U.S. credit market remains uneasy in the world of representations and warranties
NEW YORK, Oct. 12 (Business Law Currents) - The first half of 2011 saw rebounding credit markets and an uptick in debt issuance. Due to uncertain economic conditions in the second half of 2011, however, even the most fundamental aspects of loan documentation are facing increasing scrutiny. Representations & warranties that were more routine and non-contentious transformed into significantly stricter provisions as a result of the credit crisis.
Gun shy lenders began placing more onerous terms in credit facilities and the reps and warranties were dramatically bulked up. Some borrowers are now required to announce their credit worthiness under no uncertain terms. Recent litigation concentrating on reps and warranties has heightened the already palpable sense of market unease. Lenders are escalating the investigative function of the reps & warranties to more fully flesh out the factual matrix in reliance of which they will decide to provide a credit facility. (more…)
COLUMN – Rogue traders, delta trading and exchange-traded funds
By Helen Parry, the views expressed are her own.
LONDON, Oct. 7 (Thomson Reuters Accelus) - There are many common features in cases of rogue or unauthorised trading, including the use by ostensibly riskless arbitrage traders of fictitious trades on internal systems to mask their unhedged positions. One obvious feature that is present in many rogue trader cases has been a failure in trade confirmation systems and controls. This feature frequently appears conterminously with the fact that a trader has intimate knowledge of and/or power and influence over middle and back office systems. (more…)
Role of hedge-fund boards gains importance in face of compliance, legal pressures
By Judith Gross, Contributing Author. The views expressed are her own.
NEW YORK, Oct. 7 (Thomson Reuters Accelus) - The role of directors on offshore hedge funds has often been, at best, a limited oversight one, with perfunctory meetings and a limited interchange with the fund itself during the year. That has been changing – slowly – as compliance moves to the top of the list of concerns for investors and managers alike. In addition, directors themselves are realizing that the status quo is no longer tenable.
Hedge funds advised by U.S.-based investment advisers tended to only have a board of directors if they were domiciled outside of the United States, since it is a legal requirement in most offshore jurisdictions, but not in the United States. In other words, it has been atypical to see a board of directors on a U.S. fund. But an offshore fund in a place such as the Cayman Islands, the biggest domicile of hedge funds in the world, would certainly have a board of directors. (more…)
U.S. SEC warns brokers over market access, sub-accounts in debut “risk alert”
By Stuart Gittleman and Brett Wolf
NEW YORK, Sept. 30 (Thomson Reuters Accelus) – The U.S. Securities and Exchange Commission (SEC) issued an unexpected warning to broker-dealers to supervise trading by customers with direct market access, especially customers that trade using master- and sub-accounts.
The notice came in the first in a continuing series of risk alerts the Office of Compliance Inspections and Examinations (OCIE) staff expects to issue. The staff did not say whether OCIE found related deficiencies, or at what level, in recent exams, or in reviewing the findings of recent exams by the Financial Industry Regulatory Authority (FINRA). (more…)
from Christopher Whalen:
The cure for higher ATM fees is competition
Why are Bank of America and other large US banks increasing fees for the use of debit cards and other services?
The short answer is regulation. The Fed's low interest rate policy has a big effect on how banks price all services. Specific to ATM fees, Congress has decided to regulate the fees charged to vendors by banks on electronic transactions, essentially cutting this profit center in half for the largest banks that have $10 billion or more in assets. This fee is still far more than the actual cost to the bank providing the service, but such is life in America’s less-than-free market. Like airlines, the “too-big-to-fail” (TBTF) banks are not really profitable, thus pricing of one product is often skewed to make up for shortfalls in another.
When you look at the TBTF banks, which dominate the industry in the U.S. today, all of them feature business models where monopoly pricing power and the much abused free market operates. The reasons for this are complex, but the power of the TBTF banks – Bank of America, JPMorgan, Wells Fargo and Citigroup – largely stems from the fact that they remain heavily regulated and protected by these same captured regulators led by the Fed. Thus there is no competition for the services these large banks provide.
Despite the gazillions of words written about deregulation in the financial services industry, there is the Bank Holding Company Act of 1956, which provides the Fed with the power to regulate companies that own banks and thus it protects the TBTF institutions from competition. If Google, Wal-Mart and Amazon were permitted to own banks and thereby compete with Bank America et al in the electronic payments business, the cost of electronic payments to small vendors and consumers would plummet.
