Insights from Winston & Strawn 

On February 16, 2017, the United States Bankruptcy Court for the Southern District of New York in In re Motors Liquidation Company sent a clear message to foreign lenders regarding their exposure to New York courts in New York law-governed credit transactions.

The backdrop of this case is likely familiar. JPMorgan Chase Bank, N.A. (“JPMC”) agented General Motors’ $1.5 billion syndicated term loan (the “Term Loan”), which was secured by a first priority security interest in certain manufacturing equipment and fixtures. The Term Loan was repaid in June 2009 under the terms of the DIP Order entered by the Court. Thereafter, it was determined that the lien on most of the collateral securing the Term Loan was accidentally released (see, and The Motors Liquidation Company Avoidance Action Trust (as successor to the official committee of unsecured creditors, “AAT”) sought to claw back funds used to repay the Term Loan.

The instant case concerns immigon portfolioabbau ag (formerly known as, and the wind-down vehicle for, Österreichische Volksbanken Aktiengesellschaft, “Immigon”), domiciled in Vienna, Austria, which acquired a $10 million interest in the Term Loan from JPMC by assignment in September 2007 and was repaid pursuant to the DIP Order. Immigon moved to dismiss under Rule 12(b)(2) for lack of personal jurisdiction. While acknowledging that Immigon (i) did not have offices, employees, or property in the United States, (ii) did not hold itself out as doing business in New York (or anywhere else in the United States), (iii) did not have a postal address or a telephone number in the United States, (iv) was not registered to do business in the United States, (v) did not offer any financial or other services in the United States, and (vi) did not advertise in the United States, the Court nevertheless held that it had personal jurisdiction over Immigon because it consented to such jurisdiction and it had sufficient minimum contacts.

Both the loan agreement and the DIP Order (each of which the Court noted Immigon received and reviewed in advance of acquiring an interest in the Term Loan and receiving repayment, respectively) contained standard New York forum selection clauses pursuant to which all parties consented to the Court’s jurisdiction, and the Court enforced such provisions. The Court further held that, even if Immigon had not consented to jurisdiction, it had sufficient minimum contacts to support specific personal jurisdiction by purposely availing itself of New York’s banking system and laws in the following ways: (i) Payments on the Term Loan were made in New York; (ii) Immigon acquired its interest in the Term Loan from JPMC in New York; (iii) Immigon agreed that New York law governed the transaction; (iv) Immigon used Bank of New York Mellon for its correspondent bank account, not only for payments under the Term Loan but also for other dollar-denominated transactions; and (v) JPMC made the disputed payment to Immigon’s Bank of New York Mellon account in New York.

In addition, the Court dispensed with Immigon’s due process claims by holding that its exercise of personal jurisdiction over Immigon comported with traditional notions of fair play and substantial justice because (i) the Court had a strong interest in adjudicating claims under the Bankruptcy Code, (ii) AAT had a strong interest in obtaining convenient and effective relief in the subject forum, and (iii) Immigon’s burden was negligible due to the convenience of modern communication and transportation systems.

Immigon also moved to dismiss under Rules 12(b)(4) and 12(b)(5) for failure to provide timely service, which the Court also denied. The Court parsed an exhaustive timeline of events and ultimately held that, given the difficulties of international service, service within four months of the granting of the order was reasonable under the circumstances.

In a prior newsletter, we discussed the contours of insider trading liability in light of the Supreme Court’s decision to deny certiorari in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), reh’g denied, Nos. 13-1837, 13-1917 (2d Cir. Apr. 3, 2015). Those contours continue to be fleshed out, and further updates can be found below in this newsletter under Industry News.

Feature: FCA Proposes Reforms to UK IPO Process under Initiative to Improve UK Primary Capital Markets

Following through on previously-identified concerns about conflicts of interest and the availability of information during the initial public offering (“IPO”) process, the UK Financial Conduct Authority (“FCA”) published a consultation paper on March 1st that proposes a series of rules designed to improve the range and quality of information available to IPO investors. The proposals in the consultation paper are based on the FCA’s findings from a market study it completed last year on corporate and investment banking and a related discussion paper, which found that the late release of the prospectus in the IPO process, along with the prominence of “connected research” produced by the bank underwriting or otherwise involved in the offering over research provided by independent analysts, placed investors in an information deficit.

The consultation paper proposes several rules that will adjust the timing of the release of information related to the IPO. Under the proposed rules, an approved prospectus or registration document must be published before the release of any connected research. In addition, unconnected analysts must be given access to the issuer’s management prior the release of connected research on the IPO. The proposal would also consider the amount and timing of the access granted to unconnected analysts in determining when connected research could be released. In cases where issuers communicate with unconnected analysts later in the IPO process, the rules would require a seven-day delay in the release of connected research following publication of the prospectus. If connected and unconnected analysts have equal access to management, connected research could be released as soon as one day following the publication of the prospectus.

