Corporate & Financial Weekly Digest

Corporate & Financial Weekly Digest

ISS Announces Launch of QuickScore 3.0

Posted in SEC/Corporate

On October 29, Institutional Shareholder Services (ISS), a leading proxy advisory firm, announced that on November 24 it will launch the third generation of its QuickScore governance risk rating system, QuickScore 3.0.  

QuickScore 3.0, which updates QuickScore 2.0 (discussed previously in the Corporate & Financial Weekly Digest), will include additional factors upon which a company’s QuickScore is based, including whether: (1) the company discloses a policy requiring annual performance evaluation of the board; (2) the company has a controlling shareholder; (3) the company’s board has recently taken any action that materially reduces shareholder rights; and (4) the company has a sunset provision with regards to the company’s unequal voting rights, if any exist. Additionally, QuickScore 3.0 will enhance ISS’s research reports by including data on a company’s historical QuickScore ratings and changes in data used to determine a company’s QuickScore, as well as icons reflecting trends in a company’s governance practices. Continue Reading

SEC Provides Relief to GSEC From Rule 204 Close-Out Requirements

Posted in Broker-Dealer

On October 27, the Securities and Exchange Commission’s Division of Trading and Markets (Division) issued no-action relief to Goldman Sachs Execution & Clearing (GSEC) relating to the close-out requirements of Rule 204. In general, in order for a broker-dealer to satisfy its close-out requirements under Rule 204, it must purchase or borrow sufficient shares to satisfy its fails to deliver in full and must have a net flat or net long position on its books and records as of the end of the applicable close-out date. This latter requirement was problematic for GSEC because some of its clearing clients typically engaged in so-called “subsequent activity” (e.g., effected transactions away from GSEC at or near the end of the trading day). Continue Reading

CFTC Extends Relief to FCMs from Certain Commingling Requirements

Posted in CFTC

On October 30, the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) extended indefinitely the relief previously granted in CFTC No-Action Letters Nos. 14-02, 14-45 and 14-88, as reported in the June 27 edition of the Corporate Financial Weekly Digest

CFTC Regulations 1.20, 22.2 and 30.7 prohibit the commingling of customer segregated funds, cleared swaps customer collateral and customer secured amount funds. The CFTC had stated that the prohibition on the commingling of customer funds would not prevent a customer from meeting margin calls for multiple customer account origins with a single payment provided that, among other conditions, the futures commission merchant (FCM) initially receives the margin payment into the customer segregated funds account required under Regulation 1.20. Continue Reading

District Court Holds Video Game Company’s Optimistic Statements Are Not Actionable

Posted in Litigation

The US District Court for the Northern District of California recently dismissed a securities fraud class action against Electronic Arts, Inc. (EA) and named officers and directors, holding that optimistic statements about EA’s ability to transition to next-generation gaming consoles were mere puffery. 

In early 2013, EA began development on a sequel to one of its most profitable titles, Battlefield 4, and announced that the new game would be playable on next-generation gaming consoles, Sony PlayStation 4 and Microsoft Xbox One. During the development and release period—between May 2013 and December 2013—EA representatives made positive statements about Battlefield 4, emphasizing EA’s ability to transition with the next-generation consoles, contrary to what plaintiffs describe as EA’s prior history of disastrous game-launch and console-transition failures. After an October 29 launch, the company received complaints from customers and negative reviews from critics regarding the game’s playability. EA’s stock price dropped from a high of $27.99 to $21.01 on December 5, 2013. In late 2013 and early 2014, plaintiffs brought separate actions alleging securities fraud, which were consolidated in February 2014. Continue Reading

Securities Class Action Dismissed Where Information Was Publicly Available

Posted in Litigation

The US District Court for the Western District of Washington recently dismissed a securities fraud class action against Zillow, Inc. and named officers and directors, holding that the material omissions plaintiff alleged were already known to the market. 

