• Agencies Issue Guidance on Obtaining Beneficial Ownership Information for Certain Accounts and Customer Relationships.

On March 5th, the Financial Crimes Enforcement Network, federal banking agencies, and the SEC issued "Guidance on Obtaining and Retaining Beneficial Ownership Information," which clarifies and consolidates regulatory expectations for obtaining beneficial ownership information for certain accounts and customer relationships. Joint Press Release. See also SEC Release No. 34-61651 (SEC policy statement with text of guidance); OCC Bulletin 2010-11.

• Congressional Budget Office Responds to "Financial Crisis Responsibility Fee."

On March 5th, the Congressional Budget Office responded to Senator Charles Grassley's question about the Obama Administration's proposed $90 billion fee on the largest financial institutions. The CBO concluded that "[t]he cost of the proposed fee would ultimately be borne to varying degrees by an institution's customers, employees, and investors, but the precise incidence among those groups is uncertain." CBO Blog Post.

• Profile of Acting House Ways and Means Chairman.

On March 5th, Bloomberg profiled Representative Sander Levin, the acting chairman of the House Ways and Means Committee. Among other things, Levin will consider the Obama Administration's proposed $90 billion fee on financial institutions and also intends to reintroduce his previously proposed measure eliminating capital gains treatment for carried interest. Levin.

• Three Indicted in Reverse Mortgage Fraud Conspiracy.

On March 4th, the Justice Department announced the indictment of three individuals for their roles in a conspiracy to commit financial institution fraud involving reverse mortgages. Justice Department Press Release.

• Justice Tells Firms to Retain Euro Trading Data.

On March 3rd, Bloomberg reported that the Justice Department, as part of its investigation into U.S. financial firms' involvement in Greece's fiscal crisis, has told hedge fund executives who attended a February 8, 2010 "ideas dinner" to retain their euro trading data. Justice Department Notice.

• Department of Labor Issues New Proposed Regulations on Investment Advice to 401(k) Plan Participants.

On March 2nd, the Department of Labor ("DOL") issued new proposed regulations implementing statutory provisions that provide an exemption to ERISA's prohibited transaction rules for certain types of investment advice provided to participants in 401(k) plans. The statutory provisions require investment advice to be provided pursuant to (1) a "level fee" approach, in which the adviser's fees do not vary based on the investment option selected; or (2) the "computer model" approach, in which advice is provided pursuant to a computer model that meets certain requirements. The new regulations replace, and narrow the scope of, regulations published in January 2009, but never finalized. The new regulations appear to impose more restrictive requirements on both approaches. In addition, the DOL withdrew a separate administrative exemption that it had issued, allowing advice arrangements that did not meet the level fee or computer model approach if certain other conditions were met. The DOL believed that the separate exemption did not contain sufficient protections against conflicts of interest. Comments on the regulations are due no later than May 5, 2010. Proposed Regulations. Fact Sheet.

• Department of Labor Issues Final Regulations on Required Disclosures by Multiemployer Plans.

On March 2nd, the DOL issued final regulations implementing Section 101(k) of ERISA, which requires multiemployer plans (i.e., so-called "Taft-Hartley" plans, which are collectively bargained plans jointly administered by unions and employers) to furnish certain plan-related documents, including reports from investment advisers, upon the written request of plan participants or the participating unions or employers. Investment advisers with multiemployer plan clients may be affected by the regulations because reports and other communications to the plan are required to be disclosed upon request unless those documents fall within the exception for "proprietary information." The plan administrator is responsible for determining if a requested document constitutes "proprietary information," which is defined in the regulations as "trade secrets and other non-public information (e.g., processes, procedures, formulas, methodologies, techniques, strategies) that, if disclosed by the plan, may cause, or increase a reasonable risk of, financial harm to the plan, a contributing employer, or entity providing services to the plan." The regulations become effective April 1, 2010. Final Regulations.

• Consumer Watchdog.

