United States: Pension Reform Bill Passes House and Senate; President Expected to Sign
(Financial Services Alert – Developments of Note)

1. Pension Reform Bill Passes House and Senate; President Expected to Sign
2. Federal Banking Agency Counsel Determine State Laws Seeking to Prohibit ILC Branching May More Broadly Limit De Novo Bank Branching
3. New Hampshire Gift Certificate Laws Preempted for Mall Gift Cards Issued by National Bank and Federal Savings Association
4. OTS Provides Flexibility in Lending through Operating Subsidiaries
5. Federal Court Dismisses Claim that Card Processor is Liable under Theory of Breach of Contract for Damages from Merchant’s Security Breach
6. SEC Moves Forward on Study Comparing Effect of Broker-Dealer and Adviser Regulatory Systems on Investors
7. Enforcement of Presentment Warranties not Prejudiced by Inability to Produce Paper Check
8. DOL Issues Advisory Opinion on PTE 77-3 and 12b-1 Fees
9. OTS Permits Purchase Agreement to Enable Thrift to Exclude Asset from Asset Caps
10. MSRB Seeks Comment on Use of "Access Equals Delivery" Model for Official Statements Relating to New Issue Municipal Securities Including 529 College Savings Plans

11. SEC Chairman States Agency Will Not Seek Review of Hedge Fund Decision
12. ABA Promotes "Standardized" Basel II Approach

Congress approved a major pension reform bill (the Pension Protection Act of 2006 (H.R. 4)), which the President is expected to sign in the near future. Once signed by the President, the pension reform bill will amend many provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Set forth below is a preliminary, brief summary of a number of these changes.

The pension reform bill will effectively amend the so-called "plan assets regulation" issued by the Department of Labor (the "DOL"). Currently under one of the exceptions contained in the plan assets regulation, an entity is not deemed to hold the "plan assets" of a plan subject to ERISA if less than 25% of each class of equity interests in the entity (excluding for this purpose holdings of any manager or adviser to the entity and of any of their affiliates) is held by "benefit plan investors," which is defined to include not only ERISA plans but also governmental, foreign, and other employee benefit plans that are not subject to ERISA.

• Definition of Benefit Plan Investor. The pension reform bill will revise this 25% test to limit the definition of "benefit plan investor" to plans that are (i) subject to Title I of ERISA and/or (ii) subject to Section 4975 of the Internal Revenue Code of 1986, as amended ("Code") -- for example, IRAs and certain Keogh plans -- as well as entities that are deemed to hold "plan assets" of any such plans. This will have the effect of excluding, for example, foreign plans, government plans, and most church plans from the definition of benefit plan investor. Since this provision will be effective immediately upon enactment, some investment funds that previously were required to comply with ERISA will no longer be subject to ERISA’s requirements, and other funds, (e.g., certain hedge funds), will now be able to admit more ERISA plans and government and foreign plans without becoming subject to ERISA.

• Look-Through Rule. The pension reform bill also provides a proportionate look-through rule for applying the 25% test to the investment by a plan assets entity in another entity. For example, if 40% of the interests in a fund of funds is held by ERISA investors, then when such fund of funds invests in another fund, 40% of the fund of fund’s investment in such other fund will count toward such other fund’s application of the 25% test. (By contrast, under current rules, the entire investment would have been counted towards the other fund’s application of the 25% test.) Alternatively, if only 20% of the interests in the fund of funds is held by ERISA investors (and, consequently, the fund of funds is not considered to hold plan assets), then 0% of its investment in the other fund will count toward such other fund’s application of the 25% test.

These changes will be effective upon enactment of the pension reform bill. Funds that intend to rely on the revised 25% "plan assets" test should carefully review their contractual obligations with investors and their investor disclosures to determine if amendments to either are required. Such funds should also consider the potential impact of the laws applicable to any of their government plan investors.

