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Indicates a new item. Items that are solely informational are generally removed after two weeks. New items normally will be posted to the website weekly. |
| CROSS MARKET ISSUES |
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NASD Requests Comment on Proposed Amendments to Rule 3010(g) and 2711 in connection with the Rule Harmonization Project with the NYSE:
The NASD has issued Notice to Members 07-12 to solicit comments regarding a proposal to amend Rule 3010(g) (Supervision - Definition of "Office of Supervisory Jurisdiction") and Rule 2711 (Research Analysts and Research Reports - Definition of "Initial Public Offering"). Early last year, the NYSE and the NASD decided to consolidate their regulatory responsibilities into a single SRO governing all securities firms doing business with the public in the U.S. The rule harmonization mentioned in this NTM is a separate endeavor from the rulebook consolidation in this plan, however it is aimed at achieving the same goal. Specifically in this NTM, NASD is proposing to eliminate the definition of "Office of Supervisory Jurisdiction" from their rulebook and replace it instead with four classifications for member offices and the supervisory and inspection obligations that attach to each. This will be more in line with the NYSE's classification of a location where final approval by a principal of research reports occurs as a "non-sale location." Additionally, NASD is proposing under Rule 2711 to make their definition of "Initial Public Offering" in line with the NYSE research analyst rules. The completely NTM can be found here. Comments are due by March 26, 2007. |
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President's Working Group Releases Agreement Detailing Common Approach to Private Pools of Capital:
On February 22, the President's Working Group on Financial Markets (PWG) released a set of principles and guidelines that will guide U.S. regulators as they address public policy issues associated with the rapid growth of private pools of capital, including hedge funds. The press release states that the PWG believes public policy toward private pools of capital should be governed by consistent principles that set out a uniform approach to specific policy objectives. The guidelines are designed with a flexible principles-based approach to address the issues presented by these investment vehicles and the responsibilities of all parties involved. The press release and agreement are available here. |
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Agencies Seek Public Comment on Proposed Supervisory Guidance for Basel II:
The federal bank and thrift regulatory agencies announced on Thursday, February 15 that they will seek public comment on three proposed supervisory guidance documents related to the September 2006 notice of proposed rulemaking on new risk-based capital requirements in the United States for large, internationally active banking organizations. Two of the proposed documents relate to the Basel II advanced approaches for calculating risk-based capital requirements: the advanced internal ratings-based (IRB) approach for credit risk and the advanced measurement approaches (AMA) for operational risk. The third document proposed guidance on the Basel II supervisory review process for assessing capital adequacy. The press release is available here. The documents will be published shortly in the Federal Register. |
| CORPORATE CREDIT MARKETS |
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Register Today for the 2007 Insurance- and Risk-Linked Conference:
The Association will host its insurance and risk-linked conference, the only conference developed exclusively by industry professionals, for industry professionals on April 23-24 at the Marriott Marquis in New York City. To register, please visit our website. For further information, please contact Mary Kuan at 646.637.9220. For sponsorship opportunities, please contact Jenifer Walter at 646.637.9290. |
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SEC Proposes Rules Implementing Provisions of the Credit Rating Agency Reform Act:
The SEC has recently proposed rules implementing certain provisions of the Credit Rating Agency Reform Act that was enacted on September 29, 2006. Among other things, the SEC is seeking comment on whether performance measurement statistics should have standardized inputs, time horizons and metrics to allow for greater comparability, and whether performance measurement statistics in addition to historical default and downgrade rates are appropriate. Comments on the proposal are due March 12. For further information, please contact Mary Kuan at 646.637.9220. |
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SVO Publishes Its Quarterly Report Hybrid Securities Data:
The SVO recently published its quarterly report which discusses among other things hybrid securities. There is a call on Wednesday, February 28, to discuss statements made regarding hybrids in the SVO Research Quarterly. For further information, please contact Mary Kuan at 646.637.9220. |
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FUNDING |
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Comments on Treasury Market Best Practices Draft:
The deadline for feedback on the draft Treasury Market Best Practices ("Best Practices") has been extended to March 14. The Best Practices may be accessed here. Comments on the Best Practices may be forwarded to tmpg@ny.frb.org. Please contact Robert Toomey at 646.637.9224 with any questions. |