The consultation paper also proposes new guidance to clarify the FCA’s expectations on analysts’ interactions with the issuer’s management and their corporate finance advisers before they have selected an underwriter for the offering. The proposed guidance would explain that any interactions between analysts and issuers during this time would be considered by the FCA to be investment bank pitching efforts until the firm has agreed to serve as the underwriter or its position in the syndicate has been determined. The proposed guidance is designed to prevent the introduction of bias into connected research as a result of pressure to produce favorable research coverage in exchange for a bank winning underwriting business or a place on the syndicate.

Some industry analysts welcomed the proposal, noting that the changes had the potential to benefit both investors and companies by allowing investors to be more informed about an offering prior to investing in an IPO, which may, in turn, prevent fallout from mispricings or bubbles. An editorial in the Financial Times called the proposal “20 years overdue.” Others questioned whether the proposals would have much of an impact except in high-profile IPOs, noting that short-staffed research departments would find it difficult to comment on an offering under the proposal’s seven-day timeframe and often decline to cover smaller offerings.

The FCA is accepting public comments on the consultation paper, which should be submitted on or before June 1, 2017. The FCA anticipates publishing a policy statement containing the final rules and guidance resulting from the consultation later this year. The consultation is part of a larger effort by the FCA to increase the effectiveness of UK primary capital markets. To support that effort, the FCA also published a discussion paper on possible reforms to improve access to capital for issuers and investment opportunities for investors, as well as a consultation paper that proposes technical enhancements to the Listing Rules. Comments on both the discussion paper and the consultation paper should be submitted on or before May 14, 2017.

Banking Agency Developments


Comptroller Discusses the Condition of the Federal Banking System

On March 9th, Comptroller of the Currency Thomas J. Curry discussed the condition of the federal banking system during remarks at the Distinguished Banking and Finance Lecture Series at Central Connecticut State University.

Comptroller Discusses Financial Technology Innovation

On March 6th, Comptroller Curry discussed financial technology innovation during a large industry conference.   


Supervisory Insights Focuses on Credit Risk

On March 7, the FDIC announced its issuance of “Credit Risk Trends and Supervisory Expectation Highlights,” which appears in the Winter 2016 issue of Supervisory Insights. The article identifies trends in credit risk and emphasizes to bankers and examiners that now is the time to heed long-standing principles of sound risk-management practices.     

Federal Reserve

Federal Reserve Releases Examples of New Charts That Illustrate Uncertainty around Monetary Policymakers’ Macroeconomic and Interest Rate Projections

On March 3, the Federal Reserve released examples of new charts and related materials that illustrate and describe the uncertainty that attends Federal Open Market Committee participants’ macroeconomic and interest rate projections.


CFPB Proposes Effective Date Extension for Prepaid Accounts Rule

On March 9, the Consumer Financial Protection Bureau (“CFPB”) released a proposal to delay the effective date of the agency’s rule governing prepaid accounts by six months from the current October 1, 2017 effective date. Comments on the proposal will be due 21 days after it is published in the Federal Register.

Securities and Exchange Commission

No-Action Relief and Exemptive Orders

Global Investment Managers or Sponsors May Offer Investment Products Across Foreign Jurisdictions Using ‘Master-Feeder’ Arrangement

Dechert LLP sent an incoming letter to the Securities and Exchange Commission’s (“SEC”) Division of Investment Management (“Division”) on behalf of a number of global investment managers and sponsors with investment operations and distribution channels worldwide, seeking permission for a global investment manager or sponsor to efficiently offer an investment product across several foreign jurisdictions using a “master-feeder” arrangement. On March 8, the Division issued a no-action letter indicating that it would not recommend enforcement action to the SEC under Section 12(d)(1)(A) or (B) of the Investment Company Act of 1940 against a foreign feeder fund that acquires securities of a U.S. master fund in excess of the limits in Section 12(d)(1)(A), or against the U.S. master fund, master fund principal underwriter and any broker or dealer, that sells the U.S. master fund’s securities to the foreign feeder fund in excess of the limits in Section 12(d)(1)(B), as long as it does so in compliance with the conditions of Section 12(d)(1)(E).

Offerors Granted Exemption from Exchange Act in Connection with Offer to Acquire Shares of Argentinian Corporation

PCT LLC, Grupo Inversor Petroquimica S.L. and WST S.A. (the “offerors”) requested exemptive relief from provisions of Section 14(d)(6), Rule 14d-8 and Rule 14d-10(a)(2) under the Exchange Act, in connection with their offer to acquire, for cash, up to 194,651,345 outstanding Class B shares of common stock, including those represented by American depositary shares, which represent 24.5% of the capital stock of Transportadora de Gas del Sur S.A., a corporation that is organized under the laws of Argentina through concurrent tender offers in the U.S. and Argentina. On March 6, the SEC’s Division of Corporation Finance granted the exemption, as long as the offerors comply with the distribution and proration rules of Article 70 of the Argentine securities commission.     


