IOSCO Publishes Principles for Ongoing Disclosure for Asset-Backed Securities

The IOSCO has published the Final Report on Principles for Ongoing Disclosure for Asset Backed Securities (ABS Ongoing Disclosure Principles), which contains eleven Principles designed to provide guidance to securities regulators who are developing or reviewing their regulatory regimes for ongoing disclosure for asset-backed securities (ABS).  IOSCO states that the objective is to enhance investor protection by facilitating a better understanding of the issues that should be considered by regulators in relation to ongoing disclosure regimes for ABS.

View Press Release in full here (links externally to IOSCO website).
See also related news story and link: IOSCO Publishes Recommendations for Securitization Regulation

Proposed Rule on Capital, Margin and Segregation Requirements for Security-Based SBSDs and MSBSPs and Capital Requirements for Broker-Dealers (Pre-Fed. Reg. Version; Correction)

Technical corrections are being made to CFTC Release 77 FR 70214, which proposed capital and margin requirements for security-based swap dealers (“SBSDs”) and major security-based swap participants (“MSBSPs”).  The release also proposed segregation requirements for SBSDs and notification requirements with respect to segregation for SBSDs and MSBSPs as well as increases to the minimum net capital requirements for broker-dealers permitted to use the alternative internal model-based method for computing net capital.

View Proposed Rule in full here (links externally to SEC website).

SEC Chairman Mary Schapiro to Step Down; Commissioner Elisse Walter to Become Chairman

The SEC announced that after nearly four years in office, SEC Chairman Mary L. Schapiro will step down on December 14, 2012.  Schapiro became Chairman in the wake of the financial crisis in January 2009 — appointed by President Barack Obama on January 20, 2009, and unanimously confirmed by the Senate.

Schapiro’s replacement will be current SEC Commissioner Elisse Walter.  Commissioner Walter was appointed by President George W. Bush in 2008.  She had previously served as Senior Executive Vice President, Regulatory Policy and Programs, at FINRA/NASD, and served as General Counsel at the CFTC.

Lofchie Comment:  We have provided links below to a number of Commissioner Walter’s speeches on areas that seem to be in her particular focus.  Also, in the gray box at the bottom of the page, we have provided links to a number of recent Cabinet news items concerning her activities. 
       As both her speeches and the recent news items demonstrate, the Commissioner has been extremely focused on issues involving municipal securities, pushing for both more regulation and legislation in this area.  As Chairman, she will likely continue focus in this direction, continuing her already established momentum in this area. 
       Commissioner Walter has also done quite a bit of work with non-US regulators.  In one of the news stories linked below, I had commented on the different tones taken by CFTC Chairman Gensler and soon-to-be SEC Chairman Walter in their approaches to international regulators, with Chairman Gensler essentially chiding non-U.S. regulators for not following his leadership and Commissioner Walter espousing a more cooperative approach.   Her approach to international cooperation is not limited to matters involving swaps; for example, in the February 24, 2010 speech linked below, she speaks enthusiastically in favor of global accounting standards.  (Commissioner Walter is also particularly interested in accounting issues.)
        Lastly, I note that Commissioner Walter is engaged with the question of the “fiduciary” obligations that broker-dealers and advisers owe to their clients. 


Recent Speeches by Commissioner Walter:


Oct. 2, 2012

Remarks to American Bar Association International Section

May 16, 2012

Remarks at the 37th International Organization of Securities Commissions Annual Conference

Nov. 18, 2011

Remarks at the Closing of the International Institute for Securities Enforcement and Market Oversight, Washington, D.C.

Sep. 12, 2011

Remarks before the North American Securities Administrators Association 2011 Annual Conference, Wichita, Kansas

Jul. 6, 2010

Supervisory Cooperation: The Next Frontier for International Securities Regulation, Washington, D.C.

Feb. 24, 2010

Statement at SEC Open Meeting – Statement in Support of Convergence and Global Accounting Standards, Washington, D.C.

Municipal Securities Market

Oct. 19, 2012

Enhancing Disclosure in the Municipal Securities Market: What Now?