The pension reform bill will also amend many provisions of Title I of ERISA, including the addition of certain new statutory exemptions to ERISA’s prohibited transaction rules. (Corresponding exemptions will be added to the parallel prohibited transaction provisions of Section 4975 of the Code.) These new exemptions will be effective upon enactment of the pension reform bill.

• Transactions with Service Providers and their Affiliates. The most significant statutory exemption that will be added is a new Section 408(b)(17) that provides relief for any transactions with a party in interest, provided (i) the party in interest is a party in interest solely by reason of being a service provider or related to a service provider, (ii) the party in interest is not a fiduciary with respect to the transaction, and (iii) the plan receives no less than, and pays no more than, adequate consideration. "Adequate consideration" is generally defined as a prevailing market price or where there is no market price the fair market value determined in good faith by a plan fiduciary. This new statutory exemption will in most situations eliminate the need for use of the so-called QPAM exemption (PTE 84-14) for many transactions, such as swaps and other derivatives, financings and other types of private transactions.

• Cross Trading. The pension reform bill will add a new Section 408(b)(19) to ERISA, which will provide relief for certain cross-trades between large plans. Specifically, the new statutory exemption will provide relief for the purchase and sale of a security between a plan and another account managed by the same investment manager if, among other requirements, (i) market quotations are readily available for such securities and the consideration paid is cash, (ii) the transaction is effected at the independent current market price (within the meaning of Rule 17a-7 under the Investment Company Act of 1940), (iii) no brokerage commission, fee (other than customary transfer fees that have been disclosed), or other remuneration is paid in connection with the transaction, (iv) an independent fiduciary for the plan authorizes in advance any cross-trades (in a document separate from any other written agreement) after receiving disclosure regarding the conditions under which such cross-trades may take place, including written policies and procedures, (v) each plan (or master trust of related plans) involved in the cross-trade has at least $100 million of assets, and (vi) the investment manager provides reports detailing all cross-trades on at least a quarterly basis. In addition, the investment manager cannot base its fee schedule on the plan’s consent to engage in cross-trades. Further, the investment manager must establish policies and procedures that are fair and equitable to all accounts, including policies and procedures for allocating cross-trades, and must designate an individual responsible for periodically reviewing cross-trades for compliance with such policies and procedures.

• Foreign Exchange. The pension reform bill will add a new Section 408(b)(18) to ERISA, which will provide limited relief for certain types of foreign exchange transactions. Specifically, the new statutory exemption will permit a bank or broker-dealer (or an affiliate of either) that is a trustee, custodian, fiduciary, or other party in interest with respect to a plan, to engage in a foreign exchange transaction with such plan, but only if (i) the transaction is in connection with the purchase, holding, or sale of securities or other investment assets, (ii) the terms of the transaction are arm’s length and at least as favorable to the plan as the terms offered by the bank or broker-dealer or any of its affiliates in comparable transactions, (iii) the exchange rate used does not deviate by more than 3% from the inter-bank bid and ask rates for transactions of comparable size and maturity at the time of the transaction as displayed by an independent service, and (iv) the bank or broker-dealer (or any affiliate of either) does not have investment discretion, or provide investment advice, with respect to the transaction. This exemption provides somewhat broader relief than the existing class exemption for some FX transactions, particularly in the context of standing instructions.

• Electronic Communication Networks. The pension reform bill will add a new Section 408(b)(16), which will provide relief for most purchase and sale transactions effected through an electronic communications network, alternative trading system, or similar execution system that is subject to regulation and oversight by a Federal regulating entity, provided an independent plan fiduciary is provided with prior notice of the use of such system. The exemption requires that the network match the best price available or not take the identify of the counterparties into account and that the price be comparable to an arm’s-length transaction. It appears that the exemption is intended to apply to transactions where the fiduciary who causes the plan to engage in the transaction has an ownership interest in the network, although the language is not entirely clear on this point.

