• Flash Crash Report.

On February 18th, the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues released a summary of its report on the market events of May 6th, 2010. The report discusses the changes in market structure which have led to liquidity and volatility problems and makes 14 recommendations, including the expansion of circuit breaker rules to all but the most inactively traded stocks. It further endorses the implementation of "limit up/limit down" processes to supplement circuit breakers. See also Reuters.

• Bernanke's View.

On February 18th, the Washington Post reported Federal Reserve Board Chairman Ben Bernanke's views on the causes of the financial crisis, the U.S.'s role, and the future. Bernanke's View.

• Systemically Important Firms.

On February 17th, FDIC Chairman Sheila Bair, testifying before the Senate Banking Committee, discussed systemically important firms. The Financial Stability Oversight Council (FSOC) has divided the nonbank financial sector into four categories: (1) the hedge fund, private equity firm, and asset management industries; (2) the insurance industry; (3) specialty lenders; and (4) broker-dealers and futures commission merchants. The Council has begun developing measures of potential risks posed by these firms. Once these measures are agreed upon, the FSOC may need to request data or information that is not currently collected or otherwise available in public filings. Bair Testimony. Bloomberg reported that a draft FSOC report concludes that hedge funds and insurers can pose systemic risk. Systemic Importance.

• Risk Retention Requirement.

On February 17th, the New York Times reported that the federal financial regulatory agencies are working on a proposed definition of "qualified residential mortgage," a mortgage that would be exempt from the Dodd-Frank Act's risk retention requirement. The definition will likely include only those mortgages with a 20 percent down payment, or more, and limited adjustable rate mortgages. The regulators must also define "risk retention" and whether servicing standard should be included in a final regulation. Risk Retention.

• Regulators Testify Before Senate Committee.

On February 17th, the Senate Banking Committee held hearings on the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"). See Hearing Webpage (with links to webcast and to prepared testimony). John Walsh, Acting Comptroller of the Currency, testified that the federal banking agencies, having examined foreclosure processing at the 14 largest federally regulated mortgage servicers, are preparing remedial requirements and sanctions to address deficiencies. The federal agencies are also discussing their supervisory actions with the state attorneys general in an effort to craft a comprehensive resolution. The OCC is participating in an interagency process to establish nationwide requirements that are comprehensive and directly enforceable by the agencies. Walsh Prepared Oral Testimony. See also Walsh Prepared Written Remarks. Bloomberg reported that the state attorneys general intend to address loan modification procedures with lenders as part of the settlement process. FDIC Chairman Sheila Bair said that the FDIC may require an independent review of rejected loan modification requests and a compensation fund. Testimony.

• Senators Remind Regulators of the APA's Requirements.

On February 17th, Reuters reported that members of the Senate Banking Committee have written to the heads of the federal financial regulatory agencies reminding them, among other things, of their Administrative Procedure Act responsibilities to provide a sufficient notice and comment period, and to consider costs, benefits, and the impact on the economy. APA.

• Investor Advocates Support Increased Regulatory Budgets.

On February 16th, Reuters reported that consumer advocates and institutional investor groups are working together to counter attempts to limit the budgets of the federal financial regulatory agencies. The Council of Institutional Investors and the Consumer Federation of America are among the organizations supporting the effort. Counter Attack.

• Swipe Fees.

On February 16th, Reuters reported that Congress is expected to introduce a bill delaying the Federal Reserve Board's plan to implement limits on debit card swipe fees. Delay. On February 17th, the Washington Post reported that Federal Reserve Board Chairman Ben Bernanke believes that an exemption for smaller banks may not be workable. Exemptions. See also Bernanke Testimony (before Senate Banking Committee).

• Congressmen Concerned by Banks' Dividend Plans.

On February 15th, Reuters reported that seven House Democrats, most of whom are members of the House Financial Services Committee, have written to Federal Reserve Board Chairman Ben Bernanke to express concern over some banks' plans to raise their dividends while continuing to receive assistance from the Federal government. Dividends Concern.

• House Committee Holds Hearings on Derivatives.

On February 15th, the New York Times reported the comments made at the House Financial Services Committee's hearings on the Dodd-Frank Act's provisions regarding the regulation of derivatives. CFTC Chairman Gary Gensler testified that his agency will not impose margin requirements on end users. Federal Reserve Board Governor Daniel Tarullo said that the Federal Reserve Board may require the posting of margin if a firm poses a risk to the broader economy. Comments. See also Hearing Webpage (with links to witness prepared remarks).

• Madoff Claims Banks Were Willfully Blind.

On February 15th, the New York Times reported that Bernard L. Madoff claims that some of the banks and hedge funds with whom he dealt must have been aware of his Ponzi scheme. Willful Ignorance.