Oct. 1, 2012

Bringing Municipal Bond Trading into the Light

Jul. 31, 2012

Remarks on News Conference Call About the SEC’s Report on the Municipal Securities Market

Jul. 29, 2011

Statement at SEC Field Hearing on the State of the Municipal Securities Market, Birmingham, Alabama

May 4, 2011

Keynote Address at the National Federation of Municipal Analysts (NFMA) Twenty-Eighth Annual Conference, Charleston, South Carolina

Dec. 7, 2010

Statement at SEC Field Hearing on the State of the Municipal Securities Market, Washington, D.C.

Oct. 29, 2010

Remarks before the 43rd Annual Securities Regulation Seminar, Los Angeles, California

Oct. 28, 2010

Key Note Address at the National Association of Bond Lawyers (NABL) 35th Bond Attorneys’ Workshop, San Antonio, Texas

Sep. 21, 2010

Statement at SEC Field Hearing on the State of the Municipal Securities Market, San Francisco, California

Jun. 30, 2010

Statement at SEC Open Meeting, Washington, D.C.

May 26, 2010

Statement at SEC Open Meeting – Municipal Securities Disclosure, Washington, D.C.

Investment Management

Feb. 10, 2011

A Tale of Two Studies: Investment Management Institute Keynote Remarks, New York, New York

Jan. 19, 2011

Statement on Study Enhancing Investment Adviser Examinations, Washington, D.C.
See Also:  Study

Jul. 21, 2010

Statement at SEC Open Meeting-Form ADV, Washington, D.C.

Feb. 26, 2010

Remarks at 2010 Investment Adviser Compliance Forum, Arlington, Virginia

See: SEC Press ReleaseStatement by President Barack Obama; Statement by House Financial Services Committee Chairman Spencer Bachus; Statement by SIFMA; Statement by FINRA.
See also: Related stories and commentary on Commissioner Walter’s work on cross-border regulation (October 11), municipal bond trading (October 2), and enhanced disclosure in the municipal securities market (October 25).


Capital, Margin, and Segregation Requirements for Security-Based SDs and MSPs, and Capital Requirements for Broker-Dealers; Proposed Rule (SEC – Fed. Reg. Version)

In accordance with Dodd-Frank, the SEC is proposing capital and margin requirements for security-based swap dealers (“SBSDs”) and major security-based swap participants (“MSBSPs”), segregation requirements for SBSDs, and notification requirements with respect to segregation for SBSDs and MSBSPs.  The SEC also is proposing to increase the minimum net capital requirements for broker-dealers permitted to use the alternative internal model-based method for computing net capital.

The SEC’s proposed rules are intended to accomplish the following:

  • Set minimum capital requirements for security-based swap dealers and major security-based swap participants. 
  • Establish margin requirements for security-based swap dealers and major security-based swap participants with respect to non-cleared security-based swaps. 
  • Establish segregation requirements for security-based swap dealers and notification requirements with respect to segregation for security-based swap dealers and major security-based swap participants.

Comments Due: January 22, 2013.

View release here: 77 FR 70213.
See also: Press Release and FAQ; The Regulatory Regime for Security-Based Swaps (graphic).

Interagency Statement on Dodd-Frank Act Section 612 Restrictions on Conversions of Troubled Banks

The FDIC, OCC, Federal Reserve, and the Conference of State Bank Supervisors have released a statement that explains the requirements of Section 612 of the Dodd-Frank Act and the processes through which banks or savings associations apply to convert their charters.  Section 612 imposes restrictions on conversions of certain national banks or federal savings associations to state-chartered institutions and on conversions of certain state-chartered banks or savings associations to national banks or federal savings associations.  The statement clarifies supervisory expectations for regulatory conversion requests subject to Section 612, and describes the general prohibition on charter conversions by certain insured depository institutions.  This prohibition occurs when the institution is subject to a cease-and-desist order or other formal enforcement action issued by, or a memorandum of understanding entered into with, its current federal banking agency or state bank supervisor concerning a significant supervisory matter.  It details also the circumstances under which an institution may be eligible for an exception to the conversion prohibition.

