Corporate & Financial Weekly Digest : Corporate Finance Lawyers & Attorneys for Legal Developments in Business & Financial Services

Co-authored by David A. Pentlow, Robert J. Wild and David S. Kravitz.

On July 26, the Securities and Exchange Commission adopted final rules removing credit ratings as one of the several alternative “transaction” eligibility criteria for companies seeking to use short-form registration statements when registering primary offerings of non-convertible securities. The new rules were adopted pursuant to Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which required U.S. Federal agencies to remove references to, or requirement of reliance on, credit ratings from their regulations and replace such ratings with a standard of credit-worthiness that the agency deemed appropriate.

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On July 26, the Securities and Exchange Commission adopted Rule 13h-1 under Section 13(h) of the Securities Exchange Act of 1934. The rule is intended to help the SEC identify market participants engaged in substantial trading, obtain information needed to monitor the impact of those trades, and analyze such market participants’ trading activity.

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The Commodity Futures Trading Commission and Securities and Exchange Commission have published a request for comment in connection with a joint study and report to Congress on international swap and clearinghouse regulation. The study and report, required under section 719(c) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, must identify major swap contracts, dealers, exchanges, clearinghouses and regulators in the United States, Asia and Europe; describe the methods for clearing swaps and systems used for setting margin; and indicate similar areas of regulation for harmonization. Comments must be received within 60 days of the publication of the request for comment in the Federal Register.

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The Commodity Futures Trading Commission’s Technology Advisory Subcommittee on Data Standardization will hold its first public meeting on August 5. The Subcommittee will review public and private solutions for creating well-accepted standards for describing, communicating and storing complex financial products data. Two additional Subcommittee meetings are tentatively scheduled for September 30 and November 4.

Information regarding the meeting can be found here and the agenda is available here.
 

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The U.S. Court of Appeals for the District of Columbia Circuit sharply criticized the Securities and Exchange Commission and vacated Exchange Act Rule 14a-11, which permitted certain shareholders of public companies to nominate candidates for the board of directors outside a company's normal nomination process. As noted in last week's edition of the Corporate and Financial Weekly Digest, the court held that the SEC was "arbitrary and capricious" in promulgating Rule 14a-11 and thus violated the Administrative Procedure Act in failing to adequately consider the Rule's effect upon efficiency, competition and capital formation.

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The Federal Financial Institutions Examination Council recently issued a supplement to the Authentication in an Internet Banking Environment guidance, which was first issued in October 2005. The purpose of the supplement is to reinforce the risk-management framework described in the original guidance and update the FFIEC member agencies' supervisory expectations regarding customer authentication, layered security, and other controls in the increasingly hostile online environment.

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The Federal Reserve Board on July 28 issued a proposed rule that sets standards for banking organizations regulated by the Federal Reserve that engage in certain types of foreign exchange transactions with retail customers. The proposal, issued pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, outlines requirements for disclosure, recordkeeping, business conduct, and documentation for retail foreign exchange transactions. Institutions engaging in such transactions will be required to identify themselves to their regulator and to be well capitalized. They will also be required to collect margin for retail foreign exchange transactions

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On July 27, the Financial Services Authority produced its latest biannual report Assessing Possible Sources of Systemic Risk from Hedge Funds. This report sets out the results of the FSA’s two regular hedge fund surveys – the Hedge Funds As Counterparties Survey (HFACS) and the Hedge Funds Survey (HFS). These were conducted in March and April 2011. The FSA conducts these surveys every six months to assist it in understanding potential sources of systemic risk in the hedge fund sector. (See Corporate and Financial Weekly Digests of March 4, 2011, and August 13, 2010, for articles on previous HFS and HFACS.)

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On July 22, the European Securities and Markets Authority published a discussion paper Policy Orientations on Guidelines for UCITS Exchange-Traded Funds and Structured UCITS on aspects of the regulatory regime governing Undertakings for Investments in Transferable Securities (UCITS).On July 22, the European Securities and Markets Authority published a discussion paper Policy Orientations on Guidelines for UCITS Exchange-Traded Funds and Structured UCITS on aspects of the regulatory regime governing Undertakings for Investments in Transferable Securities (UCITS). 