Information Update: Letters to Support Tax Claims in Foreign Jurisdictions

The SEC issued an Information Update to provide U.S.-registered funds with a framework for making requests for letters from the Division of Investment Management to support tax claims in foreign jurisdictions.      

Other Developments

Investor Advisory Committee Meeting

The SEC’s Investor Advisory Committee met on March 9 to discuss research into investor behavior and financial capability as well as unequal voting rights of common shares. Acting SEC Chair Michael S. Piwowar addressed the Committee by providing an update on recent rulemaking initiatives aimed at improving the disclosures and information available to investors as well as the investor research initiative launched by the SEC’s Office of the Investor Advocate. SEC Commissioner Kara M. Stein also delivered remarks to the Committee in which she raised concerns about unequal voting rights and their potential long-term effects on investors, capital formation, and emerging companies.

SEC Announces Updates to EDGAR to Support New XBRL Taxonomies

On March 8, the SEC announced that it has upgraded its EDGAR system to support several new eXtensible Business Reporting Language (“XBRL”) taxonomies, including the 2017 US GAAP, 2017 COUNTRY, 2017 CURRENCY, 2017 EXCH, and 2017 NAICS taxonomies. The SEC encouraged companies to use the most recent version of the taxonomy releases for their XBRL exhibits and recommended that filers consider transitioning to the 2017 taxonomies for the earliest reporting period that ends after March 6, 2017, but not for reporting periods that end before March 6, 2017.

Commodity Futures Trading Commission

DMO Issues Conditional Extension of No-Action Relief Regarding Masking of Certain Identifying Information Required to be Reported

On March 10, the U.S. Commodity Futures Trading Commission’s (“CFTC”) Division of Market Oversight (“DMO”) announced its issuance of a letter providing a conditional extension of the relief provided in CFTC Letters 16-03 and 16-33 regarding masking of certain identifying information required to be reported. The extension is valid through September 1, 2017 for certain French and Swiss swaps. For all other swaps, the extension is valid with respect to each reporting counterparty for as long as the reporting counterparty reasonably believes that reporting the relevant identifying information would violate applicable foreign laws.

Federal Rules Effective Dates

March 2017 – May 2017

Click here to view table. 

Exchanges and Self-Regulatory Organizations

BATS Global Markets

SEC Seeks Comments on BZX’s Amended Proposal on Continued Listing Standards for ETPs

On March 7, the SEC granted accelerated approval to a proposed rule change filed by Bats BZX Exchange, Inc. (“BZX”) to amend its rules to add specific continued listing standards for exchange-traded products (“ETPs”) and to specify the delisting procedures for these products. The SEC also requested comments on BZX’s amendments to the proposal, which clarify certain elements of the proposal concerning the implementation date for the rule, the circumstances in which BZX would initiate delisting proceedings, and the notification requirements for companies that fail to comply with the rules. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of March 13, 2017. SEC Release No. 34-80169.     

Financial Industry Regulatory Authority

FINRA and Exchanges Offer Joint Guidance on Compliance with CAT Plan’s Clock Synchronization Requirements

In a Regulatory Notice published on March 9, the Financial Industry Regulatory Authority (“FINRA”), in coordination with the national securities exchanges, issued guidance on the clock synchronization and certification requirements under the National Market System (“NMS”) Plan Governing the Consolidated Audit Trail (“CAT”).  The guidance clarifies that if a firm uses clocks that currently capture time in milliseconds to record time related to “Reportable Events” in NMS Securities and OTC equity securities, then the firm must comply with the clock synchronization, documentation and certification requirements on or before March 15, 2017. See also the related Information Memo published on March 8 by the New York Stock Exchange LLC (“NYSE”).

FINRA Announces Special Election to Fill Large Firm Seat on Board of Governors

FINRA notified members in an Election Notice published on March 9 that it will hold a special meeting of large member firms on or about May 19, 2017, to elect one individual to fill a vacant Large Firm Governor seat on the FINRA Board of Governors.  Eligible individuals who have not been nominated for the seat by the Nominating Committee may be added to the ballot if they follow the procedures for submitting a petition, which should be submitted on or before April 24, 2017.     