• Timely Corrections of Certain Prohibited Transactions. The pension reform bill will add a new Section 408(b)(20) to ERISA, which will exempt certain purchases or sales of securities (other than employer securities) or commodities that violate the technical prohibited transaction rules, but not fiduciary self-dealing, where such transactions are corrected within 14 days of the date the fiduciary or party in interest discovers, or reasonably should have discovered, that the transaction constituted a violation of Section 406(a) of ERISA. In addition, this exemption is available only if, at the time the transaction occurred, the fiduciary or party in interest did not know, and should not have reasonably known, that the transaction was a prohibited transaction.

• Block Trading. The pension reform bill will add a new Section 408(b)(15) to ERISA, which will provide a statutory exemption for certain types of so-called "block trades," subject to several conditions.

• Increased Bonding Levels for Plans with Employer Securities. Section 412 of ERISA generally requires certain fiduciaries and others that handle ERISA plan assets to have an ERISA fidelity bond. Currently, the bond amount is 10% of the amount of plan assets involved, with a minimum of $1,000 and a maximum of $500,000. Effective for plan years beginning after December 31, 2007, the maximum bond amount will increase to $1 million for plans that hold any employer securities. The increased maximum bond amount will apply to any person required to be bonded with respect to such a plan, even if that fiduciary or other entity does not act as a fiduciary with respect to, or otherwise handle or have any responsibility for, the plan’s employer securities.

• Bonding Relief for Registered Brokers and Dealers. Entities that are registered as a broker or a dealer under Section 15(b) of the Securities Exchange Act of 1934 will be exempt from ERISA’s fidelity bond requirement, provided the broker or dealer is subject to the fidelity bond requirements of a self-regulatory organization. This bonding relief provision will be effective starting with plan years beginning after the date of enactment.

The pension reform bill contains a new statutory prohibited transaction exemption for the provision of investment advice to participants and beneficiaries of self-directed individual account plans (e.g., most 401(k) plans) and the related purchase, sale, or holding of a security pursuant to such advice. The exemption covers investment advice provided by "fiduciary advisers," including registered investment advisers, the trust departments of banks and similar financial institutions that are subject to Federal or state oversight, insurance companies, registered brokers or dealers, and certain affiliates, employees, agents, and registered representatives of the foregoing. The exemption covers two types of participant investment advice arrangements:

• Flat Fee Arrangements - arrangements where any fees (i.e., commissions or other compensation) received by the fiduciary adviser for the provision of investment advice or with respect to the purchase, sale, or holding of a security or other property pursuant to such advice do not vary based on the selected investment; and

• Computer Model Arrangements - arrangements that use a pre-certified computer model which applies generally accepted investment theories that take into account the historic returns of different asset classes and uses participant-specific information (e.g., age, risk tolerance, other sources of income, etc.) and objective criteria to provide asset allocation portfolios based on investment options available under the plan. The computer model is required to be certified in advance by an "eligible investment expert" who is unaffiliated with any investment adviser or related persons. Computer Model Arrangements must take into account all investment options under the Plan, cannot favor investments offered by the fiduciary adviser or its affiliates and also cannot be inappropriately weighted towards any particular investment option. In addition, Computer Model Arrangements must provide only the advice generated by the computer model.

While the new statutory exemption for Computer Model Arrangements contains several requirements similar to those included in Advisory Opinion 2001-09A (the "SunAmerica Letter"), it also imposes new conditions that were not mandated by the SunAmerica Letter. Additionally, some financial services firms maintain existing flat-fee arrangements and have taken the position that these arrangements do not result in prohibited transactions. It is unclear what impact this exemption will have on such existing arrangements or the future viability of the SunAmerica Letter.

The exemption includes several other requirements applicable to both Flat Fee Arrangements and Computer Model Arrangements. For example, any such arrangement must be expressly authorized by an independent plan fiduciary and must comply with an annual audit requirement. Further, the fiduciary adviser must satisfy numerous advance and on-going disclosure requirements (including descriptions of fees and affiliations of the fiduciary adviser), in addition to any disclosures mandated by applicable securities laws.