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On July 22, the United States Court of Appeals for the District of Columbia Circuit vacated Rule 14a-11 promulgated by the Securities and Exchange Commission. Rule 14a-11 permitted certain shareholders of public companies to nominate candidates for the board of directors outside a company's normal nomination process. The court held that the SEC was "arbitrary and capricious in promulgating Rule 14a-11" and thus violated the Administrative Procedure Act, and failed to adequately consider the rule's effect upon efficiency, competition and capital formation as required by Section 3(f) of the Securities Exchange Act of 1934 and Section 2(c) of the Investment Company Act of 1940.

Business Roundtable and Chamber of Commerce of the United States of America v. Securities and Exchange Commission, No. 10-1305 (D.C. Cir.)
 

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On July 11, President Barack Obama signed an Executive Order directing “independent regulatory agencies”, including the Securities and Exchange Commission, Commodities Futures Trading Commission, Board of Governors of the Federal Reserve System, and several other federal agencies, to comply, to the extent permitted by law, with Executive Order 13563. Executive Order 13563, which the President signed on January 18, directed federal agencies, other than independent regulatory agencies, to engage in a cost-benefit analysis, with the participation of the public, of proposed and existing regulation and to develop means to better coordinate regulation across multiple agencies.

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The Financial Industry Regulatory Authority has proposed, among other things, new Rules 2210 and 2212 through 2216 to replace NASD Rules 2210 and 2211 and NASD Interpretative Materials 2210-1 and 2210-3 through 2210-8. NASD Rules 2210 and 2211, and the related NASD Interpretative Materials, generally govern all member firms’ communications with the public. New Rule 2210 would incorporate, subject to certain changes, the provisions of current NASD Rules 2210 and 2211, as well as NASD Interpretive Materials 2210-1 and 2210-4, and the provisions of Incorporated New York Stock Exchange Rule 472 that do not pertain to research analysts and research reports. In addition, for example, the proposed rule change would reduce the number of current communication categories from six to three: (1) institutional communication would include communications falling within the current definition of “institutional sales material” under NASD Rule 2211(a)(2); (2) retail communication would include any written (including electronic) communication distributed or made available to more than 25 retail investors within any 30 calendar-day period; and (3) correspondence would include any written (including electronic) communication distributed or made available to 25 or fewer retail investors within any 30 calendar-day period. Comments on FINRA’s proposal are due on or before 21 days after publication in the Federal Register.

Click here to read Rule Filing SR-FINRA-2011-035.
 

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The Financial Industry Regulatory Authority has issued additional guidance regarding Rule 4530 reporting requirements in Regulatory Notice 11-32 (Notice) to assist member firms in their implementation of the Rule. Rule 4530 requires member firms to: (1) report to FINRA certain specified events and quarterly statistical and summary information regarding written customer complaints; and (2) file with FINRA copies of certain criminal actions, civil complaints and arbitration claims. For example, Rule 4530.01 requires a member firm to report, among other things, violations that have widespread or potential widespread impact to the “markets,” which refers to any organized market relating to any securities, insurance, commodities, financial or investment product. In addition, under Rule 4530.07, where a member firm receives or becomes aware of a customer complaint under Rules 4530(a)(1)(B) or 4530(d) involving a former associated person and the underlying conduct occurred while the individual was with the firm, the firm is expected to report the customer complaint.

Click here to read Regulatory Notice 11-32.
 

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At a July 19 meeting, the Commodity Futures Trading Commission approved three final rulemakings and two rule proposals under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), as described below.

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The staffs of the Commodity Futures Trading Commission and the Securities and Exchange Commission will jointly conduct a public roundtable discussion to address international issues in connection with the implementation of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The roundtable will take place on August 1 at the CFTC Headquarters in Washington, D.C.

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Plaintiffs brought claim in New York federal court for common law fraud, negligent misrepresentation, and breach of fiduciary duty against Defendant ThinkStrategy Capital Management, LLC (“ThinkStrategy”), a “fund of funds” in which plaintiffs invested. Plaintiffs alleged that ThinkStrategy had represented that it would conduct adequate due diligence on its managers, but failed to do so when it placed assets with a manager that was later found to be engaged in fraud. ThinkStrategy moved for summary judgment on all of Schwarz’s claims.