View statement in full here (links externally to OCC website).

The Stable of Talent at Bretton Woods: Economists, Part 2

The best-known economists at Bretton Woods were British and American, but there were quite a few from other countries who made significant contributions in books or articles. The list below also notes some of the academic positions that the economists had at some point during their careers. Pierre Mendès-France, much better known as a politician (he later became prime minister of France), wrote some economic works early in his career.

League of Nations
Ragnar Nurkse: Estonian national; author, International Currency Experience: Lessons of the Inter-War Period (1944); Professor of Economics, Columbia University
Jim Brigden: P. P., on Purchasing Power and the Pound Australian (1931)
Boris Serge “Ben” Chlepner: Professor, Free University of Brussels; Prélèvement sur le capital dans la théorie et la pratique (1925); Banque en Belgique (1926)
Eugênio Gudin: Princípios de economia monetária (1947)
A.F.W. “Wynne” Plumptre: Central Banking in the British Dominions (1940); Three Decades of Decision: Canada and the World Monetary System, 1944-75 (1977)
Kia-Ngau Chang: The Inflationary Spiral: The Experience in China, 1939-1950 (1958)
Ervin Paul Hexner: Professor of Economics and Political Science, University of North Carolina; International Cartels (1945)
Pierre Mendès-France: L’oeuvre financière du gouvernement Poincaré (1928); Banque internationale; contribution à l’étude du problème des États-Unis d’Europe (1930)
Robert Mossé: Professor, University of Grenoble; Assurance obligatoire contre le chômage au point de vue social (1929); L’économie collectiviste (1939)
Jean de Largentaye: translation of John Maynard Keynes’s General Theory of Employment, Interest and Money into French (1942); La réforme du système monétaire internationale (1967)
Kyriakos Varvaressos: Report on the Greek Economic Problem (1952)
André (Andreas) Papandreou: Competition and Its Regulation (1954)
Johan Willem “Wim” Beyen: Money in a Maelstrom (1949)
Jacques Jacobus Polak: “Polak model” of the monetary approach to the balance of payments, used extensively by the IMF (1957)
New Zealand
Allan George Barnard Fisher: Economic Self-Sufficiency (1939); Clash of Progress and Security (1966); developed the idea of service industries as a distinct economic sector; first editor of the economics journal IMF Staff Papers
Wilhelm Keilhau: Professor of Economics, University of Oslo; Die Wertungslehre, Versuch einer exacten Beschreibung der oekonomischen Grundbeziehungen (1923); Norske pengehistorie (1952)
Michal (Michael) Heilperin: Associate Professor of Economics, Hamilton College; International Monetary Organisation (1939)
South Africa
Michiel H. de Kock: Central Banking (1939)
Aleksei Mikhailovich Smirnov: Professor, Institute of Foreign Trade; Normalization of World Trade and the Monetary Problem (1952)

NY Fed Speech: ”Solving the Too Big to Fail Problem”

William Dudley, president of the Federal Reserve Bank of New York, gave a speech at the Clearing House’s Annual Business Meeting titled “Solving the Too Big to Fail Problem”.  Dudley stated the problem in two parts: (i) whether society should tolerate a financial system in which certain financial institutions are deemed to be too big to fail, and (ii) if not, what we should do about it.

To the first question, Dudley stated that the answer is “clearly” that “we cannot tolerate a financial system in which some firms are too big to fail–at least not ones that operate in any form other than that of a tightly regulated entity.” He argued that the root cause of “too big to fail” is that the failure of large, complex financial firms generate large, undesirable externalities in our current financial system. He noted that although there are negative externalities associated with the failure of any financial firm, these externalities are disproportionately high in the case of large, complex and interconnected firms.

As to the question of how to tackle the problem, Dudley stated that measures should include both those that are firm-specific and those that address the structure of the financial system more broadly. Firm-specific measures alter incentives for excessive risk-taking and lower the probability of failure, while structural measures lessen the disruption to the financial system that a failure would impose on the economy and society at large. Dudley mentioned the new Basel regime as an example of firm-specific policies that alter incentives, and the “living will” process as an example of policy measures to reduce the systemic consequences of failure.