Under the pension reform bill, sponsors of plans that utilize the new exemption will have a fiduciary duty to select and monitor the fiduciary adviser prudently; however, plan sponsors will not be required to monitor the specific investment advice provided to any particular participant or beneficiary.

The exemption is effective for investment advice provided after December 31, 2006.

Notably, the exemption for Computer Model Arrangements will not apply to IRAs, individual retirement annuities, Archer MSAs, health savings accounts, and Coverdell education savings accounts, although the pension reform bill indicates that Congress may expand the exemption to cover these arrangements in the future. The bill directs the DOL to solicit information to determine whether a Computer Model Arrangement is feasible for such plans and is required to report its determination to the relevant congressional committees by December 31, 2007.

The pension reform bill also includes many other amendments to ERISA. Some of the other provisions include:

• New pension funding rules, including new interest rate assumptions for determining pension plan liabilities;
• Clarification of certain aspects, including age discrimination and conversion requirements, of hybrid plans (e.g., cash balance plans);
• Provisions making the EGTRRA retirement plan savings levels permanent;
• New rules for automatic enrollment in a 401(k) plan and the selection of default investments;
• Limits on the funding of non-qualified deferred compensation arrangements in a so-called rabbi trust for companies with severely underfunded pension plans;
• Changes to the taxation of corporate-owned life insurance ("COLI") which will effectively limit coverage to directors and highly compensated employees (i.e., employees in the top 35% compensation group). Informed consent from the employees will be required prior to enrollment in the COLI program.
• Amendments to certain reporting requirements;
• New requirements mandating that plan participants be allowed to diversify investments in employer securities in certain circumstances; and
• Faster vesting schedules.

These provisions have varying effective dates, with most of the new funding rules being effective commencing with the 2008 plan year.

In response to an inquiry from the Conference of State Bank Supervisors, an opinion from the General Counsel of the OCC, FDIC, and FRB (the "Federal Banking Agencies") concluded that certain state legislation intended to restrict interstate de novo branching by industrial loan companies ("ILCs"), but not other types of banks, may nonetheless limit the ability of other out-of-state banks to establish de novo branches in those states. Citing the federal Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, the opinion states that the Federal Banking Agencies only may approve a national bank, state member bank or state nonmember bank branching de novo into another state if the law of the host state meets certain criteria, including that the host state "expressly permits all out-of-state banks to establish de novo branches in such state." ILCs are considered "banks" for purposes of this provision. Accordingly, even if a state enacts a law only prohibiting ILCs from de novo branching into the state (the opinion references Virginia law), the Federal Banking Agencies then could not approve any other type of bank’s application to branch de novo into that state. A state law that precludes an out-of-state ILC from establishing a branch on the premises of a commercial affiliate of the ILC similarly is discriminatory, and thus a similar result would occur. However, a state statute that simply precluded any bank from establishing a branch on the premises of a commercial affiliate (the opinion cites Maryland law) would apply equally to all banks, and thus would not preclude other types of out-of-state banks from branching de novo into the state. (Although not discussed in the opinion, we note that the OTS is not involved in this analysis because federal savings associations generally can branch into a state regardless of any state law restrictions.)

The U.S. District Court for the District of New Hampshire found that a New Hampshire gift certificate law is preempted with respect to gift cards (the "Cards") sold by SPGGC, an affiliate of Simon Property Group ("Simon"), a shopping mall operator, and issued by U.S. Bank, N.A. ("U.S. Bank"), a national bank, and MetaBank, a federal savings association ("MetaBank", and together with U.S. Bank, the "Banks"). SPGGC v. Ayotte, No. 04-cv-420-SM (D.N.H., Aug. 1, 2006). The Cards are subject to certain fees and charges, including an initial handling fee and multiple service fees, and expire after 20 months or more. New Hampshire law prohibits charges on gift certificates (including gift cards) that reduce the amount for which the holder may redeem the certificate and prohibits expiration dates for certificates of $100 or less.

