Tag: Dodd-Frank Act


Federal Court Injunction Against SEC Prosecution

John J. Falvey, Jr. and Daniel J. Tyukody are partners in the Securities Litigation & White Collar Defense Group at Goodwin Procter LLP. This post is based on a Goodwin Procter Financial Services Alert.

A federal judge in Manhattan recently granted a preliminary injunction against the Securities and Exchange Commission in the latest of a series of rulings raising issues with the SEC’s use of in-house proceedings before its administrative law judges (“ALJs”) rather than proceed with its charges in federal court. The SEC has prevailed more frequently in its administrative proceedings than it has in federal court, where defendants have more robust procedural rights. This ruling by a judge in the Southern District of New York indicates the federal courts’ ongoing concerns with the SEC’s increased preference for administrative proceedings before its own ALJs. But the SEC has the ability to correct the constitutional flaw that the court found to exist with its appointments of ALJs, suggesting that this and similar rulings will likely only raise a short-term disruption of the SEC’s use of its in-house courts.

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Dodd-Frank Turns Five, What’s Next?

Daniel F.C. Crowley is a partner at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Crowley, Bruce J. HeimanSean P. Donovan-Smith, and Giovanni Campi.

The 2008 credit crisis was the beginning of an era of unprecedented government management of the capital markets. July 21, 2015 marked the fifth anniversary of the hallmark congressional response, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Dodd-Frank resulted in an extraordinary revamp of the regulatory regime that governs the U.S. financial system and, consequently, has significant implications for the U.S. economy and the international financial system.

Members of Congress recognized the fifth anniversary of Dodd-Frank in markedly different ways. House Financial Services Committee Chairman Jeb Hensarling (R-TX) has held two of a series of three hearings to examine whether the United States is more prosperous, free, and stable five years after enactment of the law. In contrast, Senator Elizabeth Warren (D-MA)—one of the leading proponents of the law—and other members of Congress have criticized the slow pace of implementation by the regulatory agencies. Meanwhile, Senate Banking Committee Chairman Richard Shelby (R-AL) is advancing the “Financial Regulatory Improvement Act of 2015,” which seeks to amend a number of provisions of Dodd-Frank.

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Fed/FDIC Comments on Wave 3 Resolution Plans

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Mike Alix, Adam Gilbert, and Armen Meyer.

On July 28th, the FDIC and the Federal Reserve Board (together, “the regulators”) announced that they have provided private feedback on the resolution plans of 119 Wave 3 banking institutions [1] and the three systemically important non-bank financial institutions. [2] Unlike the regulators’ highly critical August 2014 public commentary on the 2013 resolution plans filed by Wave 1 banking institutions, [3] this week’s comments are largely silent on the regulators’ view of the plans’ adequacy:

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A Reassessment of the Clearing Mandate

Ilya Beylin is a Postdoctoral Research Scholar at Columbia Law School and the Editor-at-Large of the CLS Blue Sky Blog. This post is based on an article authored by Mr. Beylin.

Following the financial crisis, the G-20 nations committed to a raft of reforms for swap markets. These reforms are intended to mitigate systemic risk, and with it, the damage that failing financial institutions inflict on the financial sector and the broader economy. A core component of the reforms is the introduction of the “clearing mandate” for standardized swaps.

Clearing refers to the interposition of a clearinghouse, or central counterparty, between the two parties to a financial transaction. When a swap is cleared, the initial swap is extinguished and two new swaps are created in its place. The first is an identical swap between the first counterparty and the clearinghouse, and the second is another identical swap between the clearinghouse and the second counterparty. In this manner, absent default, parties make payments as they would if they had transacted bilaterally and the clearinghouse simply passes the payments between counterparties. However, when one of the counterparties to a transaction defaults, the presence of the clearinghouse as an intermediate counterparty shields the non-defaulting party from losses; that is because although the defaulting party may not pay the clearinghouse, the clearinghouse is still liable for, and makes, the payment to the remaining counterparty.

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SEC Adopts CEO Pay Ratio Disclosure Rule

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update by Ms. Gregory, John P. Kelsh, Thomas J. Kim, Corey Perry, and Rebecca Grapsas. Related research from the Program on Corporate Governance includes The Growth of Executive Pay by Lucian Bebchuk and Yaniv Grinstein.

On August 5, 2015, the Securities and Exchange Commission (SEC), by a 3-2 vote, adopted rule amendments [1] to implement Section 953(b) of the Dodd-Frank Act, which requires public companies to disclose the “pay ratio” between its CEO’s annual total compensation and the median annual total compensation of all other employees of the company. [2]

The pay ratio disclosures that will result from this much-anticipated new rule will further heighten scrutiny on corporate executive compensation practices—with specific focus on how CEO compensation compares to the “median” employee. Companies should be aware that, depending on the magnitude of pay ratios, these new disclosures may exacerbate existing concerns among investors, labor groups and others around executive compensation.