ICE Clear Credit

ICC Proposes Changes to Pricing Policy Related to New Direct Price Submission Process for Clearing Participants

On March 3, the SEC provided notice of a proposed rule change filed by ICE Clear Credit LLC (“ICC”) that would make changes to ICC’s End-of-Day Price Discovery Policies and Procedures  related to the implementation of ICC’s new Clearing Participant direct price submission process. Comments are due on or before March 30, 2017. SEC Release No. 34-80150.     

Municipal Securities Rulemaking Board

MSRB Issues Fact Book of Municipal Securities Market Data

On March 7, the Municipal Securities Rulemaking Board (“MSRB”) announced the publication of its annual Fact Book of municipal securities market data. Among other things, the Fact Book includes comprehensive and historical statistics on municipal market trading patterns as well as the number and type of primary market and continuing disclosures submitted by municipal market participants.      


SEC Institutes Disapproval Proceedings Regarding Nasdaq’s Proposed Extended Life Priority Order Attribute

On March 3, the SEC instituted proceedings to determine whether to approve or disapprove the NASDAQ Stock Market LLC’s (“Nasdaq”) amended proposal to adopt a new Extended Life Priority order attribute for Designated Retail Orders and to make other related rule changes. Comments on the amended proposal should be submitted on or before March 30, 2017. Rebuttals are due on or before April 13, 2017. SEC Release No. 34-80149.     


SEC Approves NYSE Exchanges’ Proposals on Form U5 Filing Extension

On March 3, the SEC approved the proposed rule changes filed by NYSE MKT LLC (“NYSE MKT”) and NYSE Arca Inc. (“NYSE Arca”) to extend the time within which a member, a member organization, an Amex Trading Permit Holder (“ATP Holder”), an Options Trading Permit Holder (“OTP Holder”), or an Options Trading Permit Firm (“OTP Firm”) must file a Uniform Termination Notice for Securities Industry Registration (“Form U5”), or any amendments thereto. SEC Release No. 34-80154.     

Options Clearing Corporation

SEC Approves OCC’s Proposed Changes to Margin Coverage during Times of Increased Volatility

On March 3, the SEC issued an order approving the Options Clearing Corporation’s (“OCC”) proposal to amend its methodology for calculating the System for Theoretical Analysis and Numerical Simulations (“STANS”) margin requirement by changing the length of time-series data used to calculate the uniform scale factor; introducing new equity index-based scale factors; anchoring individual risk factor volatilities to longer-term averages; and implementing daily data updates of risk factors in OCC’s statistical models used to value U.S. Treasury securities for collateral and margin purposes. SEC Release No. 34-80147.

Judicial Developments

Dodd-Frank’s Anti-Retaliation Provision Protects Whistleblowers Who Have Not Reported to the SEC

On March 8, the panel affirmed denial of a motion to dismiss a whistleblower claim brought under Dodd-Frank’s anti-retaliation provision. The panel held that, in using the term “whistleblower,” Congress did not intend to limit protections to those who disclose information to the SEC. Instead, the anti-retaliation provision also protects those fired after making internal disclosures of alleged unlawful activity. Also, even if the use of “whistleblower” in a last-minute addition to the anti-retaliation provision created uncertainty, an SEC regulation resolved any ambiguity and was entitled to deference. Somers v. Digital Realty Trust Inc.

Industry News

DOJ’s FCPA Cooperation Pilot Program Might Be Extended

On March 10, Kenneth Blanco, Acting Assistant Attorney General for the U.S. Department of Justice’s (“DOJ”) Criminal Division, delivered a speech at the American Bar Association National Institute on White Collar Crime. Among other things, Blanco referenced the agency’s one-year cooperation pilot program, which encourages companies to proactively reveal and remediate potential Foreign Corrupt Practices Act violations and is set to end on April 5. Blanco stated that the DOJ will on that date begin the process of evaluating the program’s utility and efficacy, determine whether to extend it, and assess what revisions, if any, should be made to it. He concluded that the program will continue in full force until a final decision is reached on those issues.      

SEC Nominee’s Disclosures Could Show Conflicting Interests as a Wall Street Insider

On March 8, DealBook detailed some of the concerns raised by consumer groups and Democratic lawmakers about Jay Clayton, President Trump’s pick to head the SEC. While Clayton is expected to support the agency’s enforcement efforts, statements he has made seem to suggest that he will probably seek to ease at least some of the Obama-era regulations burdening Wall Street clients.     

Courts to Determine Boundaries of Close Personal Relationship in Insider Trading

The courts are now tasked with deciding how close a friendship needs to be to show a gift of inside information. This comes after the Supreme Court’s Salman v. United States found that the government did not have to prove that any concrete benefit was given when one brother tipped another about impending deals, and originated with the Second Circuit’s United States v. Newman, which held that since the tippers and tippees were merely casual acquaintances, there was insufficient evidence to show that the information was given as a gift. DealBook.