Issues Securitization Volcker Rule Kenneth E. Kenneth E. Kohler JerryR. Marlatt February2014 PresentedBy

©2014 Morrison & Foerster LLP | All Rights Reserved | mofo.com Volcker Rule

• On December 10, 2013, the federal banking agencies, the SEC and the CFTC approved the final version of the Volcker Rule • Very detailed release of almost 900 pages • The rule, based on section 619 of Dodd-Frank, will substantially limit the circumstances in which many banking entities may enter into derivatives • Because of prohibitions of trading activities, could substantially reduce market liquidity • The rule will prohibit sponsorship or ownership of same

2 Volcker Rule (cont’d)

• The rule applies to a very broad range of banking entities, including insured depository institutions, companies controlling an insured depository institution, and companies treated as bank holding companies, and any affiliate or subsidiary of any of the foregoing • The general rule — • a banking entity may not engage in “” except as permitted by the rule. • a banking entity may not acquire or retain any “ownership interest” in or sponsor a “covered fund” except as permitted by the rule • There is no grandfathering for ownership interests

3 Volcker Rule/Proprietary Trading

• Proprietary trading – “engaging as principal for” its own “trading account” in a “purchase or sale of one or more financial instruments,” including derivatives • Definition of “trading account” incorporates concept of “short-term” resales, price movements or arbitrage profits • Definition of “financial instrument” includes most derivatives • There is a rebuttable presumption that if a banking entity holds in its trading account a financial instrument for less than 60 days, the purchase or sale of such instrument is for the banking entity’s trading account

4 Volcker Rule/Proprietary Trading (cont’d)

• Certain types of trading are excluded from the definition of proprietary trading: • Repo/reverse repo; • Securities lending; • Liquidity management pursuant to a plan; • clearing organization (DCO) and clearing agency trades; • Trades to satisfy an existing delivery obligation; • Trades to satisfy a court, judicial or similar proceeding; • Trades where the banking entity is acting solely as agent, broker or custodian; • Trades through a deferred compensation plan; and • Trades made in the ordinary course of collecting a debt previously contracted. • No exclusion for interaffiliate trades

5 Volcker Rule/Proprietary Trading (cont’d)

• The prohibition on proprietary trading also does not apply to: • Trading in US government/agency securities; • Trading in munis; • Trading by a foreign bank sub of a US banking entity in debt of the foreign government where the sub is located; • Trading on behalf of a customer in a fiduciary or riskless principal capacity; or • Trading by a banking entity that is a regulated insurance company

6 Volcker Rule

• The prohibition on proprietary trading does not apply to certain risk- mitigating hedging activities or certain market-making activities as well as certain underwriting activities • Permitted risk-mitigating hedging activities do not explicitly include a “portfolio hedge” • However, they do permit hedging activities that are: • “in connection with and related to individual or aggregated positions, contracts or other holdings” and • “designed to reduce the specific risks to the banking entity” that are “related to such positions, contracts or other holdings”

7 Volcker Rule/Hedging Activities (cont’d)

• Additional requirements for risk-mitigating hedging activities: • An internal compliance program containing written policies and procedures regarding positions, techniques and strategies that may be used for hedging, including: • Documentation indicating what positions, contracts or other holdings a particular trading desk may use • Position and aging limits • Analysis designed to ensure that the positions, techniques and strategies that may be used for hedging may be reasonably be expected to demonstrably reduce or otherwise significantly mitigate the specific, identifiable risks being hedged • The extent of the required internal compliance program will depend upon the size and activities of the relevant banking entity, but for entities engaging in proprietary trading that have consolidated assets of $10 billion or more it will be quite substantial. • Rule is quite prescriptive with respect to reporting and recordkeeping requirements.

8 Volcker Rule/Hedging Activities (cont’d)

• Additional requirements for risk-mitigating hedging activities: • Activity must be conducted in accordance with written policies, procedures and internal controls • Activity must be designed to reduce or otherwise significantly mitigate and demonstrably reduces or otherwise significantly mitigates one or more specific, identifiable risks arising in connection with identified positions, contracts, or other holdings • Activity must not give rise, at the inception of the hedge, to any significant new or additional risk that is not itself hedged contemporaneously • Continuing review, monitoring and management that requires ongoing recalibration of the hedging activity • Compensation arrangements of persons performing risk-mitigating hedging activities are designed not to reward or incentivize prohibited proprietary trading • Additional documentation requirements apply with respect to risk-mitigating hedging activities established by a trading desk other than the desk responsible for the underlying positions, or to hedge aggregated positions across trading desks