Zillow is an online real estate marketing company that derives revenue from online advertisements, including a subscription service for local real estate agents. Subscribers are referred to as Zillow’s Premier Agents. In early 2012, Zillow announced that it would implement a new pricing model for its Premier Agents. Plaintiffs alleged that Zillow withheld material information about difficulties encountered in its new pricing model. Among other claims, plaintiffs alleged that Zillow should have disclosed its Static Average Revenue Per Customer (ARPU), which they claimed would have illustrated whether Zillow was successfully implementing the new pricing plan. According to plaintiffs, when Zillow released its ARPU in early November 2012, it “shocked the market” for Zillow stock. Plaintiffs filed a complaint alleging securities fraud in late November 2012. Continue Reading

OCC Revises Process for Managing Matters Requiring Attention

Posted in Banking

The Office of the Comptroller of the Currency (OCC) on October 30 published revised policy and procedures for how it manages Matters Requiring Attention (MRAs) resulting from its examination of supervised institutions. MRAs communicate specific supervisory concerns identified during examinations in writing to boards and management teams of regulated institutions. MRAs must receive timely and effective corrective action by bank management and follow-up by OCC examiners. The bulletin released yesterday by the OCC highlights changes to policy and procedures regarding MRAs, which have been incorporated into the “Bank Supervision Process,” “Large Bank Supervision,” “Community Bank Supervision,” and “Federal Branches and Agencies Supervision” booklets of the Comptroller’s Handbook and internal guidance. 

The principles contained in the MRA guidance apply to examinations of all national banks, federal savings associations, and federal branches and agencies, regardless of size. 

Agencies Request Comment on Proposed Flood Insurance Rule

Posted in Banking

Five federal regulatory agencies on October 24 announced the approval of a joint notice of proposed rulemaking to amend regulations pertaining to loans secured by property located in special flood hazard areas. The proposed rule would implement provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) relating to escrowing flood insurance payments and the exemption of certain detached structures from the mandatory flood insurance purchase requirement. HFIAA amends the escrow provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (the Biggert-Waters Act). Continue Reading

Six Federal Agencies Jointly Approve Final Risk Retention Rule

Posted in Banking

Six federal agencies approved on October 22 a final rule requiring sponsors of securitization transactions to retain risk in those transactions. The final rule implements the risk retention requirements in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The final rule is being issued jointly by the Board of Governors of the Federal Reserve System, the Department of Housing and Urban Development, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission. As provided under the Dodd-Frank Act, the Secretary of the Treasury, as chairperson of the Financial Stability Oversight Council, played a coordinating role in the joint agency rulemaking. The final rule largely retains the risk retention framework contained in the proposal issued by the agencies in August 2013 and generally requires sponsors of asset-backed securities (ABS) to retain not less than five percent of the credit risk of the assets collateralizing the ABS issuance. The rule also sets forth prohibitions on transferring or hedging the credit risk that the sponsor is required to retain. Continue Reading

UK Regulators Launch Review of Fixed Income, Foreign Exchange and Commodities Markets

Posted in UK Developments

The UK Treasury, the Bank of England and the UK Financial Conduct Authority have jointly launched a Fair and Effective Markets Review (FEMR) of the fixed income, foreign exchange and commodities (FICC) markets in the UK. According to the UK regulators, the FEMR consultation is motivated by a need to ensure that the FICC markets in the UK are “fair and effective” and that confidence is restored in these markets following recent allegations of wrongdoing. The consultation document notes that, although the FICC markets are characterized by sophisticated participants, events in these markets have consequences for the wider economy and therefore whether the markets are “fair and effective” must be assessed in light of these broader economic interests. Continue Reading

Updated EMIR Q&A Published by ESMA

Posted in EU Developments

The European Securities and Markets Authority (ESMA) published the eleventh version of its “Questions and Answers” on EMIR implementation (EMIR Q&A) on October 24. The updated EMIR Q&A responds principally to questions that have been raised in respect of meeting applicable trade repository (TR) reporting requirements. 

Of note, ESMA has now clarified that any third country firm not originally subject to EMIR trade reporting obligations that subsequently becomes a financial counterparty subject to EMIR—for example as a consequence of relocation to the EU or because it is an investment fund managed by an alternative investment fund manager that becomes authorized under the EU Alternative Investment Fund Managers Directive—must comply with the EMIR reporting obligation in respect of all outstanding derivatives contracts. In addition, the updated EMIR Q&A distinguishes between reporting of block trades by investment firms that are subsequently allocated—where the block trade and the subsequent allocations must be reported—and block trades concluded by a fund manager not subject to a reporting obligation. In the latter case, if the block trade is allocated to the manager’s individual funds on the trade date, only the allocations need to be reported, whereas if the block trade is not allocated on the trade date, the block itself must be reported with the fund manager as counterparty. Continue Reading