Tag: Dodd-Frank Act

Derivatives and Uncleared Margins

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, Armen Meyer, and Christopher Scarpati.

Over the past two weeks, the US banking regulators released their much anticipated final margin requirements for the uncleared portion of the derivatives market. [1] This portion amounts to over $250 trillion of the global $630 trillion outstanding and has up to now been operating in “business as usual” mode, [2] while other derivatives have been pushed into clearing. The final rule’s release completes a long process since it was proposed in 2011 and re-proposed in 2014. [3]

The good news for the industry is that the final rule is generally aligned with international standards [4] and similar requirements proposed in major foreign jurisdictions. Most notably, the final rule increases the threshold of swap activity that would bring a financial end user (e.g., hedge fund) within the rule’s scope from $3 billion to $8 billion. This change, which aligns the rule with European and Japanese proposals, eases the compliance burden of smaller, less-risky market participants.


The Pay Ratio Rule: Preparing for Compliance

Avrohom J. Kess is partner and head of the Public Company Advisory Practice at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher/FW Cook co-publication authored by Mr. Kess, Yafit Cohn, Bindu M. Culas, and Michael R. Marino, available here.

On August 5, 2015, the Securities and Exchange Commission (SEC) adopted its much-anticipated final rule implementing the pay ratio disclosure requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). Section 953(b) of the Dodd-Frank Act instructed the SEC to adopt rules requiring reporting companies to disclose the median of the annual total compensation of all company employees other than the company’s chief executive officer (CEO), the CEO’s annual total compensation and the ratio between these two numbers.


The Important Work of Boards of Directors

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent address at the 12th Annual Boardroom Summit and Peer Exchange. 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.

It’s a great honor to be back again speaking at an event sponsored by the New York Stock Exchange. It has been more than six years since, as a relatively new SEC Commissioner, I had the opportunity to ring the closing bell at the Exchange. Of course, a lot has changed since then.

At the time, the country was in the midst of the worst financial crisis since the Great Depression, and our capital markets were in turmoil. Some of our most storied financial institutions had suffered unparalleled economic damage. The money market fund industry was mired in a crisis of confidence, interbank lending had collapsed, and our short-term capital markets had seized up. To stem the bleeding, the federal government engaged in an unprecedented intervention in the financial sector to inject stability and confidence into the capital markets and to the greater economy.

Enforcement Discretion at the SEC

David Zaring is an Associate Professor of Legal Studies and Business Ethics at the Wharton School, University of Pennsylvania. This post is based on an article authored by Professor Zaring.

The Dodd Frank Wall Street Reform Act allowed the Securities & Exchange Commission to bring almost any claim that it can file in federal court to its own Administrative Law Judges. The agency has since taken up this power against a panoply of alleged insider traders and other perpetrators of securities fraud. Many targets of SEC ALJ enforcement actions have sued on equal protection, due process, and separation of powers grounds, seeking to require the agency to sue them in court, if at all.

The SEC has vigorously—and, my article argues, correctly—defended its power to choose where it sues. Agencies have always enjoyed unfettered discretion to choose their enforcement targets and their policy making fora. Formal adjudication under the Administrative Procedure Act (APA), which is the process SEC ALJs offer, has been with us for decades, and has never before been thought to be unconstitutional in any way. It violates no rights, nor offends the separation of powers; if anything scholars have bemoaned the fact that it offers inefficiently large amounts of process to defendants, administered by insulated civil servants who in no way threaten the president’s control over the executive branch. Nonetheless, because defendants, advised by high profile lawyers, have raised appointments clause, due process, equal protection, and right to a jury trial claims against the agency, the article reviews the reasons why these claims will fail, and discusses the timing issues that have led the two appellate courts to address the claims to dismiss them as prematurely brought.


2016 Proxy Season Update

Laura D. Richman is counsel and Michael L. Hermsen is partner at Mayer Brown LLP. This post is based on a Mayer Brown Legal update, available here, authored by Laura D. Richman, Robert F. Gray, Michael L. Hermsen, Elizabeth A. Raymond, and David A. Schuette.

It is time for public companies to think about the upcoming 2016 proxy and annual reporting season. Preparation of proxy statements and annual reports requires a major commitment of corporate resources. Companies have to gather a great deal of information to produce the necessary disclosures. In addition, with increasing frequency, companies are choosing to implement the required elements of their proxy statements with a focus on shareholder engagement, seeking to clearly present, and effectively advocate for, their positions on annual meeting agenda items. As the process for the 2016 proxy and annual reporting season begins, there are a number of recent developments that public companies should be aware of that will impact current and future seasons.