• Deutsche Boerse and NYSE Euronext to Merge.

On February 15th, the Washington Post reported that the parent companies of Deutsche Boerse and NYSE Euronext will merge, with the German firm being the 60 percent owner of the new Premier Global Exchange Group. While the announcement anticipated a year-end closing, regulatory and political hurdles may slow the transaction. Merger. On February 17th, Bloomberg reported that NYSE Euronext shareholders have filed multiple suits challenging the merger. Lawsuits.

• Suing Chinese Firms in the U.S.

On February 14th, Reuters reported on the difficulties facing shareholders who sue Chinese firms that list in the U.S. Depositions and reported that discovery is almost unheard of in China, and even if the shareholders prevail, enforcement of the judgment can be daunting. Lawsuits.

• FCIC Releases Fuld Interview.

On February 14th, the New York Times reported on the Financial Crisis Inquiry Commission's interview of Richard Fuld, the former CEO of Lehman Brothers. Lehman's Demise.

• Insider Trading.

On February 12th, the Washington Post summarized the U.S. Attorney's insider trading investigation. Insider Trading.

• Federal Reserve Board Announces Survey of Finance Companies.

On February 17th, the Federal Reserve Board announced it will conduct a Survey of Finance Companies as part of an effort to obtain a complete picture of the sector in the aftermath of the financial crisis. The survey seeks information on the assets and liabilities of non-depository finance companies to assist in setting a benchmark for the Federal Reserve System's monthly report on the outstanding accounts receivable of finance companies and to provide a comprehensive update on sources of funds. Federal Reserve Board Press Release.

• FFIEC Launches Redesigned IT Examination Handbook InfoBase.

On February 16th, the Federal Financial Institutions Examination Council announced the launch of its redesigned IT Examination Handbook InfoBase. The IT InfoBase is the primary distribution method for the IT Examination Handbook. The update does not implement any changes to the content of the IT Handbook or related guidance. FFIEC Press Release.

• Community Depository Institutions Advisory Council Named.

On February 16th, the Federal Reserve Board announced that the members of its Community Depository Institutions Advisory Council. CDIAC will provide input to the Board on the economy, lending conditions, and other issues. Federal Reserve Board Press Release.

• Consumer Advisory Council to Meet.

The Federal Reserve Board's Consumer Advisory Council will meet on March 10th, 2011. The Council is scheduled to discuss foreclosure issues, neighborhood stabilization and real estate owned issues, and proposed rules regarding debit card interchange fees and routing. Federal Reserve Board Press Release.

• FDIC's Advisory Committee on Economic Inclusion to Meet.

The FDIC's Advisory Committee on Economic Inclusion will meet on March 2nd, 2011, to provide advice and recommendations on initiatives to expand access to banking services by underserved populations. Notice of Meeting.

• OCC To Hold Workshop in Little Rock, Arkansas.

The OCC will host workshops for directors of nationally chartered community banks and federal savings associations in Little Rock, Arkansas on April 5th-6th, 2011. The workshops provide practical information that expands bank directors' skills and understanding of issues facing their banks. The workshops cover risk assessment ("Directors: Where is the Risk in Your Bank") on April 5th and credit risk ("Credit Risk: A Director's Focus") on April 6th. OCC Press Release.

• Treasury Designates Afghan Money Exchange Network.

On February 18th, the Treasury Department designated the New Ansari Money Exchange, a major money laundering vehicle for Afghan narcotics trafficking organizations, along with 15 affiliated individuals and entities under the Foreign Narcotics Kingpin Designation Act. Treasury Department Press Release.

• Treasury Department Designates Iranian Bank.

On February 17th, the Treasury Department designated Bank Refah for providing financial services to the Iranian Ministry of Defense and Armed Forces Logistics and the Iran Aircraft Manufacturing Industrial Company. Treasury Department Press Release.

• FinCEN Issues Advisory on Egypt.

On February 16th, the Financial Crimes Enforcement Network advised U.S. financial institutions to take reasonable risk-based steps with respect to the potential increased movement of assets that may be related to the situation in Egypt. U.S. financial institutions are reminded of their requirement to apply enhanced scrutiny for private banking accounts held by or on behalf of senior foreign political figures and to monitor transactions that could potentially represent misappropriated or diverted state assets, proceeds of bribery or other illegal payments, or other public corruption proceeds. Financial institutions should be aware of the possible impact that events in Egypt may have on patterns of financial activity when assessing risks related to particular customers and transactions. FIN-2011-A002.

• Proposed CFTC Swaps Rule Could Lead to Two-Tiered System.

