Action Line Update

Fifth Circuit Denies Class Certification in Enron Fraud Case: The Fifth Circuit Court of Appeals ruled yesterday that the class-action lawsuit against investment banks over their role as advisors to Enron cannot go ahead. The decision overturns the 2005 opinion on "scheme liability" by Judge Melinda Harmon. The Fifth Circuit decision is available here. SIFMA's amicus brief in this case is available here.

NASD Chairman and CEO Mary Schapiro Announces Leadership and Structural Moves for New, Consolidated SRO:On Friday, March 16, NASD Chairman and CEO Mary Shapiro announced various staffing and organizational changes relating to the consolidation of NASD and NYSE. The press release states that the new SRO will focus on the core areas of member regulation, enforcement, dispute resolution and technology, and also provides information on what staff members will oversee each area.

SEC Amendments to Financial Responsibility Rules for Broker-Dealers: For full story see Government and Federal Agency Markets Issues section.

SIFMA Response to SVO Research Quarterly Article: SIFMA recently filed a letter with the National Association of Insurance Commissioners, or the NAIC, regarding an article published by the NAIC. Among other things, SIFMA questions the conclusions of the article, and the methodologies, data, and choice of data used to generate the conclusions. For further information regarding letter or for the related attachments, please contact Mary Kuan at 646.637.9220.

Register Today for the 2007 Insurance- and Risk-Linked Conference: SIFMA 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.

SEC Amendments to Financial Responsibility Rules for Broker-Dealers: For full story see Government and Federal Agency Markets Issues section.

SEC Amendments to Financial Responsibility Rules for Broker-Dealers: The Securities and Exchange Commission (SEC) is proposing for comment certain amendments to its net capital, customer protection, books and records, and notification rules for broker-dealers under the Securities Exchange Act of 1934. The release explains that the proposed amendments would address several emerging areas of concern regarding the financial requirements for broker-dealers. They also would update the financial responsibility rules and make certain technical amendments. In addition, as part of the proposed amendments, the SEC is proposing two amendments designed to improve regulatory oversight of securities lending and repo transactions. The first proposal aims to clarify that broker-dealers providing securities lending and borrowing settlement services are assumed to be acting as principals (unless the broker-dealer takes certain steps to disclaim principal liability) and are subject to applicable capital deductions. The second proposal would require broker-dealers to notify the Commission whenever the total amount of money payable against all securities loaned or subject to a repurchase agreement, or the total contract value of all securities borrowed or subject to a reverse repurchase agreement, exceeds 2,500 % of tentative net capital; provided that, for purposes of this leverage threshold, transactions involving "government securities" are excluded from the calculation. Comments should be received on the proposed rule amendments on or before May 18, 2007. If you have any questions or comments please contact Rob Toomey at 646.637.9224.

NewBank Steering Committee Meeting: A meeting of the NewBank Steering Committee has been scheduled for Monday, March 26 at 4:00 p.m. in SIFMA's New York Offices at 360 Madison Avenue. If you have any questions or comments regarding the meeting, please contact Rob Toomey at 646.637.9224 with any questions.

Government Operations Committee Meeting: A meeting of the Government Division Executive Committee has been scheduled for Thursday, March 22, 2007 at 4:00 p.m. at SIFMA's 360 Madison Avenue offices. If you have any questions, please call Brian MacWilliams at 646.637.9227 with any questions.

New GSE Reform Bill Introduced: Congressman Barney Frank, along with Reps. Richard Baker (R-LA), Mel Watt (D-NC) and Gary Miller (R-CA) have introduced bipartisan legislation (H.R. 1427, the "Federal Housing Finance Reform Act of 2007") to overhaul the regulatory oversight of the government sponsored enterprises (GSEs) which include Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The House Financial Services Committee will hold two hearings on this legislation. The legislation will create a new independent regulator with broad powers analogous to current banking regulators. In addition, the bill creates an off-budget and non-taxpayer financed affordable housing fund. A summary is available here. The bill is available here. A press release is available here. Please contact Chris Killian at 646.637.9226 for more information.

Joint Associations' Response to CESR on Best Execution: SIFMA and the Associations listed in the joint response responded to CESR's Consultation Paper (CP) containing possible practical guidance regarding the implementation of best execution under MiFID. While welcoming the approach taken by CESR in several areas of the CP, the Associations expressed some concerns regarding (i) the need to emphasise the "reasonableness" concept which lies at the heart of the best execution process-based approach, (ii) the fact that the CP appears to have been written primarily from the perspective of exchange-traded instruments in equity markets, (iii) certain CESR interpretations which goes beyond MiFID, (iv) the need to apply client consent to firms' order execution policies in an appropriate manner, and (v) the inclusion by CESR of two calls for evidence which are not critical to the implementation of MiFID on November 1, 2007.

IOSCO Consults on Principles for Valuation of Hedge Fund Portfolios: The Technical Committee of the International Organization of Securities Commissions (IOSCO) has published a consultation report , entitled "Principles for the Valuation of Hedge Fund Portfolios", which sets out nine principles, followed by explanatory text, designed to promote the consistent application of a set of valuation policies and procedures in respect of a hedge fund portfolio. The principles seek to ensure that a hedge fund's financial instruments are appropriately valued and that these values are not distorted to the disadvantage of fund investors. Comments are invited by June 21, 2007.