Simon and the Banks have entered into agreements under which the Banks own and issue and define the terms and conditions of the Cards (including fees and expiration dates), and Simon promotes and markets the Cards. The Banks book the fees collected from the Cards as income, and, on a quarterly basis, pay a commission fee to Simon based on the total value of Cards sold.

New Hampshire asserted that although the Cards are issued by the Banks, the New Hampshire gift certificate law was not preempted because the Cards are sold by Simon, to which preemption is unavailable. The Court, however, concluded that because the Banks are authorized to issue stored value cards and to use third parties to carry on the business of banking, the mere involvement of a third party does not automatically render the Card subject to state regulation. Rather, the Court concluded that the Cards, despite being sold by Simon, are federally-chartered bank products, which are subject to federal, not state, law. In reaching this conclusion, the Court emphasized, among other things, that the terms of the Cards, such as the various fees and expiration dates, are set by the Banks, rather than Simon; that Simon has no authority to alter the terms of the Cards; that Simon’s role in the Card program is limited to marketing, sales and similar activities; and that Simon is not compensated by the Card fees, but by a sales commission. The Court did not address preemption with respect to previous gift card programs administered by Simon, such as one with Bank of America, under which all fees and charges associated with the gift cards were paid to Simon. See Jan. 25, 2005 Alert.

The OTS issued an interpretative letter ("P-2006-6") providing flexibility to federal savings banks ("thrifts") with respect to lending through operating subsidiaries. More specifically, P-2006-6 determined that: (1) a second tier operating subsidiary of a thrift has the same preemption over state laws as a first tier subsidiary; and (2) the operating subsidiary could "export" the interest rates of the home office of its parent thrift, even though the operating subsidiary was located in a different state than its parent. In reaching the second conclusion, P-2006-6 states that because OTS regulations provide that the federal banking laws apply to an operating subsidiary of a thrift in the same manner as they apply to the thrift itself, the provisions of the Home Owners’ Loan Act and the OTS regulations that permit a thrift to export the rates of the home office of the thrift regardless of where the loan is made also apply to the operating subsidiaries.

A federal district court dismissed the remaining claim in a suit by a credit card issuing bank seeking to recover the costs of replacement cards and reimbursements to cardholders for unauthorized charges to cards issued to customers whose information was involved in a security breach at the defendant retailer. Sovereign Bank v. BJ’s Wholesale Club, Inc. & Fifth Third Bancorp, No. CV-05-1150 (M. D. Penn., June 16, 2006). The plaintiff’s other claims had previously been dismissed by the district court (as outlined in the May 23, 2006 Alert), but one claim by the issuing bank against the acquiring bank, Fifth Third Bank, remained.

Sovereign Bank had claimed status as an intended third party beneficiary to Fifth Third Bank’s member agreement with Visa, which required that an acquiring bank’s merchants comply with the Visa Operating Regulations, including a prohibition on retaining cardholder information. The court previously ruled that the issue could not be decided at that time and gave the parties time to conduct limited discovery on the issue of whether Visa and Fifth Third had the intent or purpose to benefit Sovereign Bank when entering into the Visa Operating Regulations. After that deposition testimony and document discovery, Fifth Third moved for summary judgment, making several arguments against Sovereign being an intended third party beneficiary under the member agreement. The primary argument was adopted by the court, that "Visa intended the member agreement to benefit the Visa System as a whole, and not individual participants in the system," thus making Sovereign merely an "incidental" beneficiary with no claim. The court noted as persuasive Visa deposition testimony that Visa was "not aware of an intent by Visa to create under its rules [i.e. Operating Regulations] direct rights of enforcement between [members]," and that Visa had not seen a document "that would allow a member ‘to step into Visa’s shoes under its contract with other members.’"

