Action Line Update

May 7, 2007

HIGHLIGHTS

spacer graphic

New

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

  TOP

CORPORATE CREDIT MARKETS

New

NASD Notice to Members 07-21 - May 2007: Reporting of Transactions in TRACE-Eligible Securities With Execution Dates More Than T+365 Days Before Date of Report: NASD recently issued a Notice to Members announcing that TRACE will accept reports of transactions with Execution Dates that occurred more than a year prior to the date the report is made. This TRACE system modification will allow submission of As-of and Reversal reports with an Execution Date beyond T+365 to TRACE inception (July 1, 2002). The effective date of the TRACE System modification is June 4, 2007. For further information, please contact Mary Kuan at 646.637.9220.

New

SR-NYSE-2007-44 - Filed: May 1, 2007: The NYSE recently proposed to eliminate certain fees applicable to NYSE Bonds. The proposed rule also adopted a new transaction fee of $0.50 per bond for executions on NYSE Bonds that remove liquidity from the NYSE Bonds. For further information, please contact Mary Kuan at 646.637.9220.

  TOP

FUNDING

New

FICC Rule Filing for Brokered Repo Trades: The Fixed Income Clearing Corporation filed a rule change for immediate effectiveness to add language to its rules for Brokered Repo Transactions of its Government Securities Division to make explicit that blind broker repo trades assumed by FICC are included in the calculation of the parties to such trades receive and deliver obligations to FICC. The rule filing notes that the proposed change is technical in nature and does not reflect a change in the practices or policies of GSD. If you have any questions or comments regarding this change, please contactRobert Toomey at 646.637.9224.

New

Treasury May 2007 Quarterly Refunding: For full story see Government and Federal Agency Markets Issues section.

New

FICC New Reporting Requirements for Risk Management and Business Continuity: For full story see Government and Federal Agency Markets Issues section.

New

FICC Rule Filing; Modifications to Disqualification Criteria: For full story see Government and Federal Agency Markets Issues section.

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.

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

  TOP

GOVERNMENT AND FEDERAL AGENCY MARKETS

New

Treasury May 2007 Quarterly Refunding: The Treasury Department's Primary Dealer Questions, and Quarterly RefundingStatement and associated charts for its May 2007 Quarterly Refunding are available. Also available are the most recent minutes and report of the Treasury Borrowing Advisory Committee. If you have any questions or comments please contact Robert Toomey at 646.637.9224.

New

FICC Rule Filing; Modifications to Disqualification Criteria: The Fixed Income Clearing Corporation has made a rule filing with the Securities and Exchange Commission to modify the rules of both the Government Securities Division and the Mortgage-Backed Securities Division with respect to member and applicant disqualification criteria. The proposed changes intend to create more uniformity between the rules of both Divisions and between FICC's rules and those of FICC's affiliates, The Depository Trust Company and the National Securities Clearing Corporation. The proposed rule changes include Expanding MBSD Disqualification Criteria to adopt the disqualification criteria set forth in the GSD rules as amended by the rule filing, which include violations of the Securities Act of 1933 or the Securities and Exchange Act of 1934. The rule change also seeks to modify the disqualification criteria in the GSD rules to encompass those criteria which can be objectively monitored, such as a member's or applicant's expulsion from membership in a self-regulatory organization or conviction for a criminal offense. FICC is also proposing to amend the rules of the GSD and MBSD that deal with certain applicant and member disqualification criteria to persons and/or entities "associated" (in the GSD rules) or "affiliated" (in the MBSD rules) with the applicant or member firm with provisions that are consistent with internal surveillance procedures, and consistent across the Divisions. Specifically, references to persons "associated" or "affiliated" with the member or applicant will be changed to references to "controlling management", which will include the Chief Executive Officer, Chief Financial Officer and Chief Operations Officer (or their equivalents) of an applicant or member.

