Action Line Update

SEC Approves FICC Rule Proposal on Repo Substitution Deadline: The Fixed Income Clearing Corporation recently announced that the Securities and Exchange Commission ("SEC") has approved its rule change to add a final deadline of 1:00 p.m. (EST) to the repo collateral substitution process of the Government Securities Division. This new deadline will be implemented on trade date, Monday, June 4, 2007. The GSD's rules currently provide that repo collateral substitution requests for which the notification itself or the information regarding new securities collateral is received after 12:30 p.m.(EST) will be processed by the GSD on a good faith basis only. Starting June 4, 2007 the GSD will establish a final deadline of 1:00 p.m. (EST), after which FICC will not process a repo collateral substitution until the following business day. Members will be required to resubmit their substitution information on the following business day for processing. Please contact Robert Toomey at 646.637.9224 with any questions or comments.

Under Secretary Steel to Deliver Remarks on US Capital Markets:: For full story see Government and Federal Agency Markets Issues section.

Treasury Market Practices Group Conference: For full story see Government and Federal Agency Markets Issues section.

Statement for the Treasury Borrowing Advisory Committee: Treasury Assistant Secretary for Economic Policy, Phillip Swagel, gave a statement for the Treasury Borrowing Advisory. In the statement, Phillip Swagle mentions that "...the economy remains in transition but growth is expected to accelerate, returning to its long-term trend by the end of the year. The labor market remains firm and inflation appears contained".

Under Secretary Steel to Deliver Remarks on U.S. Capital Markets: U.S. Treasury Under Secretary for Domestic Finance Robert K. Steel will deliver remarks before the Manhattan Institute's Conference on Capital Markets on Thursday, April 26 in New York City. The Under Secretary will discuss issues surrounding the competitiveness of U.S. capital markets. If you have any questions or comments, contact Robert Toomey at 646.637.9224.

Treasury Large Position Report Seminar:: Treasury announced that it is offering a free Large Position Report Workshop. The course will provide a brief overview of the large position reporting (LPR) rules and examples of how certain transactions are treated in the LPR calculation. Two sessions will be offered at May 18, 2007, 1:00 - 2:30 P.M.; and May 18, 2007, 3:00 - 4:30 P.M. at the Federal Reserve Bank of New York (33 Liberty Street, Room 143, New York, NY 10045). If you have any questions or comments, contact Robert Toomey at 646.637.9224.

Treasury Issues Primary Dealer Questions for Quarterly Refunding: The Treasury Department's Primary Dealer Questions for its May, 2007 Quarterly Refunding are available. Treasury is looking for dealer feedback on recent press reports and other anecdotal evidence that suggest elevated levels of secondary market trading of Treasury securities in the first quarter of 2007. If you have any questions or comments please contact Robert Toomey at 646.637.9224.

Treasury Market Practices Group Conference: The Treasury Market Practices Group is hosting a conference on Thursday, June 14, 2007 from 8:30 a.m. to 12:30 p.m. at the Federal Reserve Bank of New York in New York City. Speakers at the event will provide guidance and information on applying best practice principles in the Treasury cash, repo and related markets. The conference will feature remarks by Anthony Ryan, Assistant Secretary for Financial Markets at the U.S. Department of the Treasury, and Tom Wipf, Chairman of the TMPG. All market participants - dealers, brokers, investment funds and foreign central banks - are encouraged to attend. Registration deadline is Tuesday, June 12, 2007. If you have any questions or comments please please contact Robert Toomey at 646.637.9224.

SIFMA's Standardized Format for CDO Data Files Adopted by LaSalle Bank: SIFMA has announced that LaSalle Bank has adopted SIFMA's recommended standardized XML format for data files related to the performance of collateralized debt obligations, or CDOs, that are disseminated on a regular basis by the trustees of the deals. The recommended data file format offers a way to standardize the disparate formats currently employed by trustees of CDO transactions, allowing users to more quickly and efficiently process the vast amount of data that are provided in reports on CDO transactions. Information about the standardized format is available on SIFMA's website.