Dudley also addressed the argument that “too big to fail” firms should be broken up now. He stated that while this could eventually prove necessary, it would be “premature” to give up on the current approach: “changing the incentives facing large and complex firms, forcing them to become more resilient, and making the financial system more robust to their failure.”

Click here to view speech in full (links externally to NY Fed website).


FSB Publishes Initial Recommendations to Strengthen Oversight and Regulation of Shadow Banking

The Financial Stability Board (FSB) is publishing for public consultation an initial integrated set of policy recommendations to strengthen oversight and regulation of the shadow banking system.  The shadow banking system is “credit intermediation involving entities and activities (fully or partially) outside the regular banking system” or non-bank credit intermediation, according to FSB. FSB focuses on five specific areas in which the FSB believes policies are need to mitigate the potential systemic risks associated with shadow banking:

  1. to mitigate the spill-over effect between the regular banking system and the shadow banking system;
  2. to reduce the susceptibility of money market funds (MMFS) to “runs”;
  3. to assess and mitigate systemic risks posed by other shadow banking entities;
  4. to assess and align the incentives associated with securitisation;
  5. to dampen risks and pro-cyclical incentives associated with secured financing contracts such as repos, and securities lending that may exacerbate funding strains in times of “runs”

View press release in full here (links externally to FSB website).


Treasury (at last) Determines Foreign Exchange Swaps and Foreign Exchange Forwards Are Not Swaps

Treasury announced that it has issued a final determination providing that a limited class of transactions related to foreign exchange is not within the definition of a swap and is therefore exempt from certain aspects of swap regulation.  The effect of the exemption is quite limited in two major respects: (i) the transactions as to which the exemption applies; and (ii) the scope of requirements as to which the exemption serves as a carve-out.

Types of Transactions.  The exemption applies to two types of transactions:  First, a transaction that solely involves an exchange of two different currencies on a specific date at a fixed rate agreed at the start of the trade coupled with a reverse exchange of those two currencies at a later date at a fixed rate agreed at the start of the trade (a “foreign currency forward”).  Second, a transaction that involves the exchange of two different currencies on a specific date at a fixed rate agreed at the start of the trade (a “foreign currency swap”).

The exemption is not available to trades such as currency  options, currency swaps (that do not involve a full exchange of principal) and non-deliverable forwards (trades in which payments are made in only a single currency). 

Scope of Exemption.  The exemption still leaves foreign currency forwards and swaps subject to certain requirements under Dodd-Frank including (i) trade reporting (but not real-time reporting); (ii) the CFTC’s anti-evasion authority; and (iii) business conduct rules.

Justifications.  In order to justify this determination, Treasury had to distinguish between the exempted trades and other fully-regulated swaps.  Of the justifications given, (i) some were quite compelling (the absence of any sufficient clearing mechanism; the potential disruption to international commerce); (ii) some seemed a little weak (the claim that credit risk is limited because the final settlement payments are known); and (iii) some raised doubts as to Title VII generally (the risk of pushing such a volume of trades through novel clearance systems).

Calculations.  For firms determining their regulatory status as swap dealers, major swap participants and commodity pool operators, the narrowed definition of “swap” may be material in performing the relevant calculations.


Lofchie Comment:  Why exactly did this determination take so long to issue?  In light of the volume of these transactions and their importance to international commerce, I personally can not imagine that Treasury ever could have reached a different result.  In fact, although some of the arguments in the determination are mediocre, others are so strong and practical (that is, the tremendous risks that would have been introduced into the financial markets under any other decision), it seems obvious that the result of Treasury’s determination was never in doubt.  So why did it take so long to publish?   In the meantime, huge amounts of time and effort were spent preparing for a contingency that was never going to be.


Click here to view Final Determination in full (links externally to
See also:
Treasury Fact Sheet on the Final Determination and Notice of Proposed Determination (76 FR 25774).