EU Commission Adopts Level 2 Legislation for Transparency Directive: The EU Commission has adopted level 2 implementing measures providing extra detail on a number of requirements contained in the Transparency Directive (2004/109/EC). Amongst other things, the level 2 measures address: (i) disclosure by issuers of financial information in half-yearly reports; (ii) disclosure of major holdings by investors; and (iii) minimum standards for the pan-European dissemination of regulated information to the public.

IOSCO Consults on 2007 Work Programme: OSCO also published a consultation report providing an outline of its short-term priorities, in order to invite comment on its work in respect of prioritisation and relevance. IOSCO is interested in receiving input in relation to: (i) opportunities to promote just, efficient and sound markets; (ii) market risks which might warrant regulatory intervention; and (iii) regulatory failures, resulting from ineffective regulation or inconsistent or incomplete sectoral or national regulations. Comments are invited by June 8, 2007.

EU Commission Requests Advice from CEBS on Liquidity Risk Management: The EU Commission has issued a Call for Technical Advice requesting advice from the Committee of European Banking Supervisors (CEBS) in relation to liquidity risk management. CEBS is invited to provide a survey of the regulatory frameworks adopted by member states and an analysis of various issues in respect of liquidity risk management, such as liquidity market risk and the impact of payment and settlement system design on liquidity management. Since there are no specific EU prudential regulations concerning liquidity risk, this call for advice will enable the Commission to assess whether changes to the existing regulatory framework are required in the form of supervisory convergence at EU level.

DGTPF Approves Project Regarding MiFID Implementation in Spain: The Dirección General del Tesoro y Pol�ca Financiera (Treasury and Financial Policy General Directorate) (DGTPF) has approved a project which partially amends the Spanish Securities Market Law in order to implement the Markets in Financial Instruments Directive (MiFID) in Spain. The project will now be sent to the Spanish Parliament for approval.

FSA Publishes March 2007 Market Watch Newsletter: The Financial Services Authority (FSA) has published the March 2007 edition of its Market Watch newsletter, which contains: (i) example scenarios involving suspicious transaction reporting; and (ii) information on transaction reporting in the context of MiFID

SIFMA, EPDA and EHYA Respond to CESR Call for Evidence on Non-Equity Markets Transparency: SIFMA and its affiliates, the European Primary Dealers Association and the European High Yield Association submitted a joint comment letter to CESR's call for evidence on Non-Equity Markets Transparency. CESR had issued this consultation following instructions from the EU Commission in the context of the Commission's obligation, under MiFID, to report back to the Council and Parliament on whether or not to extend MiFID price transparency provisions to non-equity markets. In their response, the joint associations stressed that: (i) EU primary bond market issuance and secondary market e-trading are continuing to experience significant growth, bringing additional transparency into an overwhelmingly institutional market; (ii) it is essential to fully understand bond market structure in order to assess the impact of additional price transparency; (iii) it is important to address certain factors, arising out of this market structure, that may contribute to the perception by regulators and certain smaller institutional and retail investors of a market failure in the provision of price transparency; (iv) price formation is becoming increasingly efficient in all segments of the EU bond market, in particular due to the continued growth of CDS; (v) the fact that bond price information is not widely available to, and not user-friendly for, non active bond market participants is not a market failure per se, but a result of how markets operate and the nature of the role that particular participants play; therefore, there is no convincing evidence of a market failure in the provision of price transparency in the EU bond market. Quite the opposite, there is a healthy continuation of market-driven price transparency; (vi) the additional retail investor protections in the areas of best execution, suitability and investment advice are more relevant to the protection of retail investors against another Parmalat or Argentina default type scenario than regulated or self-regulated price transparency; and (vii) meaningful, user-friendly, free and educational price information could be of some assistance to smaller institutional and retail bond investors.

FSA Publishes Updated Paper on Market Cleanliness: The Financial Services Authority (FSA) has published an occasional paper, entitled "Updated Measurement of Market Cleanliness," which is an update to its March 2006 paper on the subject. The paper measures the cleanliness of UK financial markets by exploring the extent to which share prices move ahead of the regulatory announcements which issuers are required to make to the market. This paper includes the trading data from the 2004/2005 period.

EU and US Discuss Cooperation on Audit Regulation: Charlie McCreevy, EU Commissioner for the Internal Market and Services, and Mark Olsen, Chairman of the Public Company Accounting Oversight Board (PCAOB), met in Washington to discuss cooperation between the EU and US on audit regulation in order to move towards full reliance on each others' oversight systems by 2009. In the EU, provisions of Directive 2006/43/EC on statutory audits of annual and consolidated accounts allow for further cooperation with third countries. These include provisions which: (i) empower the Commission to recognise third country oversight of auditors as equivalent throughout the EU; (ii) allow the Commission to accept the equivalence of US independence requirements and auditing standards; and (iii) permit the establishment of a framework allowing EU public oversight bodies to conclude bilateral agreements with third country oversight bodies. Both the Commission and the PCAOB will review progress in October 2007.

EU Council Publishes Conclusions of ECOFIN Meeting on Better Regulation and Reducing Administrative Burdens: The Council of European Finance Ministers (ECOFIN) has published the conclusions of its meeting in Brussels on February 27, 2007 on better regulation and reducing administrative burdens in the EU where they welcomed the January 2007 EU Commission action programme for reducing administrative burdens in the EU.

CEIOPS Invites Feedback on Performance Assessment Questionnaire: Prompted by the Inter-institutional Monitoring Group's (IIMG) assessment of the progress made in implementing the Lamfalussy process, as used in the Solvency II project, the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has published a questionnaire which invites all interested parties to provide feedback on its policy, processes and activities since its foundation in 2003. Comments are invited by March 30, 2007.