Ginnie Mae to Allow Fixed Rate Bonds to be Structured as Zero Day Delay REMIC Classes: Effective for transaction closing on May 30, 2007, Ginnie Mae has announced that it will allow fixed rate bonds to be structured as Zero Day Delay classes for REMIC transactions. Currently only floating or inverse floaters may be structured as Zero Day Delay classes. A press release is available here.

Comptroller of the Currency Speaks on Subprime Market: On April 24, 2007 Comptroller of the Currency John Dugan spoke at the National Foundation for Credit Counseling Spring Meeting on recent developments in the subprime market and how federal regulators should respond. He noted that, regarding future lending practices, "markets have taken self-corrective measures to tighten underwriting standards" and that the regulators have released a statement on subprime lending. For loans already originated, he indicated that "existing supervisory guidance and applicable accounting standards do not require institutions to foreclose immediately when a borrower experiences payment difficulties" and noted the statement issued last week encouraging financial institutions to work with borrowers. He also encouraged homeownership counseling for troubled borrowers. Please click here for the speech and here for more information.

Senators Urge Feds to Issue Regulations on Predatory Lending: On April 23, 2007, Senator Christopher Dodd (D-CT), chairman of the Senate Committee on Banking, Housing and Urban Affairs, and other Committee members issued a letter urging Federal Reserve Board Chairman Ben Bernanke to exercise the Federal Reserve Board's obligations under the Home Ownership and Equity Protection Act (HOEPA) of 1994 to issue regulations that address predatory lending practices in the subprime mortgage market. The letter recommends that the regulations require all mortgage originators to evaluate a borrower's ability to repay prior to making a mortgage loan, designate that the failure to escrow taxes and insurance as an unfair and deceptive practice and restrict the use of low- and no-documentation loans. Please click here for the letter and here for more information.

Frank and Bachus Ask GAO to Investigate the High Rates of Foreclosures: On April 25, 2007, House Financial Services Chairman Barney Frank and Ranking Republican Member Spencer Bachus sent a letter to the Government Accountability Office calling for a thorough study of the reasons for the recent increase in foreclosures in the subprime mortgage market. The letter asks the GAO to investigate causes of the problem (noting nontraditional mortgage products, loan flipping, predatory practices, Fed rate increases, housing price stagnation, and securitization, among others) as well as potential solutions (such as education, forbearance, loan modification, and FHA/GSE involvement). The letter also asks the GAO to examine what might be the possible consequences of any solutions on the availability of credit. For more information please contact Robbin Conner at 646.637.9228 or Chris Killian at 646.637.9226.

Freddie Mac To Become Transfer And Payment Agent For Physical PCs: Freddie Mac has announced that beginning July 1, 2007, it will assume the transfer agent and payment agent role for its Mortgage Participation Certificates (PCs) that exist in certificate form. Investors will continue to receive principal and interest payments on Freddie Mac definitive PCs from the Federal Reserve through July 2007. Beginning in August 2007, investors will receive all principal and interest payments on these securities from Freddie Mac. The Federal Reserve will honor drafts payable through them through December 2007. For more information, please click here.

Senate Holds Hearing on Subprime Lending and Securitization: On April 17, 2007 the Senate Committee on Banking, Housing and Urban Affairs held a hearing entitled, "Subprime Mortgage Market Turmoil: Examining the Role of Securitization," which featured testimony from representatives of rating agencies, investment banks and two law professors. Please click here for the witness list and prepared testimony.

Senator Dodd Holds Homeownership Preservation Summit: On April 18, 2007 Senator Christopher Dodd (D-CT), Chairman of the Senate Committee on Banking, Housing and Urban Affairs, convened a closed-door meeting of subprime mortgage lenders, securitizers, and servicers, as well as consumer and civil rights groups and regulators, to discuss ideas pertaining to recent issues in the subprime mortgage market. Dodd asked participants to agree that foreclosures are at an unacceptably high level and that foreclosures are not in the interests of homeowners, their communities, or those in the mortgage finance industry. Summit participants were asked to continue to discuss what steps can be taken to preserve homeownership and to keep Senator Dodd apprised of their progress. Please click here for more information.