On March 4th, Senate Banking Committee Chairman Christopher Dodd issued a statement reiterating the important need for a strong, independent consumer protection watchdog. "I am pushing for an office with an independent head, appointed by the President and confirmed by the Senate; that has an independent budget to do its work; autonomy to craft rules; and an ability to enforce those rules." Dodd Statement. On March 3rd, House Financial Services Committee Chairman Barney Frank stated: "I do not support housing the Consumer Financial Protection Agency in the Federal Reserve." Frank did say that he could support housing this function in the Treasury Department, "provided that the entity has sufficient independence and broad regulatory scope to accomplish the mission of protecting consumers." Frank Statement.

• Proposed Volcker Rule Legislation Released.

On March 3rd, the Treasury Department released draft legislation that would limit the size of depository-lending institutions and the proprietary trading in which they can engage.

• House Committee Chairman Considering Tighter End-User Exemptions for Derivatives.

On March 3rd, Reuters reported that House Agriculture Committee Chairman Collin Peterson will consider tightening end-user exemptions to a proposed bill requiring the central clearing of swaps and derivative contracts. Derivatives Reform.

• Federal Reserve Board Proposes Additional Credit Card Rules.

On March 3rd, the Federal Reserve Board released proposed rule amendments to Regulation Z (Truth in Lending) intended to protect credit card users from unreasonable late payment and other penalty fees, and to require credit card issuers to reconsider increases in interest rates. Federal Reserve Board Press Release.

• FDIC Chairman Discusses Private Equity Investments in Failed Banks.

On March 2nd, Reuters reported that FDIC Chairman Sheila Bair believes that the agency's rules concerning private equity investments in failed banks are appropriate. The FDIC will host a roundtable discussion on private equity investments and issue additional clarifications of its rules. Private Equity.

• FDIC to Sell $3.8 Billion in Guaranteed Securitizations.

On March 2nd, Reuters reported that the FDIC will sell approximately $3.8 billion in guaranteed securitizations comprised of mortgages held by failed banks. Guaranteed Securitizations.

• OCC Bulletin on Joint Interagency Statement.

On March 2nd the OCC issued a Bulletin on the Joint Interagency Statement on Clarification of the Risk Weight for FDIC Claims and Guarantees. The Interagency Statement clarifies the risk weights for claims on or guaranteed by the FDIC for purposes of banking organizations' risk-based capital requirements.

• Check Processing Infrastructure Changes Completed.

On March 2nd, the Federal Reserve Banks announced the completion of the reduction in paper check processing infrastructure that was begun in late 2003. With the discontinuation of paper check processing at the Atlanta office on February 26, 2010, all paper check processing is now handled at the Cleveland office. The Atlanta office serves as the Reserve Banks' processing location for electronic check processing. Press Release.

• Federal Reserve Board Vice Chairman to Retire.

On March 1st, Federal Reserve Board Vice Chairman Donald L. Kohn announced his intention to resign at the end of his term on June 23, 2010. Federal Reserve Board Press Release. The New York Times reported that Kohn's departure will allow President Obama to appoint three members to the Board. Appointments.

• Treasury Nominee Discusses Dollar Swaps.

On March 2nd, Reuters reported that Jeffrey Goldstein, who has been nominated to be Treasury undersecretary for domestic finance, told the Senate Finance Committee that certain derivatives, including dollar swaps, should be exempted from having to be traded on exchanges. Testimony.

• Treasury Designations Target Drug Lords Associated with FARC.

On March 2nd, the Treasury Department's Office of Foreign Assets Control designated Daniel Barrera Barrera and Pedro Oliveiro Guerrero Castillo, two of Colombia's most wanted drug traffickers, as Specially Designated Narcotics Traffickers. OFAC also designated 29 other individuals and 47 entities as SDNTs. The designations prohibit U.S. persons from conducting financial or commercial transactions with these entities and individuals and freeze any assets the designees may have under U.S. jurisdiction. Treasury Department Press Release.