New

FICC New Reporting Requirements for Risk Management and Business Continuity: The Fixed Income Clearing Corporation notified its Government Securities Division Non-Domestic Netting members of a new requirement to provide FICC with updated risk management and business continuity/disaster recovery procedures by May 31, 2007; excluding Non-Domestic Netting Members that last filed such procedures with FICC on or after May 31, 2006. FICC indicated in an important notice that this requirement would be ongoing, and that all current Non-Domestic Netting members submit on an annual basis, and within 30 days of any material changes, a current version of their Risk Management and Business Continuity/Disaster Recover procedures, or a letter on the member's letterhead stating that no material changes have occurred in such procedures since the date of the most recent update to the procedures submitted by the member. As well, in a FICC related notice on Important Reporting Requirements, members were reminded that pursuant to the rules of both the Government Securities Division and the Mortgage-Backed Securities Division there is a fine schedule currently in effect for failures to timely submit required financial reports, information, and other documentation to FICC, and that fines imposed by FICC will be subsequently reported to the Securities and Exchange Commission.

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."

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 contact Robert Toomey at 646.637.9224.

  TOP

MBS AND SECURITIZED PRODUCTS

New

Ginnie Mae Proposes Changes to Physical Security Issuance Policies: On May 7, 2007 Ginnie Mae filed a rule proposal in the Federal Register, in which it proposed that physical securities only be issued upon approval of Ginnie Mae, and that book-entry securities may be withdrawn when a request for "definitive" (i.e., physical) securities has been approved. Ginnie said the main reasons for this rule change are: (1) most investors hold securities in book-entry form; (2) book-entry provides for lower cost; (3) physical securities present opportunities for fraud; and (4) that industry practice has shifted to book-entry securities. Ginnie Mae also proposes to remove a requirement that issuers submit classified balance sheets. The deadline for comment on this proposal is July 6, 2007. For more information please contact Chris Killian at 646.637.9226.

New

Fed Announces HOEPA Hearing June 14: The Federal Reserve Board has announced that it will hold a hearing "to gather information on how it might use its rulemaking authority to curb abusive lending practices in the home mortgage market, including the subprime sector" and the hearing will "focus on how it might use its rulemaking authority to address concerns about abusive lending practices in the home mortgage market." The Fed also states that they "want to encourage, not limit, mortgage lending by responsible lenders, so it is crucial that any actions the Board might take are well calibrated and do not have unintended consequences." The Fed's press release is available here.

New

FICC New Reporting Requirements for Risk Management and Business Continuity: For full story see Government and Federal Agency Markets Issues section.

New

FICC Rule Filing; Modifications to Disqualification Criteria: For full story see Government and Federal Agency Markets Issues section.

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.

Representatives 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.

  TOP

MUNICIPAL MARKETS

No updates.   TOP

EUROPEAN MARKETS

New

EHYA Submits Recommendations on Insolvency Law Reform: The European Insolvency Reform Working Group of the European High Yield Association (EHYA), an affiliated forum of SIFMA, has submitted a paper to Her Majesty's Treasury (HMT) that reviews the current restructuring climate in the UK and proposes reform of insolvency legislation to improve the efficiency and fairness of corporate restructurings. The paper, which predicts that the next cycle of corporate debt restructurings in the UK will be more complex than previous restructurings due to growth of the European leveraged lending market since 2001, focuses on three areas for reform. Firstly, the EHYA proposes that an all-encompassing stay on actions should be available to prevent value destruction, which is currently seen as an inevitable consequence of filing for insolvency in the UK. Secondly, the EHYA proposes that a framework should be put in place for the fast judicial resolution of valuation disputes in restructurings, short of administration proceedings, in order to develop precedent in restructuring valuations. Thirdly, the EHYA proposes that creditors or shareholders with no economic interest in the re-valued enterprise should not be able to block restructurings or force full insolvency proceedings.

New

EU-US Summit Promises Progress on Financial Market Integration: Following their annual summit held in Washington, D.C. on April 30, 2007, the EU and USA have adopted a framework for promoting transatlantic economic integration. The framework provides that the EU and USA will, amongst other things, call for the mutual recognition of: (i) US Generally Accepted Accounting Principles (US GAAP) and International Financial Reporting Standards (IFRS) by 2009; and (ii) the rules governing securities markets.

New

EU Commission Publishes Green Paper on Retail Financial Services in Single Market: As part of its review of the single market, the EU Commission has published its "Green Paper on Retail Financial Services in the Single Market" and a number of related frequently-asked questions, with the aim of strengthening its understanding of the problems faced by consumers in the area of retail financial services and establishing the scope of further initiatives in this area. The Green Paper: (i) sets out the overarching objectives of the Commission's policy in the area of retail financial services; (ii) sets out the actions necessary to bring the benefits of an integrated EU financial market to users; and (iii) invites feedback on the direction which the Commission is taking. Comments are due by July 16, 2007.

