Action Line Update

SEC Issues Fee Rate Advisory #8 for Fiscal Year 2007: The SEC has determined that a mid-year adjustment to the Section 31 fee rate for FY 2007 is not required. The rate of $15.30 per million dollars that will take effect on March 17, 2007 will remain at that level through the end of the fiscal year. The new fee fate under Section 31 of the '34 Act will be announced no later than April 30, 2007, and will become effective on the later date of October 1, 2007, or 30 days after the date on which a regular appropriation to the Commission for FY 2008 is enacted. The press release is available here.

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, the 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 complete NTM can be found here. Comments are due by March 26, 2007. For more information please contact Amal Aly at 212.618.0568.

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.

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.

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.

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.

Fannie Mae Announces New Single Family MBS Master Trust Agreement : Fannie Mae has announced that it will put in place a new trust agreement for single family MBS effective June 1, 2007. Fannie stated that the executed agreement will be available on its website by March 31, 2007. A trust agreement is a legal document that contains the terms and conditions of an MBS trust and outlines the responsibilities of the various parties to the trust. Fannie Mae's announcement also contains a number of clarifications to its servicing guide. The full announcement is available here.

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.

MSRB Notice (2007-10) - Request For Comment on Proposed Rule Changes to Improve Transaction Reporting of New Issue Municipal Securities: The Municipal Securities Rulemaking Board (MSRB) is requesting comment on proposed rule changes to improve the trade reporting and price transparency of transactions effected in new issues of municipal securities. The rule changes include draft amendments to Rule G-34, on CUSIP Numbers and New Issue Requirements, that would require underwriters to follow certain procedures for disseminating new issue information necessary for trade reporting in new issues. For more information, please contact Leslie Norwood at 646.637.9230.

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.

Joint Associations' Follow-up Response to FSA CP06/19 and CP06/20: SIFMA and the associations listed in the joint response published a follow-up response to their 28th November response to FSA's MiFID implementation consultation papers CP06/19 (Conduct of Business) and CP06/20 (Financial Promotion).

Joint Associations Respond to CESR Level 3 Consultation on Transaction Reporting: SIFMA and the associations listed in the joint response responded to CESR's Consultation Paper on the proposed Level 3 Guidelines on MiFID transaction reporting, focusing on three general issues: (i) the need for clarification on transaction reporting issues as soon as possible; (ii) the transitional issues for firms; and (iii) an analysis of CESR's proposed booking test and the "characteristic performance" test.

EU Commission Publishes Single Market in Financial Services Progress Report 2006: The EU Commission has published a progress report highlighting its achievements made in 2006 which further the single market in financial services. These achievements include: (i) the June 2006 adoption of Capital Requirements Directive (CRD); (ii) the November 2006 publication of a White Paper on Investment Funds; and (iii) the November 2006 adoption of the "European Code of Conduct for Clearing and Settlement."

EU Council Publishes Conclusions of ECOFIN Meeting on T2S : The Council of Economics and Finance Ministers (ECOFIN) has published the conclusions of its meeting held in Brussels on February 23, 2007 to discuss the establishment of the TARGET2-Securities project (T2S). The Ministers stress the importance of: (i) T2S being accessible to non-euro area Central Securities Depositaries (CSDs) and currencies; (ii) compliance with EU competition policy; (iii) involvement of all affected market participants from across the EU in the governance structure; and (iv) regular reporting to the Financial Services Committee (FSC), the Economic and Financial Committee (EFC) and the Council on the progress of the T2S project.

IOSCO Consults on Market Intermediary Management of Conflicts in Securities Offerings: The Technical Committee of the International Organization of Securities Commissions (IOSCO) has published a consultation report concerning conflicts of interest that may arise when market intermediaries are involved in securities offerings, with a view to generating principles for use by intermediaries in their management practices. The report discusses: (i) the meaning of the term "conflict of interest" in the context of the report; (ii) proposed approaches for addressing conflicts and means of implementation reflecting sound practices; and (iii) examples of circumstances in which market intermediaries may face potential conflicts of interest and measures for handling the particular conflicts by reference to case studies. Comments are invited by May 25, 2007.

EU Commission Updates ISD List of Regulated Markets : The EU Commission has published an updated list of regulated markets notified to it by member states pursuant to the obligation under Article 16 of the Investment Services Directive (ISD). The list indicates: (i) the title of the individual markets recognised by national competent authorities as complying with the definition of a regulated market under Article 1(13) of the ISD; (ii) the entity responsible for managing each market; and (iii) the competent authority responsible for issuing or approving the rules of the relevant market.

EU Commission Welcomes SEC Re-proposal to Allow Foreign Private Issuer Deregistration: The EU Commission has published a letter to the Securities and Exchange Commission (SEC) welcoming its December 2006 announcement concerning re-proposed new rules which aim to make it easier for foreign private issuers to terminate permanently their reporting obligations under the Securities Exchange Act of 1934. The letter also contains technical comments on the re-proposal stating, amongst other things, that the Commission would like to see an increase in the trading volume threshold, which stands at five percent, in order to allow a higher number of EU issuers to use the new rules.