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Medical Mutual of Ohio, Inc. (“MMOH”), a medical insurer, brought an antitrust class action on behalf of similarly situated indirect purchasers of a constipation drug produced by Braintree Laboratories (“Braintree”) in Delaware federal court. The class action claim arose from a patent infringement case filed by Braintree against a generic drug maker, Schwartz Pharma, Inc. (“Schwartz”), in 2003. The patent case was dismissed and Schwartz’s generic drug was approved soon after the dismissal. MMOH later asserted that Braintree’s suit against Schwartz was a “sham litigation” designed to extend Braintree’s monopoly over the constipation drug market. Braintree moved to dismiss, arguing that MMOH’s claim was time-barred.

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The Office of the Comptroller of the Currency (OCC) on July 20 issued a final rule implementing several provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, including changes to facilitate the transfer of functions from the Office of Thrift Supervision (OTS) and revisions to the OCC’s rules on preemption and visitorial powers. The OCC issued a notice of proposed rulemaking for this final rule on May 26. Under the Dodd-Frank Act, the OCC assumed responsibility for the ongoing examination, supervision, and regulation of federal savings associations on July 21.

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The Federal Reserve Board is seeking comment on a notice that outlines the regulations previously issued by the Office of Thrift Supervision (OTS) that the Federal Reserve will continue to enforce after assuming supervisory responsibility for savings and loan holding companies (SLHCs).

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Co-authored by Greg Brown and Ann Kim.

On July 19, the Employee Benefits Security Administration of the U.S. Department of Labor issued a final rule (the Final Rule) on the applicability dates of two related disclosure requirements under Employee Retirement Income Security Act:

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The UK Financial Services Authority announced on July 21 that it had fined Willis Limited £6.895 million (approximately $11.2 million) for failings in its anti-bribery and corruption systems and controls. This is the biggest fine imposed by the FSA in relation to financial crime systems and controls to date. The FSA said that these failings created an unacceptable risk that payments made by Willis to overseas third parties could be used for corrupt purposes.

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On July 20, the European Securities and Markets Authority (ESMA) issued a consultation paper on systems and controls relating to high frequency trading (HFT) and other forms of automated trading.

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On July 20, the European Commission published its proposals for a regulation and a directive which will implement the Basel III capital reforms and replace the existing Capital Requirements Directive (2006/48/EC and 2006/49/EC). This proposal is known as CRD IV or CRD 4.

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Co-authored by Jonathan D. Weiner

On July 8, the Securities and Exchange Commission's Division of Corporation Finance issued new Compliance and Disclosure Interpretations (C&DIs) on executive compensation disclosure and reporting with respect to the frequency of shareholder advisory votes on executive compensation (i.e., "say on pay").

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Co-authored by Christopher T. Shannon

On July 13, the Securities and Exchange Commission adopted interim final temporary Rule 15b12-1T to allow a registered broker-dealer to engage in a retail forex business until July 16, 2012, provided that the broker-dealer complies with the Securities Exchange Act of 1934, the rules and regulations thereunder, and the rules of the self-regulatory organization(s) of which the broker-dealer is a member, insofar as they are applicable to retail forex transactions.

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Co-authored by Christopher T. Shannon

On July 8, the Chicago Board Options Exchange (CBOE) announced a new registration deadline of September 19 for individuals seeking to register for new WebCRD categories. Effective June 20, three new registration categories, including (1) Proprietary Trader – PT, (2) Proprietary Trader Compliance Officer – CT, and (3) Proprietary Trader Principal – TP, became available to CBOE and CBOE Stock Exchange Trading Permit Holders on WebCRD. All of the new registration categories are subject to certain qualification and examination requirements. The original deadline for completion of such qualification and examination requirements was August 12.

Click here to read Regulatory Circular RG11-088.
Click here to read a summary of the new WebCRD categories as reported in the July 8 edition of Corporate and Financial Weekly Digest.
 

