Uncertainty. It is a word we keep hearing from many of our contacts in the financial services world. There exists uncertainty over the economy, over public debt, over the dollar, over regulations, over taxes, over projects and proposals, and generally over nearly all aspects of the financial services world. Simply put, uncertainty is bad for business. Uncertainty impedes planning and undermines progress. There is no cure for uncertainty but to stay informed, prepare, plan, and have contingency plans. We at Winston & Strawn strive to stay informed on the latest developments, and keep our network of clients and friends informed (as we do with this Financial Services Update), in order that they may be best informed when making plans and contingent plans. Moreover, we love to hear from you, as well, on what your needs are, whether for information or advice. Please do not hesitate to call your contacts at Winston anytime, to share insights and concerns. We value your input.

• Complaint Debate.

On May 13th, Bloomberg reported on the Consumer Financial Protection Bureau's complaint hotline and the debate that its implementation is spawning. The banking industry wants to restrict access to the data while others, including Elizabeth Warren, want a "crowd-sourcing" approach. Complaints.

• Regulators Testify on Capitol Hill.

On May 12th, Bloomberg summarized Federal Reserve Board Chairman Ben Bernanke's testimony before the Senate Banking Committee. Bernanke said that a small bank exemption from debit card swipe fee limits may harm small banks and cause them to fail. Testimony. See also Bernanke Prepared Text. Reuters reported that the Financial Stability Oversight Council will extend the period of time in which comments may be submitted in response to its proposal concerning the designation of financial firms as systemically important. It also noted that Bernanke told Senators that the Federal Reserve Board will soon propose capital, margin and credit requirements for systemically important financial firms. Summary. FDIC Chairman Sheila Bair called for higher short term capital requirements for systemically important firms until they adopt resolution plans. Prepared Text of Bair Testimony.

• Executive Compensation Clawbacks.

On May 12th, CFO.com reported on the Dodd-Frank Act's executive compensation clawback provisions. The SEC will be proposing rules implementing the clawback provision later this year. Clawbacks.

• Measuring Proprietary Trading.

On May 12th, Reuters' Breaking Views discussed the "Sharpe ratio", a metric that may be used to determine whether a bank is engaging in proprietary trading. Sharpe Ratio.

• Regulatory Uncertainty.

On May 12th, the New York Times reported that a growing number of leadership vacancies at the financial regulatory agencies is creating regulatory uncertainty. The vacancies have accumulated in part because Senate Republicans have blocked votes on nominees for a wide range of positions. The White House, in turn, has not rushed to add names to the list. Angst.

• Rajaratnam Convicted on All Counts.

On May 11th, a federal jury convicted Raj Rajaratnam on 14 counts of conspiracy and securities fraud stemming from one of the largest insider trading schemes. See Justice Department Press Release. On May 12th, Bloomberg reported that Rajaratnam will appeal, asserting that the wiretaps submitted into evidence, which played a crucial role in the trial, were improperly procured. At a pretrial hearing U.S. District Court Judge Richard Howell said that prosecutors failed to inform the court approving the wiretaps that the SEC was already investigating Rajaratnam. Judge Howell, however, rejected claims that prosecutors acted intentionally, and allowed the wiretaps to be used at trial. Appeal. Reuters published an analysis of Rajaratnam's defense. Defense. The Wall Street Journal reported that the trial and conviction is causing many hedge funds to rethink their relationships with expert networks. Expert Networks. The Washington Post profiled Preet Bharara, the Manhattan U.S. Attorney whose office prosecuted the case. Wall Street Sheriff.

• Directed Verdict Dismisses Case against Former In-House Lawyer.

On May 10th, Reuters reported that a federal judge has granted defendant's motion for acquittal in the U.S. Attorney's case against Lauren Stevens, a former associate general counsel at GlaxoSmithKline PLC. Prosecutors alleged Stevens had made false statements and obstructed justice during an FDA investigation into Glaxo's marketing practices. Reuters quotes U.S. District Court Judge Roger Titus as saying, "I believe that it would be a miscarriage of justice to permit this case to go to the jury." Directed Verdict.

• The Costs of Internal Investigations.

On May 6th, the New York Times' DealBook discussed the costs companies incur when conducting an internal investigation, using Avon Products' inquiry into alleged violations of the Foreign Corrupt Practices Act as an example. Internal Investigations.

