Corporate And Financial Weekly Digest - July 20, 2012

Profession:Katten Muchin Rosenman LLP

Edited by Robert L. Kohl and David A. Pentlow SEC/CORPORATE

SEC Issues Cautionary Staff Report On IFRS

On July 13, the Office of the Chief Accountant of the Securities and Exchange Commission issued a Final Staff Report on the Work Plan for considering the incorporation of International Financial Reporting Standards (IFRS) into the financial reporting system for U.S. issuers. The Work Plan, published by the SEC in February 2010, was to consider specific areas and factors relevant to an SEC determination as to whether, when and how the current financial reporting system for U.S. issuers should be transitioned to IFRS.

The Final Report contains no recommendation or conclusion with respect to either the ultimate adoption of IFRS or any particular timetable or phase-in period for its adoption, though it concludes that there is "relatively less support" within the U.S. financial reporting community for pursuing the designation of the standards of the International Accounting Standards Board (IASB) as authoritative for use by U.S. issuers but "substantial support" for exploring other methods of incorporating IFRS to ultimately obtain a single set of high quality globally accepted accounting standards.

Utilizing this focus, and exploring, for example, an endorsement mechanism with respect to specific applications of IFRS or continued convergence of accounting standards issued by the Financial Accounting Standards Board and the IASB, the Final Report nevertheless strikes a cautionary note with respect to IFRS finding, among other things, that (i) there "continue to be areas underdeveloped," (ii) the IFRS Interpretations Committee "should do more to address issues on a timely basis," (iii) a majority of U.S. issuers expressed concern that moving to IFRS has the potential to result "in significant expense to the company and confusion for investors" and, finally (iv) significant effort would be required to change the references from U.S. GAAP, as U.S. GAAP is "imbedded throughout laws and regulations and in a significant number of private contracts." Several commentators, including officials of the IASB, expressed disappointment with the Final Report, particularly since it was not accompanied by a recommended action plan for the SEC and did not specifically endorse either a method or a timetable for adopting or incorporating IFRS for U.S. issuers.

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FSOC Designates Eight Systemically Significant Financial Market Utilities

Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Payment, Clearing and Settlement Supervision Act of 2010) has the purpose of mitigating financial risk in the financial system and promoting financial stability by giving the Board of Governors of the Federal Reserve authority to set risk management standards for entities that have been designated as systemically important financial utilities by the Financial Stability Oversight Council (FSOC). On July 18, FSOC designated the following eight entities as being systemically important utilities:

The Clearing House Payments Company, L.L.C., on the basis of its role as operator of the Clearing House Interbank Payments System CLS Bank International Chicago Mercantile Exchange, Inc. The Depository Trust Company Fixed Income Clearing Corporation ICE Clear Credit LLC National Securities Clearing Corporation The Options Clearing Corporation Further information may be found here.


CFTC Approves NFA Segregated Funds Reporting Requirements

On July 13, the Commodity Futures Trading Commission approved National Futures Association (NFA) rules and a related interpretive notice that create new requirements for futures commission merchants (FCMs) with respect to customer segregated funds and secured amount accounts.

The new NFA rules require FCMs to maintain written policies and procedures regarding the FCM's residual interest in customer segregated fund and customer secured amount accounts. The policies and procedures must identify a target amount for an FCM's residual interest. The target amount is to be established after a due diligence inquiry considering several specified factors. The rules additionally prohibit an FCM from withdrawing, transferring or otherwise disbursing funds from customer segregated or secured amount accounts in amount that exceeds 25% of the FCM's residual interest unless the firm's CEO, CFO or other financial principal who fulfills certain requirements pre-approves the withdrawal or series of withdrawals that exceed the 25% threshold. If an FCM withdraws more than 25% of its residual interest it must electronically file a written notice immediately after the CEO, CFO or financial principal approves the disbursement. These requirements do not apply to disbursements to customers.

The rules also require FCMs to report their adjusted net capital, minimum net capital and excess capital, whether customer segregated funds or secured amounts are deposited with an affiliate, and the firm's leverage ratio to NFA on a monthly basis. The monthly reports are due seventeen business days after the end of the month, beginning with September 2012, with the first such report being due October 23.

More information is available here.

NFA Announces Review of FCM Audit Practices

On July 16, National Futures Association (NFA) announced that it will conduct a review of its audit practices and procedures and the execution of those procedures with respect to Peregrine Financial Group, Inc. (PFG). The announcement comes a week after NFA...

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