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Co-authored by Sarah E. Connolly

On July 12, the Securities and Exchange Commission issued an order raising the thresholds for determining who is a "qualified client" for purposes of Rule 205-3 under the Investment Advisers Act of 1940. Rule 205-3 exempts an investment adviser from the prohibition against charging a client performance fees in certain circumstances, including when the client is a qualified client. Under the order, a qualified client is one who: (1) has at least $1 million under the management of the adviser immediately after entering into the advisory contract, or (2) the adviser reasonably believes has a net worth of more than $2 million at the time the contract is entered into. These thresholds were raised from $750,000 and $1,500,000, respectively, to adjust for inflation, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The SEC's order becomes effective on September 19.

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Co-authored by Maxwell Li

On July 11, the U.S. Government Accountability Office (GAO) released a report on the feasibility of forming a self-regulatory organization (SRO) to provide primary oversight of private fund advisers. The report was part of a mandate by the Dodd-Frank Wall Street Reform and Consumer Protection Act to address the potential gap in the regulation of private fund advisers. In preparing the report, GAO reviewed federal securities laws, the recently completed Securities and Exchange Commission study on the investment adviser examination program, past regulatory and legislative proposals to create an SRO for investment advisers, and associated comment letters. GAO believes that the formation of a private fund adviser SRO is feasible but includes challenges such as the passage of new legislation, raising sufficient start-up capital and reaching agreements on fee and governance structures. The report also notes that while a private fund adviser SRO could supplement and help the SEC's oversight of investment advisers, the fragmentation between regulation of private fund advisers and non-private fund advisers could lead to regulatory gaps, duplication and inconsistencies.

Click here to read the GAO report.
Click here to read a summary of the SEC's study on the investment adviser examination program in the January 21 edition of Corporate and Financial Weekly Digest.
Click here to read a summary of industry comments on the desirability of a private fund adviser SRO in the November 12, 2010, edition of Corporate and Financial Weekly Digest.

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On July 8, the International Swaps and Derivatives Association (ISDA) published its 2011 Equity Derivatives Definitions. The 2011 Definitions were developed with significant non-dealer participation, and they allow for a great deal of flexibility in the way parties allocate risks and burdens in their over-the-counter equity derivative transactions. The 2011 Definitions consist of a main book of definitions that revises and expands the 2002 Equity Derivatives Definitions and an appendix that contains tables setting out possible elections, consequences and fallbacks for different types of trades. Although parties are now free to incorporate the 2011 Definitions into their trades, it is expected that the 2011 Definitions will be introduced incrementally via the adoption by ISDA of standard matrices of terms from the definitions for different types of transactions; the ISDA working group is expected to introduce by August 31 transaction matrices for U.S. and EU Index Variance Swaps. The publication of the 2011 Definitions will not, without further action by the parties, affect existing confirmations and other documents that incorporate either the 1996 or the 2002 versions of the ISDA Equity Derivatives Definitions.

Further information, and copies of the 2011 Definitions, are available on the ISDA website here.

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Co-authored by Christopher H. Mendoza

The CME Group has announced amendments to CME, CBOT and NYMEX Rule 957, which specifies the information that must be included in a clearing member's confirmations to its customers, to require that confirmation statements "show facts relevant to the economic terms of the transaction." The changes to Rule 957 are effective immediately, and are intended to broaden the scope of the rule to include types of information that may be necessary to confirm over-the-counter swaps transactions.

The CME Group advisory notice announcing the rule change may be found here.

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Co-authored by Christian B. Hennion

The Commodity Futures Trading Commission has issued an Order, essentially in the form proposed, providing temporary relief from certain swap-related provisions of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act that would otherwise take effect on July 16. The Federal Register release accompanying the Order groups the provisions of Title VII as to which the CFTC has regulatory responsibility into four broad categories:

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Co-authored by Dean N. Razavi

The U.S. Court of Appeals for the Eleventh Circuit recently vacated a district court's dismissal of a complaint for lack of subject matter jurisdiction, finding that the district court erred in holding that Section 10(b) and Rule 10b-5 did not apply to a sale of shares in a foreign corporation that closed in the United States.