This post is divided into five sections covering the following topics:


Regulatory Approvals for Bank M&A

Edward D. Herlihy is a partner and co-chairman of the Executive Committee at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Herlihy and Richard K. Kim.

The Federal Reserve’s approval last week of M&T’s pending acquisition of Hudson City has prompted a great deal of speculation as to the current state of the regulatory approval process for bank mergers and acquisitions. Announced over three years ago, on August 27, 2012, the M&T/Hudson City transaction has taken longer to receive Federal Reserve approval than any other bank merger. Many in the industry have interpreted the delay in receiving approval for the merger as representing a policy change by the Federal Reserve. As discussed below, we view the transaction as largely an idiosyncratic event that is a result as much of timing as any policy shifts by the Federal Reserve. With this approval, taken together with the others that the Federal Reserve has issued over the past several months, there is now more clarity and certainty to the regulatory approval process for bank M&A. With the exception of the largest systemically important banks, there is no regulatory policy impeding bank mergers.


SEC Interpretation of “Whistleblower” Definition

Nicholas S. Goldin is a partner at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher publication by Mr. Goldin, Peter H. BresnanYafit Cohn, and Mark J. Stein.

On August 4, 2015, the Securities and Exchange Commission (“SEC”) issued an interpretive release to clarify its reading of the whistleblower rules it promulgated in 2011 under Section 21F of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The release expressed the SEC’s view that the employment retaliation protection accorded by the Dodd-Frank Act and codified in Section 21F is available to individuals who report the suspected securities law violation internally, rather than to the SEC. [1]


The Volcker Rule as Structural Law

John C. Coates is the John F. Cogan, Jr. Professor of Law and Economics at Harvard Law School.

In response to the 2008 financial crisis the US Congress introduced the “Volker Rule”—a novel law generally barring banking organizations from proprietary trading and investing in hedge and private equity funds. Before implementing the Volcker Rule, US governmental agencies are required by administrative law to follow specified notice-and-comment procedures, and courts have a role in enforcing an obligation that agencies not be “arbitrary” in finalizing regulations. Many continue to advocate that the financial agencies also use quantified cost-benefit analysis in doing so. In principle, ad law requirements should help the public evaluate the impact of the Rule and hold agencies accountable in exercising their discretion and delegated authority in choosing among ways to implement a legislative requirement. However, in The Volcker Rule as Structural Law: Implications for Cost-Benefit Analysis and Administrative Law, a forthcoming article in a symposium issue of the Capital Markets Law Journal that focuses on the Volcker Rule, I build on prior work published in the Yale Law Journal and Law and Contemporary Problems to argue that the effects of a structural law such as the Volcker rule and its implementation by agencies cannot be reliably or precisely quantified, and courts err when they attempt to force agencies to do so under the guise of review for procedural regularity or substantive rationality.


Title VII and Security-Based Swaps

Robert W. Reeder III and Dennis C. Sullivan are partners at Sullivan & Cromwell LLP. This post is based on a Sullivan and Cromwell publication. The complete publication is available for download here.

In the first half of 2015, the Securities and Exchange Commission (the “SEC”) finalized or proposed a number of rules relating to security-based swaps (“SBSs”). These include final and proposed rules on the reporting and public dissemination of security-based swaps, proposed rules on security-based swap transactions arranged, negotiated or executed by U.S.-based personnel of a non-U.S. person and final rules on the registration of security-based swap data repositories (“SDRs”). This post provides an overview of these regulatory developments.


Circuit Split on Dodd-Frank Act Whistleblower Provision

Aaron M. Katz and Eva Ciko Carman are partners at Ropes & Gray LLP. This post is based on a Ropes & Gray Alert.

On Thursday, September 10, 2015, the United States Court of Appeals for the Second Circuit issued its highly anticipated decision in Berman v. Neo@Ogilvy LLC. The plaintiff-appellant, Daniel Berman, had been the finance director of Neo@Ogilvy. Mr. Berman’s lawsuit alleged that Neo@Ogilvy had unlawfully terminated him because he had reported internally, to senior company officers, supposed violations of GAAP and other accounting irregularities. The question of law presented was whether the Dodd-Frank Act’s whistleblower anti-retaliation provision offers protection to an employee who, like Mr. Berman, is fired after he reports possible financial misconduct internally but before he makes a report to the SEC. The district court had answered that question in the negative and dismissed Mr. Berman’s wrongful termination lawsuit. On appeal, the SEC, participating as amicus curiae, argued that the Dodd-Frank Act’s statutory language is ambiguous and that the SEC’s agency regulation answering that question in the affirmative, Exchange Act Rule 21F-2, is a reasonable interpretation of the statute. The Second Circuit agreed with the SEC, thereby creating a circuit split on the issue and raising the possibility that the Supreme Court will soon weigh in.


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