04.26.2012
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Updates
SEC Adopts New Rules Defining Swaps-Related Terms
On Wednesday, April 18, 2012, the Securities and Exchange Commission (the "SEC") unanimously adopted a new rule to define a series of terms related to the over-the-counter swaps market. The rules, adopted pursuant to Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), were written jointly with the Commodity Futures Trading Commission (the "CFTC").
The joint rules of the SEC and the CFTC define the terms “security-based swap dealer” and “major security-based swap participant” as part of the Securities Exchange Act of 1934. In developing these definitions, the SEC staff was influenced by existing information regarding the single-name credit default swap market, which will constitute the vast majority of SEC regulated security-based swaps. The staff also relied on the dealer-trader distinction, which guides determinations regarding dealer status in the traditional securities market and which already is used by participants in that market.
Federal Agency Publish Joint Release on Volcker Rule Conformance Period
On Thursday, April 19, 2012, the Federal Reserve Board (the "Fed") announced its approval of a statement clarifying that an entity covered by section 619 of the Dodd-Frank Act, or the so-called Volcker Rule, has the full two-year period provided by the statute to fully conform its activities and investments, unless the Fed extends the conformance period. Section 619 generally requires banking entities to conform their activities and investments to the prohibitions and restrictions included in the statute on proprietary trading activities and on hedge fund and private equity fund activities and investments.
Section 619 requires the Fed to adopt rules governing the conformance periods for activities and investments restricted by that section, which the Board did on February 9, 2011. The Fed’s conformance rule provides entities covered by Section 619 a period of two years after the statutory effective date, which would be until July 21, 2014, to fully conform their activities and investments to the requirements of Section 619 and any implementing rules adopted in final under that section, unless that period is extended by the Fed.
The Fed, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the SEC, and the CFTC (the "agencies") plan to administer their oversight of banking entities under their respective jurisdictions in accordance with the Board’s conformance rule and the attached statement. The agencies have invited public comment on a proposal to implement the Volcker rule, but have not adopted a final rule.
The Fed Forms the Model Validation Council
On Friday, April 20, 2012, the Federal Reserve Board (the "Fed") announced the formation of the Model Validation Council, which is intended to provide the Fed with expert and independent advice on its process to rigorously assess the models used in stress tests of banking institutions. Section 165 of the Dodd-Frank Act requires the Fed to conduct annual stress tests of large bank holding companies and systemically important, nonbank financial institutions supervised by the Fed. The Model Validation Council will provide input on the Fed’s efforts to assess the effectiveness of the models used in the stress tests. The Council is intended to improve the quality of the Fed's model assessment program and to strengthen the confidence in the integrity and independence of the program.
© 2012 Perkins Coie LLP