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Co-authored by Dean N. Razavi

The Delaware Court of Chancery denied a request for a preliminary injunction, finding that allegations of "financial distress" failed to demonstrate the imminent, irreparable harm required to obtain immediate injunctive relief.

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The Federal Reserve on July 12 published lists of banks that it believes are subject to—and are not subject to— the debit card interchange rule's small bank exemption for issuers with under $10 billion in assets. The lists, which are intended to help payment card networks determine which issuers must adhere to the rule's price caps, are part of the Federal Reserve's attempt "to reinforce the exemption and monitor its effectiveness." The statute exempts any debit card issuer that, together with its affiliates, has assets of less than $10 billion. The Federal Reserve plans to update the lists annually. The interchange rule becomes effective October 1.

Read more.

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The Consumer Financial Protection Bureau (CFPB) on July 12 outlined its approach to supervising the 111 large banks with more than $10 billion in assets that it will oversee beginning July 21. "Starting on July 21, we will be a cop on the beat—examining banks and protecting consumers," said Treasury Department special adviser Elizabeth Warren, who is overseeing the establishment of the CFPB.

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On July 13, the European Securities and Markets Authority (ESMA) published a consultation paper on possible Level 2 implementing measures for the Alternative Investment Fund Managers Directive (AIFMD). The paper is entitled ESMA's draft technical advice to the European Commission on possible implementing measures of the Alternative Investment Fund Managers Directive.

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Co-authored by Jonathan D. Weiner

On June 21, the Public Company Accounting Oversight Board (PCAOB) issued a Concept Release in which it proposed potential alternatives for changing the content of audit reports in order to "provide investors with more transparency into the audit process and more insight into the company's financial statements or other information outside the financial statements." The proposed alternatives (which are not mutually exclusive) include:

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Co-authored by Natalya S. Zelensky

Effective June 20, three new registration categories, including (1) Proprietary Trader – PT, (2) Proprietary Trader Compliance Officer – CT, and (3) Proprietary Trader Principal – TP, became available to Chicago Board Options Exchange (CBOE) and CBOE Stock Exchange (CBSX) Trading Permit Holders (TPH) on WebCRD (CRD). All of the new registration categories are subject to certain qualification and examination requirements. Individuals may request a waiver from a qualification examination, which will be reviewed on an individual basis. Due to rule changes passed in November 2010, all individual TPHs and individual associated persons who did not actively maintain a registration in CRD and engaged in the securities business of a CBOE or CBSX TPH or TPH organization were required to register in CRD in the Approved Person (AP) category. Now, individual TPHs and/or individual associated persons engaged in a TPH's securities business that do not conduct a public customer business on behalf of the TPH must register and qualify in the new applicable registration categories. Individual TPHs and individual permit holders that register in one or more of the new registration categories will no longer have to maintain registration as an AP. Individuals must register and pass any appropriate qualification examination(s) for their appropriate registration category by August 12. CBOE is continuing to work with the staff from the Division of Trading and Markets at the Securities and Exchange Commission and will announce any changes to the deadline via a Regulatory Circular.

Click here to read Regulatory Circular RG11-077.

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Co-authored by Natalya S. Zelensky

The Financial Industry Regulatory Authority announced in Regulatory Notice 11-30 that it is deferring the effective date for treatment of non-margin eligible equity securities to October 3. In April, FINRA issued Regulatory Notice 11-16, which clarified margin requirements for both long and short non-margin eligible equity securities in Regulation T and portfolio margin accounts. In addition, the Notice provided that a member firm must issue a day-trade call if a customer day traded a non-margin eligible equity security whose special maintenance margin requirement of 100% exceeded one times the regulatory maintenance excess. If the resulting day-trade call was not satisfied within five business days, a member firm would be required to cancel any day-trade transaction of such securities. FINRA has stated that it understands that the requirement to cancel day-trade transactions may cause operational issues and therefore is revising the cancellation requirement to require that for customers who fail to meet a day-trade call issued as a result of day-trading of a non-margin eligible equity security, member firms will be required to restrict all day-trading activity for such customers to one times the regulatory maintenance excess for a period of 90 calendar days.

Click here to read Regulatory Notice 11-30.

Click here to read a summary of FINRA's treatment of non-margin eligible equity securities in Regulatory Notice 11-16.