On February 18th, Bloomberg reported that the CFTC's proposed swap execution facility rule may lead to the creation of two markets, one for dealer-to-dealer trades and the other for dealers and clients. Two-Tiered System.

• Delays Predicted for SEFs.

On February 16th, Reuters reported that National Futures Association President Daniel Roth believes that the opening of swap execution facilities (SEFs) may need to be done over time. Many SEFs will be unable to meet the CFTC's October 15th, 2011 deadline for complying with the agency's proposed requirement that they have certain self-regulatory functions in place. See 76 FR 1214 at 1224. Before the NFA can create self-regulatory policies and procedures as a third-party provider of self-regulatory oversight, it needs additional guidance from the CFTC and the time to develop appropriate systems. Delay.

• User Fees Proposed.

On February 14th, Bloomberg reported that the Obama Administration has proposed that the CFTC be allowed to assess user fees to pay for non-enforcement activities. User Fees.

• SEC Examining Municipal Bond Fund Valuations.

On February 18th, Reuters, covering a Wall Street Journal article, reported that the SEC is examining mutual fund valuations of their municipal bond holdings. Valuations.

• Market Data.

On February 18th, Reuters reported that TD Ameritrade has asked the SEC to examine the market data fees charged by exchanges, and the exchanges' claims that effective competition exists for the provision of market data. Market Data.

• Commenters Respond to Proposed Whistleblower Rule.

On February 16th, MarketWatch reported the comments submitted in response to the SEC's proposed whistleblower rule. Commenters suggested ways in which prospective whistleblowers could be encouraged to report instances of wrongdoing internally prior to tipping the SEC. Whistleblowers.

• Regulatory Sweep of Investment Advisers.

On February 15th, Crain's reported that the SEC has opened a regulatory sweep of investment advisers' use of social media. The request for information also asks investment advisers about their recordkeeping policies and practices concerning social media. Social Media.

• Senator Seeks Clarification on Criminal Investigation Policy.

On February 14th, the New York Times reported that Senator Charles Grassley has asked the SEC and the Justice Department if the agencies have changed their policy against disclosing whether a criminal investigation exists. The letter was prompted by remarks made by SEC Enforcement Division Director Robert Khuzami who suggested that his office would try to determine whether a related criminal investigation is being conducted when the SEC negotiates the terms of a cooperation agreement. Letter.

• Budget Increase Proposed.

On February 14th, the Los Angeles Times reported that the Obama Administration has proposed a 28 percent increase in the SEC's fiscal year 2012 budget. Budget.

• Municipal Advisers Concerned by Proposed Registration Requirement.

On February 11th, NASDAQ republished a Dow Jones News Wire report on the concerns municipal bond issuers have expressed over a proposed SEC requirement that non-elected municipal advisers register with the SEC. Concerns. Comments on the proposed rule should be submitted on or before February 22nd, 2011.

• Proposed Amendment to Arbitration Codes.

On February 15th, the SEC provided notice of the Financial Industry Regulatory Authority's proposed amendment to Rules 12206, 12503, and 12504 of the Code of Arbitration Procedure for Customer Disputes and Rules 13206, 13503, and 13504 of the Code of Arbitration Procedure for Industry Disputes, to provide moving parties with a five-day period to reply to responses to motions. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of February 21st. SEC Release No. 34-63910.

• Proposed Amendment to Industry Disputes Arbitration Code.

On February 15th, the SEC provided notice of the Financial Industry Regulatory Authority's proposed amendment to Rule 13806 of the Code of Arbitration Procedure for Industry Disputes to provide that FINRA will appoint a chair-qualified public arbitrator to a panel resolving a promissory note dispute instead of appointing a chair-qualified public arbitrator also qualified to resolve a statutory discrimination claim. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of February 21st. SEC Release No. 34-63909.

• SEC Approves Rule Prohibiting Trading Ahead.

On February 11th, the SEC approved the Financial Industry Regulatory Authority's proposal to adopt NASD IM-2110-2 (Trading Ahead of Customer Limit Order) and NASD Rule 2111 (Trading Ahead of Customer Market Orders), with significant changes, as new FINRA Rule 5320 (Prohibition Against Trading Ahead of Customer Orders). SEC Release No. 34-63895.

• SEC Disapproves Proposal Relating to the Handling of Stop Orders.

On February 10th, the SEC disapproved the Financial Industry Regulatory Authority's proposal to delete the provisions of Rule 6140 relating to the handling of stop orders in NMS stocks by member firms. The provision requires that stop orders offered by member firms be triggered (i.e., become a market order or limit order) by a transaction in the security. By proposing to eliminate that provision, FINRA would effectively have allowed member firms to offer stop orders to customers that are triggered by a transaction, a quote or another mechanism altogether. SEC Release No. 34-63885.

