CCH Financial Reform News Center

Lincoln-Feinstein Colloquy Reveals that CFTC Should Prohibit Event Derivatives Contracts as Against the Public Interest

This story appeared in Jim Hamilton's World of Securities Regulation.

In a colloquy with Senator Diane Feinstein on Section 745 of Dodd-Frank, which authorizes the CFTC to prevent the trading of derivatives contracts that are contrary to the public interest, Senator Blanche Lincoln agreed that Section 745 should be broadly construed to prevent derivatives that exist predominantly to enable gaming through event contracts, such as the Super Bowl, and serve no commercial or hedging purpose. These types of event contracts would not serve any real commercial purpose and would be contrary to the public interest.

Lincoln-Stabenow Colloquy Clarifies Captive Finance Affiliate Derivatives Risk Hedging Exemption in Dodd-Frank

This story appeared in Jim Hamilton's World of Securities Regulation.

In a colloquy with Senator Stabenow on the day the Senate passed the Dodd-Frank Act, Senator Blanche Lincoln confirmed that the legislation ensures that clearing and margin requirements would not be applied to captive finance or affiliate company transactions that are used for legitimate, non-speculative hedging of commercial risk arising from supporting their parent company's operations. But the Chair of the Agriculture Committee also noted that all swap trades, even those which are not cleared, would still be reported to regulators, a swap data repository, and subject to the public reporting requirements under the legislation. Senator Stabenow noted, and Senator Lincoln agreed, that the legislation recognizes the unique role that captive finance companies play in supporting manufacturers by exempting transactions entered into by such companies and their affiliate entities from clearing and margin so long as they are engaged in financing that facilitates the purchase or lease of their commercial end user parents products and these swaps contracts are used for non-speculative hedging. (Cong. Record, July 15, 2010, p. S5905).

Walter Suggests Improvement to OTC Derivatives and Hedge Fund Adviser Pieces of Reform Legislation

This story appeared in SEC Today.

The financial regulatory reform bills pending in Congress will bring much needed change to financial regulation, according to SEC Commissioner Elisse Walter, but she believes that the legislation could be strengthened in some areas.  She spoke at the annual SEC Regulation Outside the United States conference in London, and her remarks are available on the SEC’s Web site.

House Passes Legislation Ending Carried Interest; Measure Now in Senate

 This story appeared in Jim Hamilton's World of Securities Regulation.

The House has passed legislation that would prevent investment fund managers from paying taxes at capital gains rates on investment management services income received as carried interest in an investment fund. To the extent that carried interest reflects a return on invested capital, the American Jobs and Closing Tax Loopholes Act, HR 4213, would continue to tax carried interest at capital gain tax rates. However, to the extent that carried interest does not reflect a return on invested capital, the measure would require investment fund managers to treat seventy-five percent of the remaining carried interest as ordinary income (50% for taxable years beginning before January 1, 2013). The provision will be effective for taxable years ending on or after January 1, 2011. The House passed the measure by a vote of 215 to 204.

House-Senate Conference Must Reconcile Differing Versions of Hedge Fund and Private Fund Adviser Regulation

This story appeared in Jim Hamilton's World of Securities Regulation.

As House-Senate conferees begin meeting this week to reconcile two different versions of financial reform legislation, there are a number of important differences in the regulation and registration of hedge fund and private equity fund advisers to reconcile. Both bills would require advisers to hedge funds to register with the SEC, making them subject to record keeping, examination, and disclosure requirements. But the House bill carves out an exemption for smaller funds with assets under management of less than $150 million.

Key Committee of European Parliament Approves Hedge Fund Legislation

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

A key committee of the European Parliament has approved draft legislation regulating hedge funds and private equity funds. The Economic and Monetary Affairs Committee approved the Alternative Investment Fund Managers Directive with improvements in transparency and risk reduction. The draft also embraces a proportionality system that regulates less risky funds more lightly, which means that private equity funds and investments trusts would be more lightly regulated than hedge funds and some types of alternative investment funds would be completely exempted from regulation.

Geithner and Barnier Affirm Goal of Non-Protectionist Hedge Fund Legislation

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

With a vote on proposed hedge fund legislation looming in a committee of the European Parliament, and the US Congress soon expected to legislate the regulation of hedge funds, Treasury Secretary Tim Geithner and European Commissioner for the Internal Market Michel Barnier affirmed their strong determination to avoid regulatory arbitrage in strengthening the global financial system and in putting in place the G-20 financial reform agenda.

Reed Amendment Would Impose SEC Registration on Advisers to Private Equity and Venture Capital Funds, In Addition to Hedge Fund Advisers

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

An amendment to the Senate financial reform legislation would extend mandatory SEC registration to advisers to private equity funds and venture capital funds. Currently, S3217 requires hedge fund advisers to register with the SEC, and exempts adviser to private equity and venture capital firms. The House financial reform legislation requires registration of hedge fund and private equity fund advisers, while exempting advisers to venture capital funds.

Key Senator Scores Protectionist EU Proposed Hedge Fund Directive

This story appeared in Jim Hamilton's World of Securities Regulation.

Joining the growing outcry over protectionist tendencies in the proposed EU Directive regulating hedge funds, Senator Charles Schumer, a key member of the Banking Committee, expressed deep concern that the Directive would overtly discriminate against US hedge funds. In a letter to Treasury Secretary Tim Geithner, he said that the multiple proposals under consideration would all have the effect of significantly limiting or even prohibiting non-EU investment funds from marketing in the EU, despite the fact that EU-based funds have full access to US markets.

CCH Briefing Paper Examines Jobs Bill Impact on Offshore Financial Firms

CCH Principal Analyst James Hamilton, J.D., LL.M., has authored a briefing paper titled, "Jobs Bill Places Offshore Financial Firms under Reporting and Tax Regime." Passed by the Senate on March 17, the Hiring Incentives to Restore Employment Act (HIRE), HR 2847, imposes substantial new reporting and tax-withholding obligations on a broad range of foreign financial institutions that could potentially hold accounts of U.S. persons.

Download the briefing paper here.