August 18, 2009

SEC Reopens the Comment Period for Amendments to Reg SHO

Back in April, the SEC proposed several alternative ways of addressing short sales, including either: (1) a market-wide approach; or (2) a security-specific circuit breaker approach. As I noted in the blog back then, it promised to be a monumental task for the Staff to reconcile the competing approaches and the many comments on the proposals in coming up with a final recommendation.

Yesterday, the SEC took the relatively unusual step of reopening the comment period for the proposals, which had closed June 19th. The SEC noted that it has received approximately 4,000 comment letters, as well as over 250 copies of 4 different standard letters, and a petition with 5,605 signatures. In reopening the comment period, the SEC has focused in particular on an alternative uptick rule, which would permit short selling at a price above the current national best bid. Comment was solicited on this alternative uptick rule in the initial proposing release, but it was not one of the proposals that was specifically advanced. In the new release, the SEC discusses the alternative uptick rule in greater detail and solicits specific comments regarding its potential application.

The reopened comment period runs for 30 days from the date of publication in the Federal Register.

Yesterday was the last day of the comment period for the shareholder access proposals. Some had asked the SEC to extend the comment period, but no such extension was forthcoming. Of course, the Staff and the Commissioners will still consider comment letters that are submitted “late,” although it depends on how quickly the rulemaking is moving as to whether a late letter has any influence. So far, only slightly over 170 comment letters have been submitted by my count, which is a far cry from the thousands of letters received on the prior proposals in 2003 and 2007. Here is Evelyn Y. Davis’s comment letter – surprisingly, she is not in favor of shareholder access!

The UK’s FSA Implements Pay Reforms for Financial Institutions

Last week, the FSA rolled out its compensation reforms applicable to large financial institutions in Policy Statement 09/15. The reforms were originally proposed through a Consultation Paper released back in March 2009. While the principles are limited in applicability to the largest UK banks, building societies and broker dealers (26 firms, as compared to 47 firms under the proposed rules), the FSA indicates in its announcement of the final rules that the Policy Statement “indicate[s] [FSA’s] thinking on what is viewed as good practice (where relevant) to all firms in these groups.” The Remuneration Code set forth in the Policy Statement is set to go into effect on January 1, 2010.

The rules are, of course, focused on the relationship between compensation and risk. The general requirement of the Code is that remuneration policies must be consistent with effective risk management. The Code sets forth a number of remuneration principles, which include:

1. the role of bodies responsible for remuneration policies and their members;

2. procedures and risk and compliance function input;

3. remuneration of employees in risk and compliance functions;

4. profit-based measurement and risk adjustment;

5. long-term performance measurement;

6. non-financial performance metrics;

7. measurement of performance for long-term incentive plans; and

8. remuneration structures (e.g., mix of salary and bonus, bonus deferral, performance criteria, guaranteed bonuses).

With the January 1, 2010 effective date rapidly approaching, the FSA plans to send letters out at the end of August to covered firms, asking for their remuneration policy statements. The firms will be expected to provide their remuneration policy statements to the FSA by mid-October, and then the regulator will hold meetings with the compensation committees and risk committees of the firms between November 2009 and February 2010. Some limited transition relief is provided for firms that have to amend or terminate employment agreements.

The Code puts the UK out in front in terms implemented of pay reforms, although the FSA notes that international discussions on alignment and implementation principles are underway with the Basel Committee on Banking Supervision and the European Council. As noted in this Bloomberg article, however, the FSA’s rule changes have not necessarily been welcomed in the UK, thanks to a belief that the FSA watered down the requirements and ended up leaving banks and brokers with substantial discretion with respect to pay decisions.

TALF Extended into Next Year

Yesterday, the Federal Reserve Board and the Treasury Department announced an extension to the Term Asset-Backed Securities Loan Facility. While acknowledging improvements in financial market conditions over the last few months, the Fed and Treasury noted a bleak outlook in the markets for securities backed by consumer and business loans and for CMBS. They will now be extending TALF loans against newly issued ABS and legacy CMBS through March 31, 2010. Given the time lags involved in new CMBS deals, TALF lending against newly issued CMBS will occur through June 30, 2010.

The Fed and Treasury also announced that they wouldn’t be expanding the types of collateral eligible for the TALF program. They indicate that they will continue to monitor the situation to see if any further extension is warranted, or if any additional collateral should be permitted.

– Dave Lynn