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An Interview with Chief Justice Strine

Judy Warner is editor-in-chief of NACD Directorship. This post is based on an interview between Ms. Warner and Delaware Supreme Court Chief Justice Leo E. Strine Jr. The full interview is available here. Research by Chief Justice Strine recently issued by the Program on Corporate Governance includes A Job is Not a Hobby: The Judicial Revival of Corporate Paternalism, discussed on the Forum here; and Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law, discussed on the Forum here. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

As your predecessor Chief Justice Myron Steele was stepping down in 2013, Directorship asked him if he had any words of advice for his successor. Chief Justice Steele suggested that his successor be prepared for crisis management because you never know what’s going to happen. So, I’m curious: have you had a crisis so far?

We’ve had a crisis. For example, we’re dealing very much this week with an emerging development that’s affecting our entire state government around the cost of health insurance for our employees. There are very tough choices that have to be made, that regardless of which choice is going to be made, it’s going to have an influence on the ability of our government to fund other priorities.

What you have to do in all these things is understand that life is sort of a series of planned emergencies. What we have tried to do is identify a set of priorities for future action that builds on existing achievements. I’m very fortunate I had a wonderful predecessor and friend in Myron Steele, who cares very much about our judiciary and worked very hard. I had a very high-quality predecessor, and I can build off that platform of making a very good organization.

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A Registration Framework for the Derivatives Market

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

The financial crisis of 2008, and the ensuing turmoil, shook the global economy to its core and exposed the weaknesses of our regulatory regime. Years of lax attitudes, deregulation, and complacency allowed an unregulated derivatives marketplace to cause serious damage to the U.S. economy, resulting in significant losses to investors. As a result, Title VII of the Dodd-Frank Act tasked the SEC and the CFTC with establishing a regulatory framework for the over-the-counter swaps market. In particular, the SEC was tasked with regulating the security-based swap (SBS) market and the CFTC was given regulatory authority over the much larger swaps market, covering products such as energy and agricultural swaps.

Today [August 5, 2015], the global derivatives market is estimated to exceed $630 trillion worldwide—with approximately $14 trillion representing transactions in SBS regulated by the SEC. The regulatory regime for the SBS market, however, cannot go into effect until the SEC has put in place the necessary rules to implement Title VII.

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SEC Adopts Pay Ratio Disclosure Rules

Michael J. Segal is partner in the Executive Compensation and Benefits Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Segal and Michael J. Schobel. Related research from the Program on Corporate Governance about CEO pay includes Paying for Long-Term Performance (discussed on the Forum here) and the book Pay without Performance: The Unfulfilled Promise of Executive Compensation, both by Lucian Bebchuk and Jesse Fried.

The SEC yesterday [August 5, 2015] voted 3-2 to adopt the long-awaited final pay ratio disclosure rules under the Dodd-Frank Act. The rules add new Item 402(u) of Regulation S-K, which will require SEC reporting companies to disclose annually (1) the median of the annual total compensation of all of their employees, excluding the CEO, (2) the annual total compensation of the CEO and (3) the ratio of the annual total compensation of the median employee to the CEO’s annual total compensation. Below is a brief summary of the final rules.

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SEC Chair’s Statement on Pay Ratio

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks at a recent open meeting of the SEC, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff. Related research from the Program on Corporate Governance about CEO pay includes Paying for Long-Term Performance (discussed on the Forum here) and the book Pay without Performance: The Unfulfilled Promise of Executive Compensation, both by Lucian Bebchuk and Jesse Fried.

To say that the views on the pay ratio disclosure requirement are divided is an obvious understatement. Since it was mandated by Congress, the pay ratio rule has been controversial, spurring a contentious and, at times, heated dialogue. The Commission has received more than 287,400 comment letters, including over 1,500 unique letters, with some asserting the importance of the rule to shareholders as they consider the issue of appropriate CEO compensation and investment decisions, and others asserting that the rule has no benefits and will needlessly cause issuers to incur significant costs.

These differences in views were evident at the time the Commission voted to propose the pay ratio rule. That the Commission was even considering the rule proposal was, for example, criticized as contrary to our mission. We may hear similar thoughts today [August 5, 2015].

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The CEO Pay Ratio Rule

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at a recent open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [August 5, 2015], the Commission takes another step to fulfill its Congressional mandate to provide better disclosure for investors regarding executive compensation at public companies. As required by Section 953(b) of the Dodd-Frank Act, today’s rules would require a public company to disclose the ratio of the total compensation of its chief executive officer (“CEO”) to the median total compensation received by the rest of its employees. The hope, quite simply, is that this information will better equip shareholders to promote accountability for the executive compensation practices of the companies that they own.

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