• CFTC Chairman Wants Conflicts of Interest Authority over OTC Clearinghouses.

On March 1st, Reuters reported that Gary Gensler, Chairman of the CFTC, believes that the CFTC and the SEC should have the authority to regulate conflicts of interest in clearinghouses for over-the-counter derivatives. Gensler Remarks.

• CPO Receives Exemption from Annual Report Certification Requirement.

On February 23rd, the Division of Clearing and Intermediary Oversight granted a commodity pool operator's request to be exempted from having the pool's annual report certified. The proprietary commodity pool consists of only two participants, one of which is a principal of the general partner, the pool's participants have received monthly account statements prepared by an unassociated third-party accounting firm, and the CPO submitted signed waivers from each of the pool's participants consenting to the exemption. CFTC Letter No. 10-02.

• SEC Updates Guidance on the Custody Rule.

On March 5th, the SEC updated its "Staff Responses to Questions About the Custody Rule," a series of responses to questions that the staff of the Division of Investment Management has received concerning the "custody rule" -- Rule 206(4)-2 under the Investment Advisers Act of 1940.

• SEC and IRS to Work More Closely on Municipal Bond Enforcement.

On March 2nd, the SEC and the IRS announced the signing of a Memorandum of Understanding designed to assist the two agencies in monitoring and regulating the municipal bond market and industry. SEC Press Release.

• Fee Rate Advisory.

On March 1st, the SEC announced a mid-year adjustment to the Section 31 transaction fee rate. Effective on April 1, 2010, the Section 31 transaction fee rate will be set at $16.90 per million. This rate change does not apply to the Section 31 assessment on security futures transactions, which will remain at the current rate of $0.0042 per round turn transaction. Fee Rate Advisory; SEC Release No. 34-61605.

• SEC Files Amicus Brief in "Foreign Cubed" Action.

The SEC and the U.S. Solicitor General filed an amicus curiae brief in the Supreme Court recommending a framework to determine whether Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder apply to transnational securities frauds involving overseas injuries experienced by foreign investors. The brief explains that a violation of Section 10(b) exists if the transnational securities fraud involves significant conduct in the United States that was material to the fraud's success. Where the U.S. conduct satisfies this standard, the SEC may maintain a civil enforcement action under Section 10(b). For foreign investors to maintain a private securities fraud action, however, the brief argues that an additional showing is required; they must demonstrate that the U.S. conduct was a direct cause of their overseas injury. Amicus Brief.

• New Member Conduct Rules.

On March 2nd, the SEC granted immediate effectiveness to separately submitted proposed rule changes from the New York Stock Exchange and NYSE Amex to add provisions for violations relating to the failure to observe high standards of commercial honor and just and equitable principles of trade. The rule changes enable each exchange to bring charges relating to failing to observe high standards of commercial honor and just and equitable principles of trade, against not only members and member organizations, but also against principal executives, approved persons, and employees of member organizations. This provision is consistent with current FINRA rules. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of March 8.

• BATS Exchange Proposes to Offer New Data Products.

On February 25th, the SEC provided notice of BATS Exchange's proposal to offer certain new data products to BATS Exchange Members and other market data recipients. Comments should be submitted on or before March 26, 2010. SEC Release No. 34-61592.

• BATS Exchange Amends Information Barrier Procedures.

On February 23rd, the SEC granted accelerated approval to BATS Exchange's proposed amendment of BATS Rule 5.5, modifying the rule regarding information barrier procedures for certain BATS Exchange Members. The BATS Exchange is also proposing new Exchange Rule 12.13, "Trading Ahead of Research Reports." Comments should be submitted on or before March 23, 2010. SEC Release No. 34-61574.

• Change to Multi-Class Broad Based Index Option Spread Order Rule.

On March 2nd, the SEC granted immediate effectiveness to the Chicago Board Options Exchange's proposal to amend its rule related to multi-class broad-based index option spreads to include options on index-linked securities (also known as exchange-traded notes) within the definition of an eligible "broad-based index option." Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of March 8. SEC Release No. 34-61628.