• Collateralized Commercial Paper.

On May 6th, CFO.com reported that a new structured finance product, collateralized commercial paper, is being marketed to money market funds as an alternative to traditional commercial paper or asset-backed commercial paper. Collateralized Commercial Paper.

• FDIC Revised Statement of Policy.

On May 13th, the FDIC published a revised statement on its policy concerning persons convicted of any criminal offense involving dishonesty or breach of trust or money laundering, or who have agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such offense. The revisions restate the FDIC's position in a slightly modified form and address certain other issues that have arisen in the FDIC's interpretation of the policy since its original publication. The FDIC is clarifying what the FDIC views as a complete expungement of a conviction, and the definition of de minimis offenses. The revisions are effective May 13, 2011. 76 FR 28031.

• Federal Reserve Board Proposes New Regulation E Rules Regarding Consumer Remittances.

On May 12th, the Federal Reserve Board requested comment on a proposed rule concerning consumers remittance transfers to recipients located in a foreign country. The proposed rule would require that remittance transfer providers make certain disclosures to senders of remittance transfers, including information about fees and the exchange rate, and the amount of currency to be received by the recipient. In addition, the proposed rule would provide error resolution and cancellation rights for senders of remittance transfers. Comments should be submitted within 60 days after publication in the Federal Register, which is expected during the week of May 16th. Federal Reserve Board Press Release.

• FDIC Proposes Rules for Retail Forex Transactions.

On May 12th, the FDIC announced that its Board of Directors has voted to propose for comment requirements for FDIC-supervised institutions that may engage in certain foreign exchange transactions with retail customers which fall under the provisions of Section 742 of the Dodd-Frank Act. The FDIC's proposed rule closely tracks regulations adopted by the CFTC in September 2010. It also is similar to a proposed rule published by the OCC on April 22, 2011. The proposed rule applies only to transactions with retail customers, and only to futures, options, and similar transactions, such as rolling spot trades. It does not cover forward contracts or spot contracts. Comments should be submitted within 30 days after publication in the Federal Register, which is expected during the week of May 16th. FDIC Press Release.

• OCC Issues Bulletin on Risk Retention Requirement.

On May 11th, the OCC issued a Bulletin on the federal banking regulators' joint notice of proposed rulemaking that would require sponsors of asset-backed securities to retain at least 5 percent of the credit risk of the assets underlying the securities and would not permit sponsors to transfer or hedge that credit risk.

• FDIC Sues Foreclosure Service Providers.

On May 10th, Reuters reported the FDIC has sued two foreclosure service providers alleging that the service providers breached their contracts with Washington Mutual. Suit.

• OCC Schedules Workshops in New York.

The OCC will host workshops for directors of nationally chartered community banks and federal savings associations in New York on June 28-29, 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 June 28th, and compliance risk ("Compliance Risk: What Directors Need to Know") on June 29th. OCC Press Release.

• Chairman Bair's Departure Date is Set.

The FDIC has announced that Chairman Sheila Bair's official departure date from the agency will be July 8, 2011. FDIC Press Release.

• FinCEN Releases Latest SAR Activity Reviews.

On May 11th, the Financial Crimes Enforcement Network released two new reports based on information contained in suspicious activity reports ("SARs"): the 16th edition of the SAR Activity Review: "By the Numbers", and the 19th edition of the SAR Activity Review: "Trends, Tips & Issues." By the Numbers contains extensive data on SARs including 2010 year-end numbers and serves as a companion piece to Trends, Tips & Issues, which provides information about the preparation, use, and utility of SARs. The 19th edition of Trends, Tips & Issues focuses primarily on foreign corruption, including identifying and reporting on suspicious activities involving senior foreign political figures. The Trends & Analysis section contains an overview of corruption-related SAR filings covering 2009 and 2010, followed by articles that take a more focused look at two aspects of these filings. FinCEN Press Release.

• Treasury Department to Created Federal Advisory Committee on Insurance.