The SEC issued a request for contract proposals ("RFP") to conduct the first stage of a major study examining how the regulatory systems applicable to broker-dealers and investment advisers affect individual investors. The contractor eventually chosen to conduct the study will collect and analyze empirical data relating to, among other things:

• types of financial products and services offered to individual investors by broker-dealers and investment advisers;

• the marketing practices used by broker-dealers and investment advisers;

• fees and costs of the financial products and services offered;

• compensation arrangements for broker-dealers and investment advisers;

• disclosures made in connection with the sale of products and services to individual investors by broker-dealers and investment advisers; and

• individual investors’ perceptions regarding (i) financial products and services provided by broker-dealers and investment advisers and (ii) the duties and obligations owed by broker-dealers and investment advisers to individual investors.

As part of its survey of current industry practices, the contractor will interview broker-dealers and investment advisers and collect relevant marketing materials, written communications and other business documents for review. In consultation with the SEC staff, the contractor will evaluate the data collected and report its findings. According to the RFP, the findings are intended to provide the SEC with a factual background for evaluating the current legal and regulatory environment and for determining the most effective legal and regulatory approach to regulating investment professionals in today’s marketplace.

The U.S. Court of Appeals for the Seventh Circuit decided that the fact a drawee bank only retained computer images of paid checks and was not able to produce an original paper check would not prevent the drawee from enforcing presentment warranties against a depositary bank. The name of the payee on the check in question had been changed either by alteration of the original check or by duplication of the check with the insertion of different payee name. Liability as between the drawee and the depositary bank depended on whether the check was altered in which case the depositary bank would have breached its presentment warranties and have to bear the loss or whether the check was duplicated and hence a forgery in which case the drawee would have to bear the loss. The court held that, in cases of doubt, an alteration should be assumed, shifting the burden of loss onto the depositary bank. The court declined to adopt a rule that a forgery should be assumed unless the drawee could produce the original paper check to establish the absence of a forgery. Wachovia Bank, N.A. vs. Foster Bancshares, Inc., and Foster Bank, No. 05-3703 (7/24/06)

The Department of Labor (the "DOL") issued Advisory Opinion 2006-06A under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). This advisory opinion addresses whether the prohibition on the payment of sales commissions in Prohibited Transaction Class Exemption ("PTE") 77-3 applies to the payment of so-called 12b-1 fees by a proprietary mutual fund to an unrelated broker. PTE 77-3 provides an exemption for the acquisition or sale of shares of a mutual fund by an employee benefit plan subject to ERISA that covers employees of the mutual fund, the investment adviser to the mutual fund, the principal underwriter or distributor to the mutual fund, and their affiliates (i.e., in-house plans). The DOL stated that where the broker is unaffiliated with the mutual fund, its principal underwriter/distributor, investment adviser, or any affiliate thereof (the "Employers"), and any other fiduciary to the plan (the "Fiduciaries"), the term "sales commission" as used in PTE 77-3 would not include the 12b-1 fees that are paid to such unaffiliated broker. The DOL noted that neither the Employers nor the Fiduciaries, nor their affiliates, would receive any part of the 12b-1 fees, and that no commissions would be paid from the plan other than the 12b-1 fees.