• Securitization Lawsuit Dismissed.

On February 17th, the U.S. District Court for the Southern District of New York dismissed a putative class action securities fraud lawsuit in which plaintiffs alleged that defendants made material misstatements and omissions concerning the securitization of their student loan portfolio through the use of auction rate securities. In re MRU Holdings Securities Litigation.

• Measuring Damages in a Commercially Reasonable Way under the Bankruptcy Code.

On February 16th, the Third Circuit addressed an issue of first impression and held that the discounted cash flow method was the proper measure of damages under Bankruptcy Code Section 562 when a market price cannot be determined. The parties had entered into a $1.2 billion repurchase agreement for a portfolio of home mortgages. On the day the debtor defaulted, the distressed state of the credit markets made it commercially unreasonable for the purchaser to sell the portfolio and the market price would not reflect the asset's worth. In part to avoid the moral hazard of a repo participant holding an asset with little or no risk, an alternative measure was needed and the Court found that the discounted cash flow method was a proper measure. In re American Home Mortgage Holdings, Inc.

• Partial Summary Judgment Entered in Favor of Individual Securities Fraud Defendants.

On February 16th, the U.S. District Court for the Northern District of Illinois entered summary judgment in favor of two individual securities fraud defendants. They cannot be liable under Section 20(a) of the Exchange Act because they lacked general control over the company's operations. Knowledge concerning the company is not control over the company. Plaintiffs failed to allege that a third individual defendant made material misstatements or omissions. However, that defendant's speaking on behalf of the company, involvement in earnings meetings, and approval of the release of intellectual property supports a genuine issue of fact that he exercised general control over operations, and the Section 20(a) claim against him survives. Silverman v. Motorola, Inc.

• Court Dismisses Most of a Putative Class Action Lawsuit.

On February 16th, the U.S. District Court for Maine dismissed most of a putative class action lawsuit stemming from allegedly improper home foreclosures. To the extent false affidavits were used to support foreclosure, the proper remedy is to vacate that foreclosure, not to institute a separate lawsuit, the Court held. It further noted that Maine state law does not recognize a private right of action for damages for a fraud on the court. Bradbury v. GMAC Mortgage, LLC.

• Issuer Review of Assets in Offerings of Asset-Backed Securities - Effective March 28th, 2011.

The SEC is adopting new requirements in order to implement Section 945 of the Dodd-Frank Act. Specifically, the SEC is adopting a new rule under the Securities Act of 1933 to require any issuer registering the offer and sale of an asset-backed security ("ABS") to perform a review of the assets underlying the ABS. Also being adopted are amendments to Item 1111 of Regulation AB that would require an ABS issuer to disclose the nature of its review of the assets and the findings and conclusions of the issuer's review of the assets. ABS Rules.

• Disclosure for Asset-Backed Securities Required by Section 943 of the Dodd-Frank Act - Effective March 28th, 2011.

Pursuant to Section 943 of the Dodd-Frank Act, the SEC is adopting new rules related to representations and warranties in asset-backed securities offerings. The final rules require securitizers of asset-backed securities to disclose fulfilled and unfulfilled repurchase requests. The final rules also require nationally recognized statistical rating organizations to include information regarding the representations, warranties and enforcement mechanisms available to investors in an asset-backed securities offering in any report accompanying a credit rating issued in connection with such offering, including a preliminary credit rating. ABS Disclosures.

• Shareholder Approval of Executive Compensation and Golden Parachute Compensation - Effective April 4th, 2011.

On January 25th, 2011, the SEC adopted a rule to implement the provisions of the Dodd-Frank Act relating to shareholder approval of executive compensation and "golden parachute" compensation arrangements. Section 951 of the Dodd-Frank Act amends the Securities Exchange Act of 1934 by adding Section 14A, which requires companies to conduct a separate shareholder advisory vote to approve the compensation of executives, as disclosed pursuant to Item 402 of Regulation S-K or any successor to Item 402. Section 14A also requires companies to conduct a separate shareholder advisory vote to determine how often an issuer will conduct a shareholder advisory vote on executive compensation. In addition, Section 14A requires companies soliciting votes to approve merger or acquisition transactions to provide disclosure of certain "golden parachute" compensation arrangements and, in certain circumstances, to conduct a separate shareholder advisory vote to approve the golden parachute compensation arrangements. Exec Comp and Golden Parachute Rules.

• Winston Sponsors 2011 UNC School of Law Banking Institute.

Winston & Strawn will sponsor the 2011 UNC School of Law Banking Institute to be held March 31st-April 1st, 2011 in Charlotte. This program will provide continuing education on cutting-edge issues related to banking law. Event.

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