-12.

• CFTC Grants Grandfather Relief to ECMs and EBOTs.

On September 10th, the CFTC issued orders permitting exempt commercial markets ("ECMs") and exempt boards of trade ("EBOTs") to continue to operate as ECMs or EBOTS temporarily after the deletion of the ECM- and EBOT-enabling provisions from the Commodity Exchange Act by the Dodd-Frank Act. The CFTC anticipates that many entities that currently operate as ECMs or EBOTs will seek to become either swap execution facilities ("SEFs") or designated contract markets ("DCMs") when the CFTC adopts regulations implementing the Dodd-Frank Act's requirements for those facilities. To facilitate the transition of current ECM and EBOT businesses to the new regulatory regime, the Commission determined that it is appropriate to provide grandfather relief to certain ECMs and EBOTs to temporarily continue their ECM and EBOT operations after July 15, 2011. The two orders set forth various conditions for receiving grandfather relief, including the filing of both a relief petition and a SEF or DCM application with the CFTC. The orders are effective immediately. CFTC Release No. PR5891-10.

• CFTC Will Not Offer Blanket Grandfather Relief to Bilateral Swaps.

On September 10th, the CFTC issued a notice that it has determined not to issue grandfather relief to parties that petition the Commission to continue to operate in reliance upon the Commodity Exchange Act's exempt commodity exemption for bilateral swaps after the deletion of that provision from the CEA by the Dodd-Frank Act. CFTC Release No. PR5890-10.

• NFA Seeks Amendment Regarding Retail Commodity Funds.

On September 17th, the CFTC provided notice of the National Futures Association's filing of a petition to amend a rule that excludes certain otherwise regulated persons from the definition of the term "commodity pool operator" with respect to certain qualifying entities. The NFA requests the Commission amend its rule to limit the scope of the exclusion for registered investment companies. Comments should be submitted on or before October 18, 2010. 75 FR 56997.

• Global Markets Advisory Committee to Meet.

The CFTC's Global Markets Advisory Committee will hold a public meeting on October 5, 2010. Comments should be submitted on or before October 4, 2010. 75 FR 56997.

• CME Defends ELX EFF Position.

On September 17th, CME Group responded to the CFTC's letter regarding a Chicago Board of Trade self-certified Market Regulation Advisory Notice issued on October 19, 2009. In that notice, CBOT stated that its rules do not permit the execution of exchange of futures for futures transactions. The notice was issued shortly after the CFTC approved an ELX Futures rule authorizing participants on ELX to carry out EFF transactions. CFTC Release No. PR-5872-10. Reuters quotes CME as contending that "Requiring CBOT to accept EFFs effectively allows ELX traders to leverage the liquidity developed by CBOT without providing acceptable compensation to CBOT, while also harming CBOT markets and subverting a critical element of competition among exchanges." Defense.

• Ownership and Control Report Roundtable.

On September 16th, Reuters reported on the CFTC's roundtable concerning its proposed Ownership and Control Report. While market participants generally supported the idea, they opposed the current proposal as burdensome. Ownership and Control Report Roundtable.

• Chairman Gensler Addresses ISDA.

On September 16th, CFTC Chairman Gary Gensler discussed regulation of the credit default swaps market. Regulation will focus on four areas: the regulation of dealers, the regulation of trading, the regulation of clearing, and the creation of swap data depositories. Gensler Remarks.

• CFTC Wants CME Group to Increase Compliance Staff Levels.

On September 15th, the CFTC announced it has notified the Chicago Mercantile Exchange and Chicago Board of Trade of the results of a rule enforcement review completed by the Commission's Division of Market Oversight. The Division found that the Exchanges maintain adequate audit trail, trade practice and disciplinary programs. However, the Division had some concerns regarding compliance staff levels. CFTC Release No. PR5897-10.

• CFTC Enforcement.

On September 15th, Reuters reported the CFTC filed 25% more enforcement cases in 2009 than in 2008 and summarized the agency's more prominent recent cases. Enforcement.

• Proxy Access Rules Published in the Federal Register.

On September 16th, the SEC's new final rules on shareholder access to the director nomination process were published in the Federal Register. The new rules are effective November 15, 2010. See 75 FR 56668.

• Smaller Issuers Exempted from Auditor Attestation Requirements.

