Annual Review of Federal Securities Regulation
By the Subcommittee on Annual Review, Committee on Federal Regulation of
Securities, ABA Business Law Section*
Contents
I. Introduction............................... ........................................................ 836
II. Regulatory Developments 2014 ......................................................... 839
A. NRSRO Rules............................................................................... 839
1. Internal Control Structure....................................................... 839
2. Annual Report......................................................................... 840
3. Conflicts of Interest................................................................. 840
4. Look-Back Review............................................................... .... 840
5. Clarification of Third-Party Due Diligence Provider ............... 841
B. Reg. AB Amendmen ts .................................................................. 842
1. Overview............................................................................... .. 842
2. New Forms SF-1 and SF-3 ............................................... ...... 843
3. New Form SF-3 Shelf Registration Requirements ................... 844
4. Expanded Disclosure Requ irements ........................................ 849
5. Effect of Reg. AB Release Amendments on Exchange Act
Reporting ................................................................................ 853
6. Proposed Rules Not Being Adopted at This Time................... 855
C. Credit Risk Retention Rules ......................................................... 856
1. Overview............................................................................... .. 856
2. Basic Risk Retention Requirement........................................... 857
* Anna T. Pinedo, Chair, is a member of the New York bar and a partner in the Capital Markets
Group at Morrison & Foerster LLP in New York; Sean M. Donahue, a member of the District of
Columbia and New York bars and an associate at Morgan Lewis & Bockius LLP in Washington,
D.C.; Rani Doyle,a member of the District of Columbia,New Jersey and New York bars and a partner
at Morgan Lewis & BockiusLLP in Washington, D.C.; WilliamO. Fisher is a member of the California
bar, an assistant professor at the Universityof Richmond School of Law, and a former partner of Pills-
bury WinthropLLP in San Francisco; Linda L. Griggsis a member of the District of Columbia bar anda
partner at MorganLewis in Washington, D.C.; KennethE. Kohler is a member of the California bar and
Senior of Counselat Morrison & Foerster LLP in San Francisco;Mark J. Kowal is a member of the New
York and California bars and General Counsel of the New York office of the Hinduja Group; Jerry R.
Marlatt is a member of theNew York bar and Senior of Counsel in the Capital MarketsGroup at Mor-
rison & Foerster LLPin New York; Michael J. Ontell, a member of the NewJersey and New York bars
and an associateat Morrison & Foerster LLP in NewYork; Alex D. Stone is an associateat Morrison &
Foerster LLP in New York;and Craig A. Wolson is a member of the New York bar and former Chair-
man of the Structured Finance Committee of the New York City Bar Association.
835
3. Standard Risk Retention Methods ........................................... 857
4. Special Risk Retention Methods .............................................. 860
5. Transfer of Risk Retention ...................................................... 863
6. Exceptions and Exemptio ns .................................................... 865
7. Periodic Review of QRM Definition and Related Exemptions . 870
III. Accounting Developments 2014 ........................................................ 871
A. ASUs Originated by the FASB...................................................... 872
1. Technical Corrections and Improvements Related to Glossary
Terms............................................................... ....................... 872
2. Discontinued Operations ............................................... ......... 872
3. Revenue Recognition............................................... ................ 875
4. Development Stage Companies ............................................... 879
5. Repurchase Agreements ................ .......................................... 882
6. Going Concern........................................................................ 884
B. ASUs Originated by the EITF ................ ...................................... 887
1. Investments in Qualified Affordable Housing Projects............ 887
2. Mortgage Loans............................................................... ........ 889
3. Service Concession Arrangements............................... ............ 890
4. Share-Based Awards with a Performance Target Achievable
After the Requisite Service Period........................................... 891
5. Consolidated Collateralized Financing Entities ....................... 892
6. Hybrid Financial Instruments ................................................. 894
7. Pushdown Accounting............................................................ 895
C. Private Company Council ............................................................ 897
1. Goodwill ................................................................................. 897
2. Interest Rate Swaps ............................................... .................. 898
3. Consolidation............................................................... ........... 899
4. Business Combinations ........................................................... 900
IV. Caselaw Developments 2014 ............................................................. 903
Overview............................................................................................ 903
Supreme Court ................ .................................................................. 905
Courts of Appeals ............................................................... ............... 911
INTRODUCTION
This Annual Review (“Review”) was prepared by the Subcommittee on Annual
Review of the Committee on Federal Regulation of Securities of the ABA Business
Law Section. The Review covers significant developments in federal securities
law and regulation during 2014. The Review is divided into three sections: reg-
ulatory actions, accounting statements, and caselaw developments.
The Review is written from the perspective of practitioners in the fields of cor-
porate and securities law. This results in an emphasis on significant developments
under the federal securities laws relating to companies, shareholders, and their re-
spective counsel.Our discussion is limited to those developments that areof great-
est interest to a wide range of practitioners and addresses only final rules.
836 The Business Lawyer; Vol. 70, Summer 2015
During 2014, the U.S. Securities and Exchange Commission (the “Commis-
sion”) continued to devote its resources to rulemaking required by the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank
Act”).
1
Substantial time was devoted to actions necessary to implement the re-
quirements of Title VII of the Dodd-Frank Act to regulate the markets for
security-based swaps. As required by the Dodd-Frank Act, the Commission pro-
posed and adopted rules to eliminate certain references to credit ratings in exist-
ing rules. In August 2014, the Commission adopted rules under the Dodd-Frank
Act that impose new governance and compliance requirements for nationally
recognized statistical rating organizations (“NRSROs”). The requirements ad-
dress internal controls, conflicts of interest, measures, including mandated dis-
closures, intended to promote transparency, and mandatory training and educa-
tion for credit rating analysts. The rules also impose an annual certification
requirement by the chief executive officer of the NRSRO regarding the effective-
ness of the organization’s internal controls. Also in August 2014, the Commis-
sion adopted amendments to Regulation AB, referred to as Regulation ABII, re-
lating to offerings of asset-backed securities. The amendments to Regulation ABII
also implement certain provisions of the Dodd-Frank Act. In October 2014, the
Commission, together with the banking agencies, adopted final rules imposing a
risk retention requirement on sponsors of securitization transactions.
During 2014, the Commission focused on rulemaking required of it by the
Jumpstart Our Business Startups Act, or JOBS Act, which was enacted in April
2012.
2
For example, the Commission proposed amendments to revise the
rules related to the thresholds for registration, termination of registration, and
suspension of reporting under section 12(g) of the Securities Exchange Act of
1934, as amended, as required by Title V of the JOBS Act.
Generally, the Review does not discuss proposed regulations or rules that are
narrowly focused. For example, the Review does not address regulation of over-
the-counter derivatives, hedge fund and other private fund related rulemaking,
or rulemaking related to registered investment companies, registered investment
advisers, or municipal advisors. Cases are chosen for both their legal concepts as
well as factual background. While the Subcommittee tries to avoid making edi-
torial comments regarding regulations, rules, or cases, we have attempted to pro-
vide a practical analysis of the impact of the developments in the law and regu-
lations on the day-to-day practice of securities lawyers.
1. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat.
1376 (2010).
2. Jumpstart Our Business Startups Act, Pub. L. No. 112-106, 126 Stat. 306 (2012).
Annual Review of Federal Securities Regulation 837