• TRACE Reporting of Government Agency Debt Begins.

On March 1st, the Financial Industry Regulatory Authority announced that the Trade Reporting and Compliance Engine ("TRACE") will include debt securities issued by federal government agencies, government corporations and government-sponsored enterprises, as well as primary market transactions in new corporate debt issues. Broker-dealers will report all primary and secondary transactions in non-mortgage related debt instruments issued by federal government agencies such as Fannie Mae, Freddie Mac, Federal Home Loan Banks and Federal Farm Credit, among others. FINRA Press Release.

• Historic TRACE Data to Be Publicly Available.

On March 5th, the Financial Industry Regulatory Authority announced that, effective March 31, 2010, the public will have access to Historic TRACE Data, and fees for professional users of Historic TRACE Data will take effect. FINRA Regulatory Notice 10-14.

• Master Agreement for Hedging Islamic Financial Products.

On March 1st, the International Islamic Financial Market and the International Swaps and Derivatives Association launched the ISDA/IIFM Tahawwut (Hedging) Master Agreement. Press Release.

• NASDAQ OMX Group to Introduce New Trading Symbology.

On March 2nd, NASDAQ OMX Group announced that, effective September 1, 2010, it will introduce new trading symbology in preparation for the listing and trading of five-character root U.S. equity symbols. NASDAQ OMX Group Press Release.

• Increased Position Limits for PHLX.

On February 25th, the SEC approved NASDAQ OMX PHLX's proposal to increase the position limits for certain narrow-based (industry) index option contracts. SEC Release No. 34-61590.

• Amendment of Options Market Obvious Errors Rule.

On February 23rd, the SEC granted immediate effectiveness to the NASDAQ Stock Market's proposal to amend NASDAQ Options Market Rule Chapter V, Section 6, Obvious Errors, to provide for the review of transactions on NASDAQ's own motion. Comments should be submitted on or before March 25, 2010. SEC Release No. 34-61573.

• NSCC Eliminates Envelope Settlement Service Payment Guarantee.

On March 1st, the SEC approved the National Securities Clearing Corporation's proposal to eliminate its guarantee of payment in connection with the Envelope Settlement Service. SEC Release No. 34-61618.

• NYSE Extends Continued Listing Standards Pilot.

On March 1st, the SEC granted immediate effectiveness to the New York Stock Exchange's proposal to extend until June 30, 2010, the operation of an amendment to the continued listing requirements in Section 802.01B of the Exchange's Listed Company Manual. Comments should be submitted on or before March 26, 2010. SEC Release No. 34-61609.

• NYSE Repeals Temporary Provision Allowing Multiple Closing Prints for Closing Transactions Exceeding 99,999,999 Shares.

On February 22, 2010, the SEC granted immediate effectiveness to the NYSE's repeal of a temporary provision allowing it to report multiple closing prints to the Consolidated Tape when a closing transaction exceeded 99,999,999 shares. The temporary provision was added in December 2009 to compensate for a temporary size limitation in the NYSE's market data distribution system. That system is now capable of reporting in a single print transactions that exceed 99,999,999 shares, and the temporary amendment is no longer needed. Comments should be submitted on or before March 22, 2010. SEC Release No. 34-61559.

• NYSE Amex Proposes "Professional Customer" Designation.

On March 2nd, the SEC provided notice of NYSE Amex's proposal to designate as a "Professional Customer" any customer that places, for its own beneficial account(s), more than 390 orders in listed options per day, on average, during a calendar month. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of March 8. SEC Release No. 34-61629.

• UCC's Statute of Repose for Claims Based on Electronic Funds Transfers Bars Common Law Claims.

On March 2nd, the Second Circuit affirmed a district court holding that Section 4-A-505 of the New York Uniform Commercial Code, which imposes a one-year statute of repose on certain claims based on electronic funds transfers, barred related common law claims for breach of contract, breach of fiduciary duty and fraud, even though such claims have longer limitations periods. Ma v. Merrill Lynch & Co., Inc.