The OTS published an interpretive ruling ("P-2006-4") permitting a federal savings bank ("thrift") to exclude consumer loans subject to a binding purchase agreement from the 30% of total assets limit that the Home Owners’ Loan Act ("HOLA") imposes upon a thrift engaging in consumer lending. The thrift at issue engages in automobile lending, but HOLA’s 30% limit severely constrained its ability to competitively engage in the activity. The thrift noted that it entered into a purchase and sale agreement with a third party committing the third party to purchase auto loans that the thrift originates that comply with specified underwriting parameters. The purchase agreement contains representations about the financial ability of the third party to purchase the loans, and also only permits the third party to compel the thrift to repurchase up to 5% of qualifying loans. In evaluating whether the thrift could exclude loans subject to the purchase agreement from the 30% consumer lending limit, P-2006-4 referenced OTS regulation 560.31, which provides that loans sold to a third party need to be included in the 30% limit "only to the extent that they are sold with recourse." OTS regulations do not define "recourse," but P-2006-4 reasons that loans subject to a purchase agreement, and not subject to a demand for repurchase, qualify as loans sold to a third party without recourse. Accordingly, P-2006-4 concludes that the loans subject to the purchase agreement, except for the 5% that is subject to repurchase, may be excluded from the thrift’s assets for purposes of the aggregate consumer lending calculation. P-2006-4 made clear, however, that this determination did not affect the GAAP or capital treatment of the loans, and any other thrift seeking similar relief must obtain specific approval from the appropriate OTS Regional Office.

The Municipal Securities Rulemaking Board (the "MSRB") issued a notice (the "Notice") seeking comment on implementing electronic availability of official statements for new issue municipal securities to replace the current system of requiring physical delivery of official statements in connection with new issue municipal security sales. The proposed system would be modeled in part on the "access equals delivery" model adopted by the SEC as part of its recent securities offering reform initiative. In general terms, the SEC model does not require a broker-dealer selling a security in a registered offering to deliver a final prospectus to a purchasing customer if the security’s registration statement is effective and the final prospectus is filed with the SEC within the required timeframe (thus making the final prospectus publicly available on the SEC website); the broker-dealer must, nonetheless, provide the customer with a notice that the security was sold in a registered offering within two business days after completion of the sale, and the customer may request a printed prospectus.

The Notice discusses two principal hurdles to achieving the "access equals delivery" model in the municipal securities market. First, official statement submissions would have to be made entirely in electronic form, which is used for only half of current submissions. Second, there would need to be a central repository of official statements in electronic form readily available to the investing public, at no cost. The Notice proposes the following two alternatives for the repository: (a) a centralized Internet website providing direct access to the official statements and (b) a central directory of official statements that refers investors to other websites where official statements would be made available by parties such as issuers, financial advisers, underwriters, information vendors and printers. Under the MSRB’s proposed model, a dealer selling a new issue municipal security would provide the purchasing customer with notice that the official statement is available electronically and would provide a printed version of the official statement upon request. The MSRB’s proposal would substitute electronic submission for other elements of the offering and regulatory filing process currently handled with physical delivery, e.g., inter-dealer distribution of official statements. In addition to comment on the proposed framework for delivery of official statements, possible alternatives and related issues, the Notice seeks specific comment on whether the "access equals delivery" model should be available on new issues or whether certain classes of new issues should continue to be subject to a physical delivery requirement. In this regard, the Notice refers to the fact that the SEC did not make its "access equals delivery" model available for mutual fund sales and queries whether "access equals delivery" should be made available in connection with the sale of municipal fund securities, including interests in 529 college savings plans. Comments should be submitted to the MSRB no later than September 15, 2006.

SEC Chairman Cox stated that the SEC will not seek review of, or appeal, the decision of the US Court of Appeals for the District of Columbia Circuit to vacate the hedge fund adviser registration rule (discussed in the June 27, 2006 Alert). Rather, through rulemaking and other guidance the SEC will seek to address issues resulting from the Circuit Court’s decision, and to propose a new anti-fraud rule that would look through hedge funds to investors.

As reported in the August 1, 2006 Alert, 4 major US banking institutions and the Conference of State Bank Supervisors sent letters to the US federal bank regulatory agencies in favor of the "standardized" approach, as well as the "advanced" approach, being made available to US banks in Basel II. More recently, the American Bankers Association also sent a letter favoring the addition of the standardized approach as an alternative for US banks.

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