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MBS AND SECURITIZED PRODUCTS |
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Freddie Mac Announces Tougher Subprime Lending Standards:
On February 27, 2007 Freddie Mac announced that it will cease buying subprime mortgages that have a high likelihood of excessive payment shock and possible foreclosure. First, Freddie Mac will only buy subprime adjustable-rate mortgages (ARMs) - and mortgage-related securities backed by these subprime loans - that qualify borrowers at the fully-indexed and fully-amortizing rate. The goal is to protect future borrowers from the payment shock that could occur when their adjustable rate mortgages increase. Second, Freddie Mac will limit the use of low-documentation underwriting for these types of mortgages. Freddie Mac will also strongly recommend that mortgage lenders collect escrow accounts for borrowers' taxes and insurance payments. Freddie Mac will implement the new investment requirements for mortgages originated on or after September 1, 2007, to avoid market disruptions. Freddie Mac's new requirements cover what are commonly referred to as 2/28 and 3/27 hybrid ARMs, which currently comprise roughly three-quarters of the subprime market. Specifically, the company is requiring that borrowers applying for these products be underwritten at the fully- indexed and amortizing rate, as opposed to the initial "teaser" rate. The company also will limit the use of low-documentation products in combination with these loans. For example, the company will no longer purchase "No Income, No Asset" documentation loans and will limit "Stated Income, Stated Assets" products to borrowers whose incomes derive from hard-to-verify sources, such as the self-employed and those in the "cash economy." There will be a reasonableness standard for stated incomes. In addition, Freddie Mac will require that loans be underwritten to include taxes and insurance and will strongly recommend that the subprime industry collect escrows for taxes and insurance, as is the norm in the prime sector. Because the maintenance of escrow accounts requires significant infrastructure and is not widely used in the subprime sector, Freddie Mac does not believe it is practical to unilaterally mandate it as a purchase requirement at this time. |
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Bernanke Discusses Subprime Lending:
On February 14th, Chairman of the Federal Reserve Ben Bernanke gave his annual monetary policy report to the Senate Banking Committee. While this discussion and the following question-and-answer session touched on many issues, of particular interest to this group may be their discussion of recent issues in the subprime market and predatory lending. In his opening statement, Senator Dodd noted that he is a "strong supporter of subprime lending", acknowledging the role this market has played in encouraging homeownership. In response to a question from Senator Martinez, who noted his "great concern" regarding predatory lending, Bernanke stated that the troubles in the secondary market, while not expected to have any macro-level impacts on the American economy, were of "great concern" to the Fed, and that the Fed was "following closely" developments in subprime lending. Importantly, the Chairman drew a distinction between subprime lending and predatory lending, stating that the subprime market was a legitimate market. Senator Martinez agreed that this was an important distinction to draw. Dodd and other committee members sent a letter to the federal banking regulators in December 2006 requesting that the nontraditional mortgage guidance be applied to 2/28 subprime ARMs. The regulators have responded to the Senate Banking Committee letter with a letter stating that the federal regulators were still thinking about how their subprime guidance should be written. At this hearing Dodd noted that he was disappointed by this response from the regulators; afterwards he told reporters " I'm not as enthusiastic about legislating in this area as I am the regulators doing the job". (As an aside, Kathryn Dick of the OCC stated during an ASF 2007 panel that she felt the forthcoming subprime guidance would be less prescriptive than the nontraditional mortgage guidance, but did not divulge any other details). GSE reform was also discussed in the context of predatory lending. Dodd noted his concern with GSE purchases of subprime loans which may be predatory loans. He mentioned that one way to eliminate GSE purchases of such loans would be to enact "different requirements for securitization of these products". Bernanke responded that he did not know of a way to distinguish between predatory and non-predatory loans (which may be commingled in a subprime pool), but agreed that the GSE should not be purchasing predatory loans. The Fed's monetary policy report and a webcast of the proceedings are available here. For more information please contact Robbin Conner at 646.637.9228 or Chris Killian at 646.637.9226. |
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FICC Opens Testing for Specified Pool Trades:
In an Important Announcement posted on their website, the FICC has indicated that a testing environment is now available for the specified MBS pool trade matching functionality in RTTM, which is part one of the three part central counterparty project. The FICC indicates that they would like to go live with specified pool trading and matching services in May of this year, but notes that implementation of this service is contingent on the completion of participant testing. The FICC is requesting that participants complete their testing by April 30. The specified pool trade matching new service bulletin is available here. A paper regarding the central counterparty project is available here. Please contact Chris Killian at 646.637.9226 with any questions or concerns. |