9 Volcker Rule/Market-Making Activities (cont’d)

• The prohibition on proprietary trading does not apply to certain market-making activities; • Requirements for permitted market-making activities: • Trading desk that establishes and manages the financial exposure routinely stands ready to purchase and sell one or more types of financial instruments related to its financial exposure and is willing and available to quote, purchase and sell, or otherwise enter into long and short positions in those types of financial instruments for its own account in commercially reasonable amounts and throughout market cycles • The amount, types, and risks of the financial instruments in the trading desk’s market-maker inventory are designed not to exceed, on an ongoing basis, the reasonably expected near term demands of clients, customers, or counterparties

10 Volcker Rule/Market-Making Activities (cont’d)

• Additional requirements for permitted market-making activities: • Internal compliance program that states • The instruments in which each trading desk will make a market • Actions the trading desk will take to demonstrably reduce or otherwise significantly mitigate promptly the risks of its financial exposure • Limits for each trading desk, based on the nature and amount of the trading desk’s market making-related activities • Internal controls and ongoing monitoring and analysis of each trading desk’s compliance with its limits • Authorization procedures, including escalation procedures that require review and approval of any trade that would exceed a trading desk’s limit(s) • The compensation arrangements of persons performing the market-making activities are designed not to reward or incentivize prohibited proprietary trading.

11 Volcker Rule/Underwriting

• The market-making exception is permitted only if the trading desk underwriting position is related to a “distribution” of securities for which the bank is an underwriter • Distribution: 33 Act registered, or otherwise characterized as different from ordinary trading by virtue of selling efforts – Securities law terms • Underwriter: defined broadly to include selling group members and other distribution participants – Securities law terms • Amount and type of securities in the underwriting position: cannot exceed the reasonably expected near term demands of clients, customers, counterparties, etc. • The trading desk must use reasonable efforts to reduce the position within a reasonable time

12 FBOs

• The rule establishes an exemption for proprietary trading by an FBO to the extent that the trading is conducted solely outside the (SOTUS exemption) • SOTUS means • FBO not organized under U.S. or State law • majority of total assets held outside the U.S. • majority of total revenues derived from business outside U.S. • majority of total net income derived from business outside U.S. • the personnel or affiliate that arrange, negotiate or execute the trade are not located in the U.S. or organized under U.S. law • the personnel who make the decision to trade are not located in U.S. • the trade and any related hedging is not accounted for by any branch or affiliate located in the U.S. or organized under U.S. law

13 FBOs (cont’d)

• no financing for the trade is provided by a branch or affiliate located in U.S. or organized under U.S. law • with certain exceptions, the trade is not conducted with or through a U.S. entity

14 “Prudential” backstop

• Proprietary trading activities are not permissible if: • They involve or result in a material conflict of interest between the banking entity and its clients, customers or counterparties, or • They would result in a material exposure by the banking entity to a high-risk asset or a high-risk trading strategy, or • They pose a safety and soundness threat to the institution or a threat to US financial stability

15 Covered funds

• The rule prohibits a banking entity, as principal, directly or indirectly from acquiring or retaining an ownership interest in, or sponsoring, a “covered fund” • Does not apply to banking entity: solely acting as agent, broker or custodian and the activity is conducted for the account of or on behalf of a customer and the banking entity does not retain an interest; the banking entity’s ownership interest is held/controlled by it as trustee in connection with a deferred comp or similar plan; owns interest in the ordinary course of collecting a debt; or holds as trustee or on behalf of a customer that is not itself a covered fund • A “covered fund” is an issuer: • that would be required to register as an investment company under the Investment Company Act but for Section 3(c)(1) or 3(c)(7) • any commodity pool • CPO relies on an exemption from registration, or • units in the fund are sold to QEPs and are not publicly offered

16 Covered funds (cont’d)

• For any banking entity that is, or is controlled by a banking entity that is, located in or organized under the laws of the U.S., any entity — • organized outside the U.S. whose ownership interests are offered and sold solely outside the U.S. • organized primarily for the purpose of trading in securities • the banking entity sponsors or holds an ownership interest in the entity

17 Covered funds (cont’d)

• Exemptions from ‘covered fund’: • Foreign public funds • A U.S. banking entity can sponsor a foreign public fund under certain circumstances • Wholly-owned subsidiaries • Joint ventures – not organized for purpose of trading • Acquisition vehicles • Foreign pension or retirement funds • Insurance company separate accounts – no banking entity participates in profits or losses • Bank owned life insurance • securitizations • Qualifying ABCP programs • Qualifying covered bonds