Federal Regulators Issue Joint Statement on Working With Mortgage Borrowers: On April 17, 2007 the federal bank, thrift and credit union regulatory agencies released a statement encouraging financial institutions to work with homeowners who are unable to make mortgage payments. The statement notes that institutions will not face regulatory penalties if they pursue reasonable workout arrangements with borrowers and that borrowers who are unable to make their mortgage payments should contact their lender or servicer as soon as possible to discuss available options. Please click here for the statement and here for more information.

House Holds Hearing on FHA Reform: The House Financial Services Committee held a hearing on April 19, 2007 entitled "The Expanding American Homeownership Act of 2007: H.R. 1852 and Related FHA Modernization Issues" featuring testimony from representatives of the Department of Housing and Urban Development, the Mortgage Bankers Association and other industry participants. Please click here for a list of witnesses and prepared testimony.

U.S. Supreme Court Rules Against State Regulation of Non-bank Subsidiaries of National Banks: On April 17, 2007 the U.S. Supreme Court ruled in favor of Wachovia in the case of Linda Watters, Commissioner of the Michigan Office of Insurance and Financial Services, v. Wachovia Bank regarding the regulation of state-chartered affiliates of national banks by individual states, which was heard by the Supreme Court on November 29, 2006. The decision, reached in a 5-3 vote, affirms the preemptive status of OCC regulations over state regulations for national banks and their operating subsidiaries and states that "Wachovia's mortgage business, whether conducted by the bank itself or through the bank's operating subsidiary, is subject to OCC's superintendence, and not to the licensing, reporting, and visitorial regimes of the several States in which the subsidiary operates." Please click here for the opinion issued by the Supreme Court.

Federal Regulatory Agencies Announce Availability of 2006 HMDA Data: On April 12, 2007 the federal bank, credit union, and thrift supervisory agencies, along with the Department of Housing and Urban Development, announced the availability of the 2006 home loan data disclosed under the Home Mortgage Disclosure Act (HMDA). Lenders are required to make this data available to the public within thirty days after receiving a request, in the form of a Loan Application Register, after removing certain information to protect the privacy of applicants and borrowers. Summary statistical reports for each ender and an aggregate report for each Metropolitan Statistical Area will be released in September by the FFIEC. Please click here for more information.

SIFMA Comments Incorporated into Final NJ Pay to Play Regulations: The NJ Election Law Enforcement Commission (NJ ELEC) recently released the adoption notice of its revised pay to play regulations entitled: Disclosure of Contributions by Business Entities. SIFMA had submitted comments to the NJ ELEC which were taken into account and the final law included changes that narrowed the definition of "officer" to apply only to those with senior management responsibility, not to all "vice presidents". If you have any questions, please contact Leslie Norwood at 646.637.9230.

Municipal Division Executive Committee Luncheon Meeting: A Luncheon Meeting of the Municipal Executive Committee has been scheduled on May 8, 2007 at 12 Noon at "21" Club, 21 West 52nd Street, New York, NY 10019. If you have any questions, please contact Leslie Norwood

Industry Associations Consult on Principles for Distribution of Retail Structured Products: SIFMA, the European Securities Forum (ESF), the International Capital Market Association (ICMA), the International Swaps and Derivatives Association (ISDA) and the London Investment Banking Association (LIBA) have jointly published for consultation a draft set of non-binding principles relating to retail structured products, which focus on the management of the relationship between providers and distributors. Comments are invited by May 30, 2007.

Industry Associations Respond to CESR's Second Consultation on Inducements under MiFID: SIFMA and the associations listed in the joint comment letter jointly responded to the Committee of European Securities Regulators' (CESR) second consultation on inducements under the Markets in Financial Instruments Directive (MiFID). In their response, the associations express significant concern over CESR's broad interpretation of MiFID's requirements which go beyond CESR's role at Level 3 by imposing additional binding obligations on market participants.

EU Commission Responds to CESR on MiFID Best Execution Scope Issues: The EU Commission has published a response, to the November 2006 request for assistance by the Committee of European Securities Regulators (CESR) on issues relating to the scope of the best execution requirement in MiFID. The EU Commission was asked to provide its opinion on issues relating to: (i) dealing on quotes; (ii) the use of specific instructions from a client; and (iii) obligations on portfolio managers, as well as order receivers and transmitters.