| MUNICIPAL MARKETS |
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CUSIP-Other Tax Exempt Classification Implementation Delay:
A notice was sent out informing members that the CUSIP Service Bureau is delaying release of the file of CUSIP numbers to be reclassified as Other Tax-Exempt until further notice. CUSIP will notify customers after further direction from SIFMA and the SEC. For more information, please contact Leslie Norwood at 646.637.9230. |
| EUROPEAN MARKETS |
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IOSCO Report on Implementation of Code of Conduct Fundamentals by Credit Rating Agencies:
The Technical Committee of the International Organization of Securities Commissions (IOSCO) has published a report for consultation, entitled "Review of Implementation of the IOSCO Fundamentals of a Code of Conduct for Credit Rating Agencies", which aims to identify whether certain credit rating agencies, as set out in the report, have adopted a code of conduct and the degree to which such code reflects the provisions of the IOSCO Code of Conduct Fundamentals. This information is designed to inform the Technical Committee about whether any aspects of the IOSCO Code of Conduct Fundamentals need to be modified or better explained in order to reflect the realities of how credit ratings are determined and used by the market. Comments are invited by 11 May 2007. |
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The EU Commission Launches a New Website:
The EU Commission has launched a new website which allows stakeholders, including firms, trade associations and investors, to ask questions relating to the Markets in Financial Instruments Directive (MiFID) and its implementing measures. The website also allows stakeholders to view the answers to questions that have already been asked. The Commission will consult with member states and regulators, where appropriate, before formulating answers to the questions asked via the website. The answers will represent the views of the Commission and will not have the formal status of a Communication. |
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CESR Publishes Final Recommendation on List of Minimum Records under Article 51(3) of MiFID:
The Committee of European Securities Regulators (CESR) has issued a final recommendation to its members in order to help them to fulfil their obligation under Article 51(3) of the MiFID Level implementing Directive to produce a list of minimum records that investment firms are required to keep. The recommendation contains a non-exhaustive list of the various MiFID record-keeping requirements and provides guidance on the meaning of each one. CESR believes that both investors and the industry will benefit from a common approach to the production of the list for each jurisdiction. CESR has also published a feedback statement to its October 2006 consultation on this topic. |
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CESR Publishes MiFID Level 3 Guidelines and Recommendations on Market Transparency Data:
In order to ensure supervisory convergence among EU member states in the implementation of MiFID, CESR has published guidelines and recommendations which aim to help investment firms, Mulitlateral Trading Facilities (MTF) and regulated markets assess the way in which competent authorities interpret the provisions of MiFID relating to the publication and consolidation of market transparency data. The guidelines will apply to CESR members in their day-to-day regulatory practices on a voluntary basis. The recommendations, however, are addressed to market participants directly and set out what CESR considers to be a reasonable approach in a number of areas relating to transparency data, such as primary and secondary publication channels. CESR has also published a feedback statement to its October 2006 consultation paper on proposed recommendations and guidelines in this area. |
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CEIOPS Report on Impact of Solvency II on Supervisory Authorities:
In order to provide the EU Commission with input for its assessment of the impact of the Solvency II project on supervisory authorities, the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has sent the Commission a report which contains the results of a questionnaire sent to CEIOPS members concerning: (i) how the new supervisory framework will affect supervision; and (ii) how supervisory authorities intend to organise themselves to face the new challenges posed by Solvency II. Amongst other things, the report states that supervisory authorities expect internal models and their validation, the introduction of standard formulae and the calculation of technical provisions to cause the largest impact on their supervisory practices. |
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CESR Updates Commonly-Asked Questions on Prospectuses:
The CESR has published an updated version of its July 2006 guide for market participants which establishes a convergent response from all EU securities supervisors to a series of commonly-asked questions on the day-to-day application of the EU legislation on prospectuses. The latest version adds a number of questions and answers to those contained in the existing guide. |