The fact that the Dodd-Frank legislation mandates some artificial relief for consumers and small businesses is lovely, but the real solution to the problem of the TBTF banks and their monopoly pricing power regarding electronic payments is competition. As former Fed of New York general counsel and White & Case partner Ernest Patrikis told me in a 2008 interview:
What is the rational for the Bank Holding Company Act and thereby making it more difficult for companies to acquire control of banks? I'll give you two rationales. First is the Fed continues to believe in the separation between backing and commerce, something for which I do not have a lot of respect. Citicorp's becoming a one-bank holding company and thereby gaining the ability to engage in all sorts of non-bank services was one prime motivation for amendments to the Bank Holding Company Act in 1968.
Which lead me to then ask Patrikis: Well, aren't we done with the 19th Century? Isn't Glass-Steagall over and done with? His reply:
“the “too-big-to-fail” (TBTF) banks are not really profitable”… I call you out on this statement…. This is either a total LIE, or you’re buying into their fraud….
Prove this statement…. You can’t….
Advice for Chelsea Clinton: How to be a good board member
By Lucy P. Marcus The views expressed are her own.
The high profile appointment of Chelsea Clinton to the board of IAC/InterActiveCorp comes at a time when the individual and collective performance of board directors is being scrutinized more thoroughly and more publicly than ever before. A good board can be rocket fuel or it can be rocks in an organization’s pockets. But what does a new board member need to be active, engaged, and dynamic?
The principles are the same regardless of whether this is somebody’s first or tenth appointment, and their significance does not diminish with every new appointment either. Every boardroom has its own personality, its own cadence, and its own means of getting things done, and there is no way of knowing for sure how that works till you are around the table. But every board deserves the best from each of its members—long-serving and new alike.
The sooner new board directors are comfortable and familiar with the landscape in which their organization operates, with the challenges it confronts, the sooner they can make a meaningful contribution to the organization and help it deal with its current challenges as well as future-proof it.
Equally importantly, new directors need to become comfortable and familiar with the dynamic of the boardroom itself. A boardroom is, after all, a room of people who have to work together toward a common goal. The more comfortable everyone is, the more effective the group can be, so it is worth investing some time and effort into ensuring that new directors hit the ground running.
Trust your first impressions
When I join a board as a new director, my antennae are highly attuned. I take copious notes, and I often refer back to these first impressions and observations to avoid getting complacent and losing independence. These observations are not set in stone, but I’ve found my first instincts worth paying attention to.
Chelsea Clinton has a unique opportunity here to be an exemplary role model for any “non traditional” first time director, as a young, smart, international woman, to demonstrate the enormous advantages and impact of director diversity (background, age, gender), and how the world is changing. Lucy’s mentoring column is an excellent piece for any new director.
The compliance lessons, so far, arising from the UBS rogue trader
LONDON, Sept. 23 (Thomson Reuters Accelus) – UBS’s loss of $2.3 billion has hit the headlines worldwide, and while full details of what went wrong are unlikely to be public in the near future there are already compliance lessons for other firms. UK and Swiss regulators have launched an investigation into:
- the details of the unauthorised trading activity;
- the control failures which permitted the activity to remain undetected; and
- the overall strength of UBS’ controls to prevent unauthorised or fraudulent trading activity in its investment bank.
Although the investigation is ongoing, and the regulators have expressly stated that they do not, as yet, have an expected timescale, there are a number of lessons or steps for other firms to consider. (more…)
U.S. SEC finds a new asset class for insider trading: ETFs
NEW YORK, Sept. 22 (Thomson Reuters Accelus) – In its first such action involving exchange-traded funds, the Securities and Exchange Commission charged a former Goldman Sachs employee with trading on confidential information about the firm’s trading strategies and plans he learned while working on its ETF desk.
An SEC official said the facts of the case may be unique. But the element of arbitrage in underlying components of the ETF echoes mutual fund trading probes in 2003 that rocked the industry. (more…)
Dead man walking: The FSA’s aggressive stance with financial services firms
LONDON, Sept. 20 (Business Law Currents) – If the death sentence of the UK’s Financial Services Authority (FSA) was to earn a last request then it may well have been to introduce a new era of aggressive enforcement as it prepares to hand over power to the Financial Conduct Authority (FCA).
It may have slept through the worst financial crisis in living memory and be about to be put to death but this seems to have only invigorated the FSA in its enforcement actions, as it introduces increasingly tough measures on financial firms. Dead man walking? Perhaps. But beware of those boots, as the FSA toughens up its enforcement actions. (more…)
This was an eye opener! believe us as a legal service provider for financial frauds or discrepancies we agree with the author that situation created by FSA regulations will inhibit innovation can increase complexity in financial services market.
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