On May 9th, the Treasury Department announced its intention to create a Federal Advisory Committee on Insurance. The Committee will provide advice to the Federal Insurance Office ("FIO"), created by the Dodd-Frank Act, and the Treasury Department. Half of the Committee's membership has been reserved for state and tribal insurance regulators. The remaining members of the Committee will represent a diverse range of perspectives from, for example, the property and casualty insurance industry, the life insurance industry, the reinsurance industry, the agent and broker community, public advocates, and academia. A Notice of Establishment of the Federal Advisory Committee on Insurance will be published in the Federal Register. The Notice seeks applications for membership on the Committee. Treasury Department Press Release.

• Treasury Department Announces Availability of Bank Enterprise Award Program.

On May 9th, the Treasury Department announced that applications for the fiscal year 2011 funding round of the Bank Enterprise Award ("BEA") Program must be received by June 23, 2011. The BEA Program encourages Insured Depository Institutions to increase their levels of loans, investments, services, and technical assistance within Distressed Communities. 76 FR 26794.

• Proposed Rule and Notice of Intent to Issue Order Regarding Investment Adviser Performance Fees.

On May 10th, the SEC, in accordance with Section 418 of the Dodd-Frank Act, issued a notice advising of its intention to issue an order revising the dollar amount thresholds that must be met before investment advisers can charge their clients performance fees. The order will raise to $1 million, the amount of assets a client must have under management with the investment adviser, and raise to $2 million, the client's estimated net worth. The SEC is also proposing related amendments to Rule 205-3 under the Investment Advisers Act that would provide the method for calculating future inflation adjustments of the dollar amount thresholds; exclude the value of a person's primary residence from the determination of whether a person meets the net worth standard; and modify the transition provisions of the rule to take into account performance fee arrangements that were permissible at the time the adviser and client entered into their advisory contract. Hearing requests on the SEC's notice for an order should be submitted on or before June 20, 2011, and comments on the proposed rule amendments should be submitted on or before July 11, 2011. SEC Press Release.

• Comments Requested on the Feasibility of Assigned Credit Ratings.

On May 10th, the SEC, in accordance with Title IX of the Dodd-Frank Act, requested comment on the feasibility of establishing a system under which a public or private utility or a self-regulatory organization assigns nationally recognized statistical rating organizations to determine credit ratings for structured finance products. Comments should be submitted within 120 days after publication in the Federal Register, which is expected during the week of May 16th. SEC Press Release.

• Open Meeting.

The SEC will hold an Open Meeting on May 18, 2011 to consider whether to propose new rules and amendments implementing provisions of Subtitle C of Title IX of the Dodd-Frank Act that would apply to credit rating agencies registered with the SEC as nationally recognized statistical rating organizations, providers of third-party due diligence services for asset-backed securities, and issuers and underwriters of asset-backed securities. Meeting Notice.

• The SEC's Revolving Door.

On May 12th, the Washington Post reported that the Project on Government Oversight is releasing a study on the relationship between the SEC and the financial services industry and that relationship's effect on SEC oversight. The agency's quickly-turning-revolving-door has also prompted an examination by the SEC's inspector general and the Government Accountability Office. Revolving Door. See also Reuters.

• SEC's Roundtable on Money Market Funds and Systemic Risk.

On May 10th, MarketWatch summarized the remarks made at the SEC's roundtable on money market funds and systemic risk. Institutional investors said they would no longer invest in money market funds if the funds' net asset value ("NAV") were allowed to float. The FDIC's Chairman, Sheila Bair, commented that the idea of a stable NAV is a "myth." Comments. See also SEC Press Release (roundtable panelists and agenda); Schapiro Remarks.

• SecondMarket Seeks No-Action Position.

On May 9th, the Wall Street Journal reported that SecondMarket Holdings, Inc. is seeking guidance from SEC staff on how the company makes the shares of privately traded companies available. No-Action.

• Proposed Amendment to Trading Pause Pilot.

On May 6th, the SEC provided notice of the exchange's proposals to include additional securities in the Trading Pause Pilot. The proposals would include all NMS stocks within the Pilot and apply a wider Threshold Move percentage to the newly added securities. Comments should be submitted on or before June 2, 2011. See e.g., SEC Release No. 34-64420 (proposal as submitted by the New York Stock Exchange).

• SEC Approves FINRA Customer Order Protection Rules.

