In a remaining vestige of the financial crisis, the U.S. Bankruptcy Court for the District of Delaware (“Court”) recently issued an opinion upholding a repo counterparty’s sale of collateral following the insolvency of the counterparty to the repo. The Chapter 7 Trustee for the insolvent counterparty had challenged the sale on the basis that the sale, conducted through an auction, was not conducted in good faith or in a commercially reasonable manner and therefore violated the repurchase agreement.  At auction, an affiliated trading desk of the non-defaulting party submitted the winning bid (there were 2 bids submitted) and took possession of the securities upon payment of the auction price.  The issue was distilled and examined on the basis of the following three components:

  1. was the decision to determine the Net Asset Value of the securities held as collateral rationale or in good faith;
  2. was the auction process in accordance with industry standards;
  3. was the non-defaulting counterparty’s acceptance of the value obtained in the auction rationale or in good faith.

Continue Reading Bankruptcy Court Affirms Auction Process Used Following Repo Counterparty Insolvency

There were two important market infrastructure developments in May:  (1) the approval of the Depository Trust and Clearing Corporation’s (DTCC) Centrally Cleared Institutional Triparty Service (CCIT Service); and (2) the establishment of BNY Mellon Government Securities Services Corp., a new wholly owned subsidiary of The Bank of New York Mellon Corporation (BNY Mellon).
Continue Reading Repo Market Infrastructure Update – May 2017

The SEC has finalized a rule requiring registered advisers to report certain information related to the use of derivatives and borrowings in separately managed accounts (“SMAs”).  The release can be found here (the “Release”).  This posts seeks to provide advisers with a quick snap shot of the information they will need to collect and disclose.  The compliance date is October 1, 2017.
Continue Reading Quick Guide to New Form ADV Derivative and Borrowings Disclosure

At an open meeting of the U.S. Commodity Futures Trading Commission (CFTC) last Thursday, September 8, Chairman Massad indicated that adopting a final rule to expand the scope of interest rate swaps (IRS) required to be cleared under Section 2(h) of the Commodity Exchange Act (the Clearing Requirement) is a priority for the end of 2016.  The CFTC published a proposed rule to amend CFTC Regulation 50.4(a) on June 9, 2016 (the Proposal).  As proposed, the expanded Clearing Requirement generally consists of adding new currencies to the various classes of IRS and extending the termination date for Overnight Index IRS already subject to the Clearing Requirement.  The proposed additions to the Clearing Requirement are:
Continue Reading Chairman Massad Indicates Expansion to Clearing Requirement is a Priority for 2016

Effective September 2, 2016, the Federal Reserve Bank of New York (FRBNY) revised the reverse repurchase transaction (RRP) counterparty eligibility criteria with respect to money market funds (MMFs).  The revisions expand the set of potential RRP counterparties.  The FRBNY expects the number of RRP counterparties to be 150 as a result of the revisions.
Continue Reading Expanded MMF Eligibility Criteria for FRBNY Repo Progam