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Co-authored by Natalya S. Zelensky

The Financial Industry Regulatory Authority received several interpretive questions about the market orders provision of Rule 5131 and has issued interpretive guidance in Regulatory Notice 11-29 (Notice) to facilitate member firm compliance with the Rule. For example, FINRA provides that the market orders provision of Rule 5131 applies to both over-the-counter (OTC) equity securities and National Market System (NMS) stocks. In addition, for the purposes of the market orders provision, the "commencement of trading" in the secondary market of shares of a new issue (1) that is an NMS stock would be evidenced by the first trade on the national securities exchange listing the security (as indicated by the dissemination of an opening transaction in the security by that exchange), and (2) that is an OTC equity security would be evidenced by the first regular way, disseminated trade reported to the OTC Reporting Facility during normal market hours. The Notice also reconfirmed September 26 as the new implementation date for paragraphs (b) and (d)(4) of FINRA Rule 5131.

Click here to read Regulatory Notice 11-29.

Click here to read a summary of the SEC's approved rule changes to FINRA Rule 5131 as reported in the May 20 edition of Corporate and Financial Weekly Digest.

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Co-authored by Kevin M. Foley and Vanessa L. Colman

At a July 7 meeting, the Commodity Futures Trading Commission approved five final rulemakings under the Dodd-Frank Wall Street Reform and Consumer Protection Act: (1) large trader reporting for physical commodity swaps; (2) anti-manipulation and anti-fraud requirements; (3) the definition of an "agricultural commodity;" (4) protection of consumer information under the Fair Credit Reporting Act; and (5) the scope of consumer privacy protections under the Gramm-Leach-Bliley Act.

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Co-authored by Kevin M. Foley and Vanessa L. Colman

In compliance with Executive Order 13563, "Improving Regulation and Regulatory Review,'' the Commodity Futures Trading Commission has developed a Plan to review its existing regulations to evaluate their continued effectiveness in achieving the objectives for which they were adopted. Under the Plan, after the CFTC has substantially finished promulgating rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFTC intends to conduct reviews of those regulations not examined in connection with the Dodd-Frank Act, to determine whether any such regulations should be modified or repealed in order to make the CFTC's regulatory program more effective and less burdensome. The CFTC has requested comments on the Plan by interested parties. Comments must be received by August 29.

The Federal Register release of the CFTC's request for information regarding the Plan can be found here.

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Co-authored by Jessica M. Garrett

The New York Court of Appeals held that, under the terms of bond documents requiring biannual interest payments "until the principal…is paid," Argentina was contractually obligated to make biannual interest payments to bondholders even after the bonds' scheduled maturity date in 2005 and after certain bondholders accelerated the maturity date following Argentina's default in 2001. Because the bond documents required interest payments "until the principal…is paid," Argentina's obligation continued until it repaid the principal in full or until its obligation was "merged" into a final judgment.

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Co-authored by Jessica M. Garrett

The U.S. District Court for the Middle District of Pennsylvania recently considered whether information contained within a party's Facebook account is properly subject to discovery.

The case arose from a November 2008 car accident that, according to the plaintiff, caused severe injuries limiting his ability to sit, walk, stand, bend, stoop, push, pull and lift. Plaintiff specifically claimed that he could not drive for any period of time and was physically limited with regard to riding his bicycle or motorcycle. In addition, Plaintiff alleged that the accident caused decreased sociability and lack of intimacy.

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In a long awaited action, the Federal Deposit Insurance Corporation (FDIC) issued a final rule on July 6 which addresses the FDIC's rights and powers as receiver of a nonviable systemic financial company under the orderly liquidation authority provisions of Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Chairman Sheila Bair, conducting her last meeting before leaving the agency, stated that, "A fair amount of the goal of the orderly liquidation authority is to convince investors in large financial institutions that their money is at risk if the institution fails." The final rule will adopt with certain changes the proposed rule set forth in the Notice of Proposed Rulemaking (NPR) approved by the FDIC's Board on March 15 and also will incorporate, with certain changes, the Interim Final Rule (IFR) issued by the Board on January 18. Of particular interest is the so-called "claw-back" rule, which will allow the FDIC to recoup certain earnings of senior executives for mere negligence, as opposed to a higher standard of gross negligence. The final rule did not finalize the criteria for determining whether a company is predominantly engaged in activities that are financial in nature or incidental thereto, which will determine in part whether a company needs to write and submit for approval a "living will."

