3 Things About…

This is an inaugural post in an occasional series that will attempt to distill a select current event to its essence.

Consistent with the (arguably bland yet) very accurate name of our blog, the focus of this series will be on regulatory and transactional issues related to derivatives and repurchase agreements.  Our first topic is..

…The CFTC’s Proposed Amendments to Form CPO-PQR

Continue Reading 3 Things About…The CFTC’s Proposed Amendments to Form CPO-PQR

Re-Proposed Rule 18f-4: How Not to Distinguish Commitments from Derivatives is the second in a series of posts about the proposed treatment of so-called “unfunded commitment agreements” under re-proposed Rule 18f-4 under the Investment Company Act of 1940.

We thank our colleague Stephen A. Keen, who originally published this post at our sister blog, the Asset Management ADVocate.

Good day. Good to pause and think about commitments before we commit to a regulatory course of action! DR2

Does Re-Proposed Rule 18f-4 Have Commitment Issues? is the first in a series of posts about the proposed treatment of so-called “unfunded commitment agreements” under re-proposed Rule 18f-4 under the Investment Company Act of 1940.

We thank our colleague Stephen A. Keen, who originally published  this post at our sister blog, the Asset Management ADVocate.

Good day.  Good to face commitment issues head on! DR2

My initial posts on re-proposed Rule 18f-4 reflect my generally favorable reactions to the SEC’s attempt to develop a practical, hence imperfect, means of implementing the limitations on senior securities required by Section 18 of the Investment Company Act of 1940. My initial series of post written at the time Rule 18f-4 was first proposed attempted to explain some of the inherent difficulties of this task. Read the full article on our sister blog Asset Management ADVocate.

On April 6, 2020, the Commodity Futures Trading Commission (“CFTC”) Office of Customer Education and Outreach (“OCEO”) published an additional customer advisory (“Advisory”) cautioning the public regarding potential fee scams. OCEO noted that many of these schemes are now targeting individuals that may be financially impacted by the Coronavirus pandemic. OCEO previously published a Customer Advisory on March 31, 2020 regarding potential fraudulent schemes posing to take advantage of market volatility related to the pandemic. (See our blog post on this advisory here).

Continue Reading CFTC Publishes New Customer Advisory Cautioning Away From Potential Coronavirus-Related Fee Scams

Three federal bank regulatory agencies – the FRB, FDIC, and OCC – today announced two COVID-19 related actions to support the U.S. economy and allow banking organizations to continue to lending to households and businesses:

  • Allow early adoption of the “standardized approach for measuring counterparty credit risk,” or “SA-CCR,” which is a new way for banking organizations to measure counterparty credit risk, in pertinent part, from derivatives; and
  • Provide certain banks with an additional two years to transition to the new “current expected credit loss,” or “CECL,” an accounting standard that is used for purposes of determining how much regulatory capital a bank has to set aside.

This blog post provides additional information about these announcements.

Continue Reading Bank Regulators Announce Actions to Support Economy

In the midst of the COVID-19 pandemic, the financial markets have experienced significant volatility. During the course of this volatility, exchanges have halted trading multiple times after declines in trading trigged circuit breakers. In addition, trading floors are transitioning to electronic trading in efforts to prevent the transmission of COVID-19 on physical trading floors. With the recent turmoil, this post provides a high-level summary of the various types of circuit breakers and what can be expected.

Read the full article on our sister blog Asset Management ADVocate.

Federal and state bank regulators today issued an interagency statement to provide additional information to financial institutions (“FIs“) that are working with borrowers affected by the Coronavirus Disease 2019 (“COVID-19“).

This post will provide a bullet point summary of this statement.

Continue Reading Federal and State Regulators Issue Statement Encouraging Banks to Work with Borrowers Affected by COVID-19

Equity derivatives are used by a wide range of buy-side firms.  For example, public companies use equity derivatives on their own shares for treasury management purposes (for example, share repurchase transactions and other stock buy-back programs).  Also, investment managers and their clients use equity derivatives in pursuit of investment objectives and related strategies.

Given the unprecedented levels of market volatility, counterparties to equity derivatives should consider analyzing their trade confirmations to determine whether market events could result in:

  • The termination of a particular transaction prior to its scheduled termination date; or
  • An additional payment by one of the counterparties.

In addition, it is a good idea to make sure that any payment or pricing provisions that reference a particular rate (like the Fed Funds Effective Rate) will function as intended in the current low interest rate environment.

Continue Reading Equity Derivatives and Market Volatility: Check Trade Confirmations to Determine Whether Early Termination or Additional Payments May Be Required

The Federal Deposit Insurance Corporation (FDIC) today issued an “FAQ” to financial institutions entitled, Frequently Asked Questions for Financial Institutions Affected by the Coronavirus Disease 2019 (Referred to as COVID-19).

The FDIC has highlighted the following items in respect of this FAQ:

  • The FDIC encourages financial institutions to work with customers affected by COVID-19 in a prudent manner, especially borrowers from industry sectors particularly vulnerable to the volatility in the current economic environment and small businesses and independent contractors that are reliant on affected industries.
  • A financial institution’s prudent efforts to modify the terms on existing loans for affected customers will not be subject to examiner criticism.

Continue Reading Payment Accommodations Under Commercial Loans by Banks to Borrowers: Remember the Related Interest Rate Hedge Documentation