On September 15th, the SEC adopted amendments to its rules and forms to conform them to Section 989G of the Dodd-Frank Act. The amendments exempt smaller issuers from complying with the Sarbanes-Oxley Act's auditor attestation reporting requirements. The amendments are effective upon publication in the Federal Register. SEC Release No. 33-9142.

• Insider Trading Bounty Program Rescinded.

On September 15th, the SEC rescinded its insider trading bounty program. The Dodd-Frank Act repealed former Section 21A(e) of the Securities Exchange Act of 1934, which had authorized the Commission to make monetary awards to persons who provided information leading to the recovery of civil penalties for insider trading violations. The rescission is effective upon publication in the Federal Register. SEC Release No. 34-62921.

• Staff Guidance on Section 929I of the Dodd-Frank Act.

On September 15th, the SEC released staff guidance on the application of Section 929I of the Dodd-Frank Act. The provision gives the Commission the authority to protect information gathered in its inspections and examinations process. The guidance instructs the staff on when and how to assert Section 929I so that it is applied consistently with the provision's intent and the principles of open government. The guidance addresses to what extent the Commission will rely on Section 929I in the context of both FOIA requests and discovery requests served on the Commission. On September 16th, SEC Chairman Mary L. Schapiro testified before the House Financial Services Committee regarding Section 929I. Bloomberg reported Congressional response to Schapiro's testimony. Response.

• Short Term Borrowing Disclosure.

On September 17th, the SEC voted to propose rules that would require a public company to provide certain disclosures about its short-term borrowings. See, e.g., Reuters. It also voted to publish an interpretive release providing guidance on the Commission's current disclosure requirements in "Management's Discussion and Analysis of Financial Condition and Results of Operations" relating to liquidity and capital resources. See Schapiro Remarks; Casey Remarks; Aguilar Remarks. Bloomberg reported the SEC proposal stems from reports that Lehman Brothers concealed its precarious financial position by accounting for certain debt as "sales." Bloomberg.

• SEC's Lawsuit against Former Countrywide Execs Could Last Ten Weeks.

On September 15th, the Los Angeles Times reported that defense attorneys for former Countrywide Financial executives believe that the SEC's securities fraud lawsuit against their clients will take eight to ten weeks, not the three weeks that have been scheduled. Scheduling.

• SEC Investigating Quoting Spikes.

On September 14th, Reuters reported that the SEC is examining three recent trading days when orders to buy and sell shares suddenly spiked. Quotes.

• Market Structure.

On September 13th, Bloomberg summarized the comments submitted to the SEC in response to its concept release on market structure, highlighting concerns about the declining role of market makers. Market Makers.

• OCIE Sweep Investigates Due Diligence.

On September 10th, Bloomberg reported that the SEC Office of Compliance Inspections and Examinations' regulatory sweep of investment advisers is inquiring into the adequacy of the managers' due diligence when selecting investment vehicles. Sweep.

• SEC Posts Schedule for Implementing Dodd-Frank.

The SEC posted on its web site its plan for a schedule of activity to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act.

• SEC Approves Designated Offshore Market Status for Bursa Malaysia's Securities and Bond Markets.

On September 15, 2010 the Securities and Exchange Commission's Office of International Corporate Finance published its approval of Bursa Malaysia Securities Berhad and the electronic trading platform operated by Bursa Malaysia Bonds Sdn Bhd., as "designated offshore securities markets" within the meaning of Regulation S under the Securities Act of 1933. Winston & Strawn submitted the request for relief on behalf of Bursa Securities and Bursa Bonds.

• Proposed Pilot Listing Program is Approved.

On September 14th, the SEC approved the Chicago Board Options Exchange's proposed establishment of a pilot program to list P.M.-settled end of week and end of month expirations for options on broad-based indexes. SEC Release No. 34-62911.

• Amendment Regarding the Complex Order Book System is Immediately Effective.

On September 13th, the SEC granted immediate effectiveness to the Chicago Board Options Exchange's proposal amending CBOE Rule 6.53C, which governs the operation of the Exchange's electronic complex order book ("COB") system. The proposed rule change would provide the Exchange with additional flexibility to determine the applicable matching algorithm for option classes in which COB is activated. Comments should be submitted on or before October 8, 2010. SEC Release No. 34-62897.

• Amendment Regarding Indexed Linked Securities is Filed.

On September 9th, the SEC provided notice of the Chicago Board Options Exchange's filing of a proposal to trade options on leveraged exchange-traded notes and to broaden the definition of "Futures-Linked Securities". Comments should be submitted on or before October 7, 2010. SEC Release No. 34-62880.