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On July 5, the federal banking agencies jointly issued guidance on the effective management of counterparty credit risk (CCR). CCR is the risk that the counterparty to a transaction defaults or deteriorates in creditworthiness before the final settlement of the transaction. The guidance, issued by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision, builds on existing supervisory guidance and outlines effective industry practices for CCR management. CCR management guidelines and supervisory expectations are delineated in various individual and interagency policy statements and guidance, which remain relevant and applicable. This guidance offers further explanation and clarification, particularly in light of developments in CCR management. However, this guidance is not all-inclusive, and banking organizations should reference sound practices for CCR management, such as those advanced by industry, policymaking and supervisory forums.

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Co-authored by Christina Grigorian

On June 29, the Board of Governors of the Federal Reserve System (Federal Reserve) issued its long-awaited rule establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and routing restrictions (Debit Card Rule). The issuance of the Debit Card Rule was required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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On July 7, the Federal Trade Commission (FTC), with the concurrence of the U.S. Department of Justice, announced significant amendments to the Hart-Scott-Rodino (HSR) Premerger Notification Program. A special Katten Client Advisory will be distributed in the next several days describing the changes in detail. The changes will significantly affect private equity funds, hedge funds and other investors who use multiple investment funds as acquisition vehicles and employ common managers for those funds. The amendments will go into effect 30 days after their publication in the Federal Register. The key changes are summarized below.

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Co-authored by Michael R. Durnwald

The Internal Revenue Service recently issued proposed changes to the compensation deduction rules under Section 162(m) of the federal tax code. Section 162(m) generally limits a public company's compensation deduction with respect to its top executives to $1 million per executive per tax year. If adopted, the proposed changes would clarify two details related to certain exceptions to the Section 162(m) deduction limit discussed below.

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On June 27, the UK Financial Services Authority (FSA) published a paper on the regulatory approach of the new Financial Conduct Authority (FCA), which will be one of two regulatory agencies scheduled to replace the FSA in 2013, the other being the Prudential Regulation Authority (PRA).

The paper sets out the FSA's initial thinking on how the FCA will approach the delivery of its statutory objectives. It covers the FCA's:

• scope, and the number of firms it is expected to regulate, either solely or jointly with the PRA;
• objectives and powers, including its approach to its new competition role and how it will coordinate with the PRA and other regulators; 
• regulatory approach, including details of its attitude to proactive intervention and how it will follow up existing FSA regulatory initiatives; and
• regulatory activities, and its risk framework and supervisory framework.

It also considers how the FCA will supervise markets, and its approach to wholesale business.

Read more.

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On July 1, the final text of the EU Alternative Investment Fund Managers Directive (AIFMD), passed by the European Parliament in November 2010 and formally adopted by the EU Council in May, was finally published in the EU Official Journal. The AIFMD comes "into force" on July 21, 20 days after publication. The deadline for EU Member States to implement AIFMD into national law is two years after that date, July 22, 2013. Firms requiring authorization as alternative investment fund managers will have until July 22, 2014, to obtain such authorization.

Level 2 regulations dealing with matters of detail under the AIFMD will be adopted by the European Commission, assisted by the European Securities and Markets Authority (ESMA). ESMA's draft level 2 advice to the European Commission is expected to be published before the end of November.

Read more.

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On July 5, the European Parliament (EP), in plenary session, voted on and approved a text of the European Market Infrastructure Regulation (EMIR) based on the text passed by the Parliament's ECON committee in May (see the May 27 edition of Corporate and Financial Weekly Digest). This version will now represent the EP's position when it enters into trilogue negotiations with the European Council and the European Commission to reach an agreed EMIR text.

Trilogue negotiations will not start until the European Council reaches an agreement on its EMIR text. This is expected by October. There is therefore a strong probability that final agreement on the text of EMIR will be reached before the end of 2011.

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