FSA Publishes Paper on Move Towards Principles-based Regulation: The Financial Services Authority (FSA) has published a paper, entitled "Principles-based regulation - Focusing on the outcomes that matter", setting out its current thinking on its move towards a more principles-based regulatory regime in the UK.

Charlie McCreevy Urges Rapid Member State Implementation of MiFID: In letters to the relevant Ministers of Finance, Charlie McCreevy, the EU Commissioner for the Internal Market and Services, has urged the member states that have not yet transposed MiFID into national law to put this at the top of their political agenda. The process of transposing the provisions of MiFID into national law was due to be completed by January 31, 2007. To date, the UK, Ireland and Romania are the only member states to have notified the Commission of MiFID's full transposition.

City of London Publishes Report on Competitive Impact of London Financial Market Infrastructure: A report by Bourse Consult, entitled "The Competitive Impact of London's Financial Market Infrastructure", has been published on the City of London website. The report aims to: (i) analyse the development of London's financial market infrastructure; (ii) assess its impact on the City's performance; and (iii) identify the policy issues that should be addressed to sustain the City's international competitiveness in the future. The report examines the financial infrastructure within which the international equities, derivatives (OTC and exchange-traded), foreign exchange and fixed income markets operate.

LSE Consults on Amendments to AIM Rules Ahead of MiFID Implementation: The London Stock Exchange (LSE) has issued Stock Exchange Notice N18/07 on proposed amendments to the Alternative Investment Market (AIM) Rules that will allow the trading of AIM securities on third party trading platforms. The amendments will introduce specific criteria that will allow the LSE to assess the suitability of any venue wishing to trade AIM securities under the AIM Rules. If approved, the amendments will come into effect ahead of the Markets in Financial Instruments Directive (MiFID) implementation. Comments are invited by May 21, 2007.

IOSCO Consults on Issues to be Addressed in Relation to Funds of Hedge Funds: The Technical Committee of the International Organization of Securities Commissions (IOSCO) has published a consultation report seeking views on issues that IOSCO could address with respect to funds of hedge funds that issue shares to retail investors. In particular, IOSCO is keen to find ways to ascertain: (i) what information should be provided to retail investors regarding the nature and risks of the underlying funds, as well as the criteria used by managers of funds of hedge funds for the selection of the underlying funds; and (ii) the due diligence to be performed by the managers of funds of hedge funds in respect of the selection of underlying funds and the on-going monitoring of their risks. Comments are invited by July 20, 2007.

Supervisors in EU Agree on Eligibility of DBRS Ratings under CRD: Eleven competent supervisory authorities of the Committee of European Banking Supervisors (CEBS) have reached a shared view on the use and eligibility of DBRS ratings for regulatory capital purposes and on the mapping of its credit assessments under the Capital Requirements Directive (CRD). The authorities concluded that the ratings of DBRS are suitable for credit institutions and investment firms to use in determining the risk weights of their exposures. As required by the CRD, the competent authorities considered whether the methodologies of DBRS meet the requirements of objectivity, independence, ongoing review and transparency and whether their ratings meet the requirements of credibility and transparency.

EU Parliament Adopts Compromise Text for Payment Services Directive: The EU Parliament has adopted the March 2007 compromise text for the Payment Services Directive agreed by the Council of European Finance Ministers (ECOFIN). The Directive, which aims to guarantee fair and open access to EU payments markets and increase consumer protection, as well as to provide legal underpinning as part of the process of creating the Single Euro Payments Area (SEPA), will now be forwarded to the EU Council for final adoption. The deadline for transposing the Directive into member states' national laws will be November 1, 2009.

CEBS Consults on Amendments to Guidelines on Financial Reporting: The Committee of European Banking Supervisors (CEBS) has published a consultation paper containing proposed amendments to its Guidelines on Financial Reporting. Comments are invited by May 20, 2007.

IOSCO Consults on Framework for Assessing Strategic Priorities in Investment Management Sector: The Technical Committee of the International Organization of Securities Commissions (IOSCO) has published a consultation report, entitled "An Experiment within the Technical Committee Standing Committee on Investment Management (SC5) to Establish a Framework for Identifying Strategic Priorities", as part of the process of developing a revised and improved procedure for selecting the issues to be addressed to the Standing Committee on Investment Management (SC5). Comments are invited by July 20, 2007.