• Amendments to Arbitration Codes.

On September 14th, the Financial Industry Regulatory Authority announced that effective October 14, 2010, a non-party witness' attorney may attend an arbitration hearing while the witness is testifying. Unless otherwise authorized by the arbitrators, the attorney's role will be limited to asserting recognized privileges. The amendments to the Customer and Industry Codes of Arbitration Procedure apply to all hearings taking place on or after October 14, 2010. FINRA Regulatory Notice 10-40.

• Proposed Amendment to Market Maker Rule is Immediately Effective.

On September 8th, the SEC granted immediate effectiveness to NASDAQ OMX BX's proposal to amend certain existing quoting obligations of Market Makers. Currently, a Market Maker must participate in the pre-opening phase and thereafter make markets consistent with the applicable quoting requirements specified in the BOX Rules, such that on a daily basis a Market Maker must post valid quotes at least sixty percent of the time that the class(es) are open for trading. Under the existing rules, any time a Market Maker's quote size falls below the ten contract minimum size requirement, even after an execution which decrements the remaining size of the quote, the quote is deemed invalid for meeting the Market Maker's quoting obligations. The Exchange believes that its policy of the meaning of a "valid" quote should be updated to include an exception for quotes that have been depleted by executions below the ten contract minimum size requirement. Modifying the quotations requirements in this manner will encourage more options trading firms to register as Market Makers on BOX and to provide more liquidity to BOX Options Participants. Comments should be submitted on or before October 6, 2010. SEC Release No. 34-62869.

• New FLEX Pilot is Immediately Effective.

On September 13th, the SEC granted immediate effectiveness to NASDAQ OMX PHLX's proposal to replace the 150 contract FLEX minimum value pilot program with a new pilot program that eliminates minimum value sizes for equity-traded FLEX index options and FLEX equity options. Comments should be submitted on or before October 8, 2010. SEC Release No. 34-62900.

• Proposed Amendment Requires Members to Carry Liability Insurance.

On September 10th, the SEC provided notice of the NASDAQ OMX PHLX's filing of a proposal to amend Rule 652, Limitation of Exchange Liability and Reimbursement of Certain Expenses, to require member organizations conducting business on the Exchange's trading floor to procure and maintain liability insurance. The Exchange is proposing this amendment to limit the liability of the Exchange and obtain reimbursement for any action or proceeding brought against the Exchange. Comments should be submitted on or before October 8, 2010. SEC Release No. 34-62892.

• Universal Trade Capture Application Proposed.

On September 10th, the SEC provided notice of the National Securities Clearing Corporation's filing of a proposal modifying NSCC's rules and procedures regarding the creation of a Universal Trade Capture application and an automated Special Representative facility. The proposed rule change will amend NSCC's rules to accommodate the UTC application, which will standardize, streamline, consolidate, and modernize NSCC's existing legacy trade capture applications (specifically, with respect to trade recording applications within NSCC's Trade Comparison and Recording Operation) to create a more efficient and centralized process. The UTC application will accept and process a common input record from all marketplaces and will provide for receipt and reporting of data in both real-time and intraday-batch submissions to and from members and SROs. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of September 20. SEC Release No. 34-62882.

• Statistical Significance Redux.

On September 16th, the Eighth Circuit affirmed the dismissal of plaintiffs' securities fraud complaint. In doing so, the Court addressed what constitutes sufficient disclosure by manufacturers of potentially flawed medical devices. The Court held defendants' disclosure was adequate since it informed of the potential problem without unequivocally stating that the device was safe. Plaintiffs also failed to allege that the omitted statistical information concerning the device would have put investors on notice that either doctor error was not a significant factor in the device failures or that the overall failure rate of the device was statistically higher than that of other devices. Detroit General Retirement System v. Medtronic, Inc.

• Undersecured Mortgage Holder May Receive Fees and Costs in Arrearage Cure.

On September 15th, the Sixth Circuit resolved a conflict among the district courts within the circuit. It held that a bank holding the undersecured home mortgage of a Chapter 13 debtor who is in arrears at the time of filing, is entitled to receive under the Chapter 13 bankruptcy plan fees and costs in the arrearage cure. Deutsche Bank National Trust Co. v. Tucker.

• Misrepresentations in Stock Purchase Agreements Constitute Securities Fraud.