New

FSA Consults on Conduct of Business Reform for Non-MiFID Scope: The Financial Services Authority (FSA) has issued Consultation Paper 07/9 (CP07/9) seeking views on proposals to reform the remaining elements of the UK conduct of business regime that fall outside the scope of the Markets in Financial Instruments Directive (MiFID) and were not consulted on in CP06/19 or CP06/20. The paper focuses on proposals to update the Specialist Regimes (a tailored set of requirements for particular classes of business) to reflect the FSA's move towards a more principles-based approach to regulation, of which the new Conduct of Business Sourcebook (NEWCOB) is an important part. Comments are due by August 3, 2007.

New

EU Commission Holds Open Hearing on Proposed Changes to UCITS Directive: The EU Commission held an open hearing to discuss its March 2007 consultation paper, entitled "Initial Orientations of Possible Adjustments to UCITS Directive (85/611/EEC)", which contains proposals aimed at deepening the single market for UCITS investment funds. The hearing examined: (i) the proposal to introduce an EU-wide private placement regime for unregulated funds; (ii) proposals to streamline the cross-border notification procedure; (iii) proposals for the remote management of funds; (iv) proposals to facilitate fund mergers and asset pooling; and (v) proposals to replace the existing simplified prospectus with standardised key investor disclosures.

New

CEIOPS Publishes First Questions and Answers Paper on QIS3 Regarding Solvency II: The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has published the first questions and answers paper to its third quantitative impact study (QIS3), which was launched in March 2007 to assist the EU Commission with the Solvency II project.

New

CEBS Organises Open Hearing on Own Funds: The Committee of European Banking Supervisors (CEBS) has announced an open hearing, which will take place in London on June 11, 2007, to discuss concerns raised by the current regulatory definition of own funds and capital for regulatory capital purposes and the range of views as to where convergence on a definition should be sought.

New

New Rules and Regulations of Luxembourg Stock Exchange Published: A Ministerial Order of April 2, 2007 has approved the new Rules and Regulations of the Luxembourg Stock Exchange, which have been restated in their entirety due to the April 2007 migration of the Luxembourg Stock Exchange securities to the NSC trading platform. The Rules and Regulations are now available in Mémorial A (Luxembourg Official Gazette) n'58 of April 18, 2007.

New

NAO Publishes Report on FSA Performance: The National Audit Office (NAO) has published a report concerning the performance of the Financial Services Authority (FSA). The report, which was conducted at the invitation of Her Majesty's Treasury under Section 12 of the Financial Services and Markets Act 2000 (FSMA), covers five areas in which the FSA could improve: (i) performance management; (ii) working with other regulators; (iii) international influence and representation; (iv) combating financial crime; and (v) financial capability. Although the FSA stakeholders consulted for the report expressed certain specific concerns, the majority had broadly positive views on the FSA's performance in the areas examined.

New

FRC, FSA and SEC Sign Information Sharing Protocol on IFRS: The Financial Reporting Council (FRC), the UK FSA and the US SEC have signed a protocol to facilitate cooperation in the implementation of the work plan between the SEC and the Committee of European Securities Regulators (CESR), as it relates to the sharing of information on the application of International Financial Reporting Standards (IFRS) by issuers listed in the UK and registered with the SEC. The protocol provides the legal framework for the confidential exchange of information between the SEC and the FRC, which is charged with reviewing issuers' published financial statements in the UK.

New

IOSCO Publishes Final Report on Enhanced Market Oversight through Multi-Jurisdictional Information Sharing: The Technical Committee of the International Organization of Securities Commissions (IOSCO) has published the final version of its report entitled "Multi-jurisdictional Information Sharing for Market Oversight", containing guidance which aims to promote the enhancement of the supervision of markets and trading in member jurisdictions through the exchange of information on a routine or ad hoc basis.

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 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.

  


Action Line Update Links

Regulatory Calendar

Action Line Update 2007 Past Issues

Action Line Update Archives