SIFMA Responds to IOSCO Consultation Report on Implementation of Code of Conduct for Credit Rating Agencies: SIFMA submitted a comment letter in response to IOSCO's consultation on implementation of the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies (CRAs), in which the Association provided IOSCO with feedback on day-to-day implementation by the larger CRAs of IOSCO's Code of Conduct and broadly welcomed IOSCO's proposed clarifications to the Code of Conduct.

IOSCO Communiqué Concerning 2007 Annual Conference: The International Organization of Securities Commissions (IOSCO) has released a communiqué concerning the 2007 IOSCO annual conference which took place in Mumbai from April 9-12, 2007. The communiqué provides an update of IOSCO's latest work on issues such as: (i) the regulation of market intermediaries and secondary markets; (ii) disclosure and accounting; (iii) investment management; and (iv) credit rating agencies.

EU Commission Launches Call for Evidence on EU Private Placement Regime: Following its commitment set out in the November 2006 White Paper on EU investment funds to undertake a systemic analysis of national barriers to private placement, the EU Commission has launched a call for evidence seeking comments on the necessity and feasibility of a European private placement regime. The call for evidence is divided into sections addressing (i) the economic relevance of private placement; (ii) the appropriate parameters of a possible private placement regime, in terms of the boundary between public offering and private placement, eligible participants and enforcement issues; and (iii) whether and, if so, how a private placement regime could be established at EU level. Comments are invited by June 30, 2007.

IOSCO Publishes Survey Report on Unconsolidated Special Purpose Entities: Following the identification in its 2005 report, entitled "Strengthening Capital Markets against Financial Fraud", of complex corporate structures and unconsolidated special purpose entities having been involved in recent financial scandals, IOSCO has published a survey report on the use of unconsolidated special purpose entities. The report contains the results of a survey, conducted by the Standing Committee on Multinational Disclosure and Accounting (SC1), of the current accounting and non-financial statement disclosure requirements applicable to the use of such entities in member jurisdictions of the Technical Committee and SC1, as well as the level of audit assurance required for this information.

FSA Action for Complaints Handling Failures: The Financial Services Authority (FSA) has imposed a fine of GBP 330,000 on Sesame Limited for breaches of Principle 2 (skill, care and diligence) and Principle 6 (a firm must pay due regard to the interests of its customers and treat them fairly) of the FSA's Principles for Businesses and for breaches of rules applicable to complaints handling. The FSA found that Sesame had incorrectly rejected complaints concerning Structured Capital At Risk Products (SCARPs) from approximately 350 customers. Factors influencing the FSA's action and the size of the penalty included the fact that the issue was identified by the FSA as a result of thematic work, and was not brought to the FSA's attention by Sesame, and also that Sesame undertook a prompt review of the complaints and paid compensation to customers where the complaints handling process was inadequate and the original SCARP was mis-sold. The final notice also refers to a "Dear CEO" letter published on April 4, 2002 concerning mortgage endowment complaints handling and suggests that this has a more general application to determining the standard to be applied for all complaints handling. The decision was made using the FSA's settlement process, although no discount was given for early settlement.

CESR Publishes Extract of Enforcement Decisions Taken by Supervisors of Financial Information in Europe: The Committee of European Securities Regulators (CESR) has published an extract from its database of enforcement decisions taken by supervisors of financial information in Europe in order to inform market participants about the accounting treatments such supervisors may consider as complying with International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS). CESR intends to publish extracts of these decisions on a regular basis in order to promote a consistent application of IFRS and IAS in the EU.

French Ministry of Economy Publishes Ordinance Implementing MiFID: The French Ministére de l'économie, des finances et de l'industrie has published in the Journal Officiel Ordinance No. 2007-544, which implements the provisions of the Markets in Financial Instruments Directive (MiFID) that fall within the scope of its powers. This coincides with the March 2007 consultation by the Autorité des marchés financiers (AMF) on draft provisions which will replace the current provisions set out in Book V of the AMF General Regulations (Règlement Général) relating to market infrastructure, implementing part of MiFID in France. The Ordinance will come into force on November 1, 2007.