Action Line Update
May 14, 2007
HIGHLIGHTS
- Treasury Market Best Practices Release
- CESR Consults on Transparency in Bond and Other Non-Equity Markets
- ECB Consults on T2S
- UK Government Discusses Plans for International Centre for Financial Regulation
- FSA Publishes Report on Treating Customers Fairly Initiative
- EU Commission Consults on Fostering Appropriate Regime for Shareholders' Rights
- Spanish Congress Publishes Draft Law on Mortgage Market and Regulations Related to Mortgage and Financial Systems
CROSS MARKET ISSUES
CORPORATE CREDIT MARKETS
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.
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.
FUNDING
New
Treasury Market Best Practices Released: For full story see Government and Federal Agency Markets Issues section.
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 contact Robert Toomey at 646.637.9224.
Treasury May 2007 Quarterly Refunding: For full story see Government and Federal Agency Markets Issues section.
FICC New Reporting Requirements for Risk Management and Business Continuity: For full story see Government and Federal Agency Markets Issues section.
FICC Rule Filing; Modifications to Disqualification Criteria: 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.
GOVERNMENT AND FEDERAL AGENCY MARKETS
New
Treasury Market Best Practices Released: The Treasury Market Practices Group has released its final Best Practices. SIFMA's comment letter on the group's earlier exposure draft is available on its website. If you have any questions, please feel free to contact Robert Toomey at 646.637.9224.
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.
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.
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.
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 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.
MBS AND SECURITIZED PRODUCTS
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.
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.
FICC New Reporting Requirements for Risk Management and Business Continuity: For full story see Government and Federal Agency Markets Issues section.
FICC Rule Filing; Modifications to Disqualification Criteria: For full story see Government and Federal Agency Markets Issues section.
MUNICIPAL MARKETS
EUROPEAN MARKETS
New
CESR Consults on Transparency in Bond and Other Non-Equity Markets: Following its February 2007 call for evidence seeking comments on questions connected to the November 2006 EU Commission request for advice on transparency in non-equities markets, the Committee of European Securities Regulators (CESR) has published for consultation its conclusions following the responses received to the call for evidence, as well as a number of related new questions. Amongst other things, CESR is requesting comments on: (i) the extent to which retail investor protection considerations could justify pre- or post-trade transparency; (ii) the extent to which the new best execution requirements, introduced by the Markets in Financial Instruments Directive (MiFID), will result in a change in the level of transparency of information provided on a voluntary basis by the industry; and (iii) how retail investor education may be improved and delivered. CESR has also announced an open hearing on the matter to be held on May 30, 2007 at its premises in Paris. Comments are invited by June 8, 2007.
New
ECB Consults on T2S: Following the March 2007 announcement by its Governing Council to proceed with the next stage of implementing the TARGET2-Securities (T2S) project, the European Central Bank (ECB) has published a consultation paper containing proposed general and high-level principles defining the nature and scope of the T2S settlement service. Market participants are invited to comment on the proposals with regard to their appropriateness, completeness and relevance. This paper initiates the market consultation phase on the T2S User Requirements, which will be prepared by the Eurosystem by the end of 2007. The paper also invites comments on proposed principles for the development of a common platform for Eurosystem collateral management, which will be called Collateral Central Bank Management (CCBM2). Comments are invited by June 27, 2007.
New
UK Government Discusses Plans for International Centre for Financial Regulation: At a City High-Level Group meeting held on May 9, 2007 in London, Ed Balls, the Economic Secretary to the Treasury, announced the next steps in the Government agenda to increase the global competitiveness of the financial services industry in the UK, which included detailed plans for establishing an International Centre for Financial Regulation (ICFR). The ICFR which is envisaged will carry out research and offer training on international regulation with a view to influencing global regulatory developments.
New
FSA Publishes Report on Treating Customers Fairly Initiative: The Financial Services Authority (FSA) has published a report setting out, amongst other things, an assessment of firms' progress in implementing, by the March 2007 deadline, the consumer outcomes identified by the FSA as part of its Treating Customers Fairly (TCF) initiative in a substantial part of their business. The FSA believes that a failure by firms to meet this deadline points to a failure by, or lack of commitment from, their senior management, which will cause it to increase the focus and intensity of its supervisory approach for the firms concerned. The report also sets the end of December 2008 as a new deadline for firms to be able to demonstrate that they are consistently treating their customers fairly. The FSA points out that firms can do this by showing that they are delivering the TCF consumer outcomes set out on page 2 of the report.
New
EU Commission Consults on Fostering Appropriate Regime for Shareholders' Rights: The EU Commission has published a third consultation paper, entitled "Fostering an Appropriate Regime for Shareholders' Rights", in order to assess the need for, and appropriateness of, further potential measures in the field of shareholders' rights, in order to complement its proposed Directive on the matter. The consultation has been prepared following the Commission's announcement, in the explanatory memorandum to the proposed Directive, of its intention to adopt a separate supplementary non-binding instrument on shareholders' rights. The questions contained in this paper address issues that will be dealt with by a Recommendation, which will be introduced independently from the proposed Directive. Comments are invited by July 27, 2007.
New
Spanish Congress Publishes Draft Law on Mortgage Market and Regulations Related to Mortgage and Financial Systems: The Spanish Congress of Deputies has published a draft Law amending Law 2/1981 of March 25, 1981 on the mortgage market, and other regulations related to mortgage and financial systems. The draft contains all the amendments proposed by the Parliamentary Groups, and is now subject to approval in a plenary meeting of the Congress of Deputies.
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.
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.
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.
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.
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.
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.
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 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.
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.
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.
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.