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Dodd-Frank Update — Several Regulatory and Legislative Proposals of Note

REGULATORS PROPOSE VOLCKER RULE: 

On October 11, 2011, the Office of the Comptroller of the Currency, Treasury (OCC), Board of Governors of the Federal Reserve System (Board), Federal Deposit Insurance Corporation (FDIC), and Securities and Exchange Commission (SEC) issued a joint proposed rule implementing the long awaited Volcker Rule. This proposal establishes exemptions from the prohibition on proprietary trading and restrictions on covered fund activities and investments as well as limitations on those exemptions. In addition, the proposal requires certain banking entities to report quantitative measurements with respect to their trading activities and to establish enhanced compliance programs regarding the Volcker Rule, including adopting written policies and procedures. Appendices to the proposal provide the quantitative measurements to be used to report trading activities, commentary regarding the factors the agencies propose to use to distinguish permitted market making-related activities from prohibited proprietary trading and the minimum requirements and standards for compliance programs. Comments should be received on or before January 13, 2012. A copy of the proposed rule is available here.

FSOC PROPOSES RULE TO SUPERVISE AND REGULATE CERTAIN NON-BANK FINANCIAL COMPANIES: 

On October 11, 2011, the Financial Stability Oversight Council (FSOC) issued its second proposed rule and interpretive guidance to provide additional details regarding the framework that FSOC intends to use in the process of assessing whether a nonbank financial company could pose a threat to U.S. financial stability, and further opportunity for public comment on FSOC’s approach to making determinations to require supervision and regulation of certain nonbank financial companies in accordance with Title I of Dodd-Frank, previously proposed on January 26, 2011. The proposed rule, previously proposed on January 26, 2011, has been modified to provide additional details about the processes and procedures through which FSOC may make this determination under Dodd-Frank, and the manner in which a nonbank financial company may respond to and contest a proposed determination. Importantly, the interpretive guidance sets out a three-stage process of increasingly in-depth evaluation and analysis leading up to a proposed determination that a nonbank financial company could pose a threat to the financial stability of the United States. The first stage would involve a quantitative analysis by applying thresholds that related to the framework categories of size, interconnectedness, leverage and liquidity risk and maturity mismatch. A company will be evaluated further in stage 2 only if it both meets the total consolidated assets threshold ($50 billion in global consolidated assets for U.S. global financial companies or $50 billion in U.S. total consolidated assets for foreign nonbank financial companies) and any one of the other enumerated metrics. Stage 2 would involve a wide range of quantitative and qualitative industry-specific and company-specific factors. Stage 3 would focus on the company’s potential to pose a threat to the U.S. financial system. Comments are due by December 19, 2011. A copy of the proposed rule is available here.

PROPOSED LEGISLATION ON TO EXTEND DEADLINE FOR DERIVATIVES RULEMAKING:

 A bill was introduced in the Senate to extend the deadline for rulemaking on derivatives to July 16, 2012. The Dodd-Frank Improvement Act of 2011 (S. 1650) would require the SEC, the CFTC and other relevant regulators to jointly adopt an implementation schedule for derivatives regulations by December 31, 2011, which would, among other things, specify schedules for publication of final rules and for the effective dates for provisions in Dodd-Frank on derivatives. The proposed bill would also allow the regulators to issue exemptions with respect to swap transactions, activities or persons from the Dodd-Frank Act derivatives provisions, would exempt end-users of swaps from margin requirements, would revise the definition of major swap participants to “prevent Main Street businesses that are using derivatives to hedge business risks from being regulated like swap dealers,” and would exempt inter-affiliate transactions from the definition of “swaps.” The bill would also create the Office of Derivatives within the SEC to “administer rules, coordinate oversight and monitor the developments in the market.” The text of the bill is available by clicking here.

PROPOSED LEGISLATION TO FREEZE REGULATORY RULEMAKING: 

Two bills were introduced in the House of Representatives to freeze regulatory rulemaking actions during a “moratorium period” and to repeal certain existing regulations. The Job Creation and Regulatory Freeze Act of 2011 (H.R. 3194) would establish a moratorium period until January 20, 2013, prohibiting regulators from adopting any “covered regulations,” which would include final regulations that, among other things, would have an adverse effect on employment, economy or public health or are likely to “have an annual effect on the economy of $100,000,000 or more.” At the same time, the bill would allow rulemaking, to the extent necessary “due to an imminent threat to human health or safety, or any other emergency” or if it promotes “private sector job creation,” encourages economic growth or reduces “regulatory burdens.” The Stop the Regulation Invasion Please Act of 2011, or STRIP Act of 2011 (H.R. 3181) would also establish a two-year moratorium period for all new rulemaking, except in certain limited circumstances. In addition, that bill would repeal, with certain exceptions, all rules that became effective after October 1, 1991. The existing rules that would continue in effect would need to be justified before the Congress based on cost-benefit analysis. The H.R. 3194 is available by clicking here; and the H.R. 3181 is available by clicking here.

©2021 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume I, Number 295
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About this Author

Shareholder

Ms. Durham has experience on both the legal and business sides of derivatives, private funds, complex financing transactions, and structured products. Prior to joining Greenberg, she was an investment banker and Head of Structured Equity Products at BNP Paribas where she concentrated on structuring equity financing and equity derivative transactions for corporations and hedge funds. Prior to BNP, she was a partner in the Corporate Dept. at the law firm of Weil, Gotshal & Manges LLP.

Ms. Durham has been involved as both a lawyer and...

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