Financial Crisis News Center

Chairman Frank Circulates Draft Legislation Regulating OTC Derivatives

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

Rep. Barney Frank, Chair of the Financial Services Committee, has introduced draft legislation regulating the OTC derivatives markets by mandating exchange clearing and trading for the majority of derivatives products while preserving the over-the-counter market for specialized derivatives. The Chair’s draft is designed to implement the broad goals of the Obama Administration to increase transparency and eliminate systemic risk in the OTC derivatives markets while at the same time protecting end users seeking to hedge their risks and preventing much of the U.S. derivatives market from being forced overseas.

Fed Proposes Changes to Valuation of TALF Collateral

This story appeared in Bank Digest.

The Fed has announced two changes to the procedures for evaluating asset-backed securities (ABS) pledged to the Term Asset-Backed Securities Loan Facility (TALF). First, it has proposed a rule that would establish criteria for the Federal Reserve Bank of New York(FRBNY) to determine the Nationally Recognized Statistical Rating Organizations (NRSROs) whose ratings are accepted for determining the eligibility of ABS to be pledged as collateral at the TALF. According to the Fed, the proposed rule, which would require a certain minimum level of experience in rating deals of any particular type, would likely result in an expansion of TALF-eligible NRSROs for ABS. It is intended to promote competition among NRSROs and ensure appropriate protection against credit risk for the U.S. taxpayer.

NYSE Proposes Significant Changes to Its Corporate Governance Listing Standards

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

In a filing with the SEC, the NYSE has proposed significant changes to its corporate governance listing standards, in part to conform the standards to the requirements of Item 407 of Regulation S-K, which consolidates director independence and related corporate governance disclosure requirements under a single item. Essentially, the NYSE would eliminate each disclosure requirement currently included in the listing standards that is also required by Item 407 and incorporate directly into the standards the applicable disclosure requirement of Item 407. Upon SEC approval, the changes would take effect on January 1, 2010. Release No. 34-60653.

International Supervisors Agree on Stronger Regulations

John M. Pachkowski, J.D., Editor, CCH Federal Banking Law Reporter and Bank Digest; Author, Anti-Money Laundering and Bank Secrecy: Compliance and the USA PATRIOT Act; Co-Author CCH Financial Privacy Law Guide

The Group of Central Bank Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision have announced that they have agreed to a comprehensive set of measures to strengthen the regulation, supervision and risk management of the banking sector. These measures are intended to substantially reduce the probability and severity of economic and financial stress.

President Jean-Claude Trichet, who chairs the Group, noted that “the agreements reached today among 27 major countries of the world are essential as they set the new standards for banking regulation and supervision at the global level”.

Senator Schumer Urges SEC to Prohibit Flash Orders

This story appeared in Jim Hamilton's World of Securities Regulation

In a letter to SEC Chair Mary Schapiro, Senator Charles Schumer (D-NY) urged the Commission to ban the practice of flash trading that gives advance knowledge of stock orders to certain traders or he would consider introducing legislation to ban the practice in connection with optional pre-routing programs in order to ensure that trading in the capital markets is fair and transparent for all market participants. In his view, market integrity is being compromised by the ability of some insiders to view order information before it is available to the entire market and use electronic trading strategies to profit from that information at the expense of other investors.

House Passes Legislation Allowing SEC to Sanction Former SRO Officials

James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The House has passed legislation, HR 2623, expressly authorizing the SEC to bring actions against persons formerly associated with a regulated or supervised entity, such as an investment company or an SRO, for misconduct that occurred during that association.  The bill passed the House unanimously by voice vote. The legislation closes a loophole in the securities laws allowing those who engage in misconduct while working for an entity regulated by the SEC, like a stock exchange, to resign and avoid being held accountable for their wrongdoing.