• Court Remands Suit Alleging State Law Causes of Action Resulting from Mutual Funds' Collapse.

On March 2nd, the federal district court overseeing the multi-district litigation involving the collapse of the Regions Morgan Keegan fixed income bond funds remanded to state court an individual plaintiff's lawsuit which alleged only violations of state statutory and common law duties. It rejected defendants' argument that because federal regulations govern the funds, plaintiff's allegations about the funds' lack of liquidity and diversification call into question the federal standards governing those requirements. Instead, the court found that defendants' arguments are defenses upon which federal question jurisdiction cannot be based. Kramer v. Regions Bank.

• SIPC Trustee's Definition of Net Equity Adopted in Madoff Case.

On March 1st, the bankruptcy court overseeing the bankruptcy proceedings and SIPA liquidation of Bernard L. Madoff Investment Securities upheld the SIPC trustee's method for determining the net equity held by the victims of Madoff's fraud. The SIPC trustee defines net equity as the amount of cash deposited by the customer into his BLMIS customer account less any amounts withdrawn. The court rejected the objecting claimants' attempts to use BLMIS statements to determine net equity because those statements are entirely fictitious, do not reflect actual securities positions that could be liquidated, and therefore cannot be relied upon to determine net equity in accordance with SIPA. In re Bernard L. Madoff Investment Securities, LLC.

• Supreme Court Hears Enron President's Appeal.

On March 1st, the Supreme Court heard oral argument on the petition of Jeffrey Skilling, the former president of Enron Corp., challenging his conviction for honest services fraud, and the jury selection process. Skilling v. U.S.

• Purchase Money Security Interests Include Negative Equity for Bankruptcy Cramdown Purposes.

On March 1st, the Seventh Circuit held that negative equity is included in a creditor's purchase money security interest and is not subject to a bankruptcy court's cramdown authority under Chapter 13 of the Bankruptcy Code. In re Aubrey Howard.

• Custody of Funds or Securities of Clients by Investment Advisers - Effective March 12, 2010.

The SEC is adopting amendments to the custody and recordkeeping rules under the Investment Advisers Act of 1940 and related forms. Please see the Winston & Strawn Client Briefing on this topic. Client Briefing. 75 FR 1455.

• Amendments to Rules Requiring Internet Availability of Proxy Materials Effective March 29, 2010.

The SEC is amending its rules to clarify and provide flexibility regarding the format of the Notice of Internet Availability of Proxy Materials that is sent to shareholders, and to permit issuers and other soliciting persons to better communicate with shareholders by including explanatory materials regarding the reasons for the use of the notice and access proxy rules, and the process of receiving and reviewing proxy materials and voting pursuant to those rules. The amendments also revise the timeframe for delivering a notice to shareholders when a soliciting person other than the issuer relies on the notice and access proxy rules, and permit mutual funds to accompany the notice with a summary prospectus. 75 FR 9073.

• Money Market Fund Reform - Effective May 5, 2010.

The SEC is adopting amendments to certain rules that govern money market funds under the Investment Company Act of 1940. The amendments will tighten the risk-limiting conditions of Rule 2a-7 by, among other things, requiring funds to maintain a portion of their portfolios in instruments that can be readily converted to cash, reducing the maximum weighted average maturity of portfolio holdings, and improving the quality of portfolio securities; requiring money market funds to report their portfolio holdings monthly to the Commission; and permitting a money market fund that has "broken the buck" (i.e., re-priced its securities below $1.00 per share), or is at imminent risk of breaking the buck, to suspend redemptions to allow for the orderly liquidation of fund assets. The amendments are designed to make money market funds more resilient to certain short-term market risks, and to provide greater protections for investors in a money market fund that is unable to maintain a stable net asset value per share. 75 FR 10059.

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