Mar. 17, 2008

Equitable Solution? SEC, CFTC Enhancing Cooperation

  • The SEC and CFTC entered into a mutual cooperation agreement that promises to encourage a stronger working relationship between the two key regulatory agencies with jurisdiction over structured financial products.
  • Practitioners should expect to see more coordination and solidarity from both the SEC and CFTC in reviews and investigations of new financial products.
  • Regulatory consolidation is consistent with trend of industry cross-border consolidation.

All Roads Lead to the Chief Compliance Officer: a Report from the Recent Institutional Investor Events Chief Compliance Officer Forum

  • Detailed coverage of Institutional Investor Events’ Third Annual Chief Compliance Officer Forum.
  • SEC focusing on, with respect to hedge funds: valuation, disclosure, insider trading and preferential redemption terms.
  • SEC has recommended forensic tests that hedge fund advisers can perform to help ensure the integrity of valuations of portfolio securities.
  • FASB 157 specifies factors for hedge fund advisers to consider when measuring fair values.

The President’s Working Group on Financial Markets Issues Policy Statement on Financial Market Developments

  • President’s Working Group on Financial Markets released a set of comprehensive recommendations designed to stabilize the current turmoil in the financial markets, including the following key recommendations:
  • Reform of the mortgage origination process.
  • Improve investors’ contribution to market discipline.
  • Reform the credit rating processes and practices regarding structured credit and other securitized credit products.
  • Strengthen global financial institutions’ risk management practices.
  • Enhance prudential regulatory policies.
  • Enhance the OTC derivatives market infrastructure.

Senior Supervisors Group Issues Observations on Risk Management Practices During the Recent Market Turbulence

  • According to the Senior Supervisors Group, firms that dealt most successfully with the market turmoil of late 2007 demonstrated:
  • Better flow of information across the firm and more rigorous internal valuation mechanisms.
  • Effective management of funding liquidity, capital and the balance sheet.
  • Informative and responsive risk management practices.
  • In particular, three business lines where varying practices differentiated performance in response to the credit crunch were: CDO structuring, trading and warehousing; leveraged financing loans; and conduit and SIV businesses.