On September 14th, a federal district court held that a defendant who misrepresents his trading activity prior to signing stock purchase agreements ("SPAs") in private investments in public offerings ("PIPEs") of stock commits securities fraud. The misrepresentations were material because they involved information that alter a reasonable person's decision. Had the issuers known defendant had bought their stock with knowledge of the PIPE but before signing the SPA, they would not have sold the PIPE shares to defendant. SEC v. Berlacher. See also SEC Lit.Rel.No. 20278.

• Payments Received by Brokerages Used in a Fraudulent Scheme Cannot be Avoided.

On September 14th, a Bankruptcy Court entered partial summary judgment in favor of defendants, brokerages through whom the debtor conducted a fraudulent stock lending scheme. The Chapter 7 bankruptcy trustee cannot avoid as fraudulent transfers funds and stock received by defendants directly from the victims of the scheme, margin interest paid to defendants by the debtor, and cash transfers that the debtor directly deposited into the brokerage accounts in the year prior to the bankruptcy filing. Derivium Capital, LLC v. Wachovia Securities, LLC.

• Amendments to Form ADV - Effective October 12th, 2010.

The SEC is adopting amendments to Part 2 of Form ADV, and related rules under the Investment Advisers Act, to require investment advisers registered with the SEC to provide new and prospective clients with a brochure and brochure supplements written in plain English. 75 FR 49233. Please see the Winston & Strawn Briefing on this topic for additional information.

• Facilitating Shareholder Director Nominations - Effective November 15, 2010.

The SEC is adopting changes to the federal proxy rules to facilitate the effective exercise of shareholders' traditional state law rights to nominate and elect directors to company boards of directors. The new rules will require, under certain circumstances, a company's proxy materials to provide shareholders with information about, and the ability to vote for, a shareholder's, or group of shareholders', nominees for director. We believe that these rules will benefit shareholders by improving corporate suffrage, the disclosure provided in connection with corporate proxy solicitations, and communication between shareholders in the proxy process. The new rules apply only where, among other things, relevant state or foreign law does not prohibit shareholders from nominating directors. The new rules will require that specified disclosures be made concerning nominating shareholders or groups and their nominees. In addition, the new rules provide that companies must include in their proxy materials, under certain circumstances, shareholder proposals that seek to establish a procedure in the company's governing documents for the inclusion of one or more shareholder director nominees in the company's proxy materials. We also are adopting related changes to certain of our other rules and regulations, including the existing solicitation exemptions from our proxy rules and the beneficial ownership reporting requirements. 75 FR 56667.

• SEC Adopts Shareholder Proxy Access Rules.

In a release dated August 25, 2010, the Securities and Exchange Commission adopted final rules that will require public companies to include director nominees proposed by shareholders in the company's proxy materials. Briefing.

• SEC Approves Expansion of Stock-by-Stock Circuit Breaker Program and New Rules for Breaking Erroneous Trades.

After extending the period for taking action several times, the Securities and Exchange Commission has approved proposals by each of the national securities exchanges and the Financial Industry Regulatory Authority to expand the coverage of the SRO' uniform market-wide standards for pausing trades in certain securities that experience rapid price movements. Briefing.

• Understanding the New UK Bribery Act: GC of the Serious Fraud Office, Vivian Robinson, Speaks and Takes Questions About the New Law.

Winston & Strawn will present an eLunch titled "Understanding the New UK Bribery Act: GC of the Serious Fraud Office, Vivian Robinson, Speaks and Takes Questions About the New Law" on Thursday, September 30. Event.

• Winston Sponsors Thomson's 16th Annual LPC Loan Pricing Conference.

Winston & Strawn partners Michael Mullins and Kent Walker will be speaking during the 16th Annual Thomson Reuters LPC Loan Conference, titled: You Say You Want an Evolution: Redefining the Loan Market, to be held September 22, 2010, in New York. Winston & Strawn is also serving as a sponsor for this event. Event.

• Winston & Strawn Sponsors TMA's Annual Convention.

Winston & Strawn is proud to sponsor the TMA Annual Convention to be held October 6-8, 2010, at the JW Marriott in Orlando, Florida. TMA is a premier professional organization dedicated to corporate renewal and turnaround management. This convention is for professionals who share a common interest in strengthening the economy through the restoration of corporate value, including turnaround practitioners, appraisers, attorneys, investment bankers, equity investors, liquidators, venture capitalists, as well as, workout specialists and outsourcing professionals. Event.

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