On May 12th, the Financial Industry Regulatory Authority announced that the SEC has approved new FINRA Rule 5320 (Prohibition against Trading Ahead of Customer Orders) for the consolidated FINRA rulebook. Rule 5320 consolidates, updates and simplifies NASD IM-2110-2 (Trading Ahead of Customer Limit Order) and NASD Rule 2111 (Trading Ahead of Customer Market Orders). Rule 5320 becomes effective on September 12, 2011. FINRA Regulatory Notice 11-24.

• FINRA Requests that ABS Trades be Reported as Soon as Practicable.

On May 10th, the Financial Industry Regulatory Authority requested that firms report transactions in asset-backed securities as soon as practicable after execution and throughout the trading day even though they have up to two business days to do so under the TRACE transaction reporting rules that become effective on May 16, 2011. FINRA Trade Reporting Notice.

• Exchange Proposes Qualified Contingent Cross.

On May 5th, the SEC provided notice of NASDAQ OMX PHLX's proposal to amend PHLX Rule 1064(e) to establish a Floor Qualified Contingent Cross Order, which is based on the precedent of the International Securities Exchange's QCC order. Comments should be submitted on or before June 2, 2011. SEC Release No. 34-64415.

• SEC Approves Modifications to Rules Relating to Opening and Halt Crosses on the NASDAQ Options Market.

On May 11th, the SEC approved the NASDAQ Stock Market's proposal to modify its NOM Rules governing the opening of trading at the start of the trading day and at the resumption of trading following a trading halt. The changes eliminate one tie-breaker and modify a second tie-breaker used to establish the Current Reference Price and cross price; modify the circumstances whereby the exchange disseminates an indicative indicator of "market"; change the start time for imbalance and indicative data dissemination; clarify when an Order Imbalance Indicator is disseminated; and establish a halt cross. SEC Release No. 34-64463.

• NYSE Regulation Advises on Block-Sized Agency Cross Trades.

On May 10th, NYSE Regulation advised New York Stock Exchange and NYSE Amex floor broker member organizations of recent amendments to Rule 72(d) that modify the manner by which a floor broker may effect a block-sized agency cross on the trading floor. Members and member organizations are reminded that they must update and have in place adequate written compliance and supervisory policies and procedures related to the requirements of Rule 72(d). The amendments are effective on May 19, 2011. NYSE Regulation Information Memo 11-12.

• OCC Proposes to Extend Deadline for Paying Settlement Amounts.

On May 6th, the SEC provided notice of the Options Clearing Corporation's proposed revision to its By-Laws and Rules to provide flexibility to OCC with respect to its obligations to pay settlement amounts to clearing members generally as well as in emergency situations. The proposed rule amendments would change the current daily deadline for OCC to pay settlement amounts to clearing members from 10:00 a.m. to 1:00 p.m. (CT). In addition, in the event that an emergency condition exists, the Board of Directors or an authorized executive officer of OCC would be authorized to extend OCC's obligation to pay settlement amounts to clearing members beyond the 1:00 p.m. deadline. Comments should be submitted on or before June 2, 2011. SEC Release No. 34-64436.

• National Bank Act Preempts State Par Value Check Cashing Statute.

On May 11th, the Eleventh Circuit addressed whether the National Bank Act preempts a state par value check cashing requirement. Plaintiff alleged that defendant violated state law when it charged plaintiff, a non-account holder, a fee for cashing a check written by defendant's account holder. Defendant moved to dismiss asserting that the National Bank Act preempted the state law. After determining that the Dodd-Frank Act required the Court to employ the conflict preemption test, the Eleventh Circuit held that the National Bank Act preempted the state par value act. Baptista v. JPMorgan Chase Bank, N.A.

• Court Holds That Credit Raters Did Not Act as Underwriters.

On May 11th, the Second Circuit held that credit rating agencies are not liable as underwriters or control persons under Sections 11 and 15 of the Securities Act. According to the court, Section 11 does not include as underwriters those who facilitate an offering without participating in distribution-related activities, and structuring or creating securities does not constitute the requisite participation in underwriting. The Section 15 control person liability claim failed because, at most, the allegations suggested that the rating agencies provided advice and strategic direction regarding specific transactions, not the power to direct management and policies. In re Lehman Brothers Mortgage-Backed Securities Litigation.

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