18 Covered funds (cont’d)

• SBICs and public welfare investment funds • Registered investment companies and excluded entities – but not excluded by 3(c)(1) or 3(c)(7) • Entities organized by the FDIC in connection with a receivership • Any other entity approved by the agencies

19 Covered funds (cont’d)

• The agencies expressly excluded certain entities from the definition of covered fund. • In some cases, these entities may be able to rely on exclusions from the definition of investment company other than section 3(c)(1) and section 3(c)(7) • Entities include • Financial market utilities • Collateral cash pools • Pass-through REITs • Municipal securities tender option bond transactions • funds • Credit funds • Employee securities companies

20 Covered funds (cont’d)

• Scope of prohibition • The basic prohibition is that banking entities are not permitted to “sponsor” or acquire an “ownership interest” in a covered fund, subject to certain exceptions • Sponsor means • To serve as a general partner, managing member, trustee or CPO of a covered fund • To select or control selection of a majority of directors, trustees or management of a covered fund • To share with the covered fund the same name or a variation of the name • Ownership interest • Means any equity, partnership or other similar interest • Other similar interest includes an interest in or security issued by a covered fund that exhibits certain characteristics on a current, future or contingency basis • Definition of ownership interest may include interests in a covered fund that might not be considered an ownership interest or an equity interest in other contexts • Does not include “restricted profit interest”

21 Covered funds (cont’d)

• Permitted covered fund sponsorship and investments • Notwithstanding the prohibition on sponsorship and investment in ownership interests in covered funds, the rule permits investment and sponsorship of the certain covered funds, subject to prescribed limitations and conditions • Customer funds • A BE may acquire ownership interests in or sponsor a covered fund, including acting as a general partner, managing member, trustee or CPO as a means of offering investment opportunities to customers • Covered fund activity must be in connection with BE’s trust, fiduciary or investment management services for customers pursuant to a written plan • Conditions • BE cannot guarantee performance of covered funds • BE cannot share same name as covered fund • BE directors and employees can take ownership interests • BE must disclose certain information

22 Covered funds

• Permitted covered fund sponsorship and investments • Customer funds • Per-fund investment limitation • BE’s investment in customer fund may not exceed either • 3% of the value of the covered fund, or • 3% of the number of ownership interests of the covered fund • Seeding period • BE may exceed the 3% limit during a seeding period of up to one year • No quantitative or percentage limitation that BE may hold during seeding period • Entities issuing asset-backed securities • Ownership limitation exception for required risk retention rules • Permissible underwriting and market making • Restrictions do not apply to BE’s underwriting and market-making related activities provided they conform to the requirements for permitted activities under the proprietary trading prohibitions • Aggregate value of covered fund investments may not exceed 3% of Tier 1 capital

23 Covered funds (cont’d)

• “Super 23A” • BEs may not enter into with the funds discussed above (covered funds) transactions that are “covered transactions” under Section 23A of the FRA • No BE that (directly or indirectly) serves as investment manager, investment adviser, CTA or sponsor of a covered fund may engage in any transaction with the covered fund if the transaction would be a “covered transaction” as defined in Section 23A, as if the BE or its affiliate were a “member bank” and the covered fund were an affiliate • Covered transactions include • Loan or extension of credit (including repo) • Purchase or investment of securities issued by affiliate • Purchase of assets from the affiliate • Acceptance of securities as collateral for a loan • Issuance of guarantee, acceptance or LOC on behalf of affiliate • Transaction with affiliate that involves borrowing or lending securities • Derivative transactions

24 Covered funds (cont’d)

• “Super 23A” • Volcker Rule imposes an absolute transactional prohibition, subject to explicit exceptions • Thus, we call the Volcker Rule’s 23A prohibitions “Super 23A” • Exceptions • Acquisitions of ownership interests in covered funds that are not proscribed to the extent permitted elsewhere in the rule • BEs, subject to certain conditions, may enter into prime brokerage transactions with covered fund that is managed, sponsored or advised by the BE or its affiliates • Other permitted covered fund activities • Permitted risk-mitigating hedging activities • Fund investment and sponsorship by FBOs solely outside the U.S. • Permitted fund activities by regulated insurance companies • Prudential backstops • Above activities not permissible if they result in material conflicts of interest

25 Securitization Overview

• The rule applies to banking entities involved as investors in, sponsors of, or transaction parties (e.g., credit or liquidity providers) with, securitization issuers are subject to severe restrictions or divestiture if the securitization issuer is a covered fund. • Congress stated in the Dodd-Frank Act its intention that the Volcker Rule not limit or restrict the ability of banking entities to sell or securitize . • In the Final Rule, the Agencies generally followed Congressional intent by making clear that most securitizations of traditional loan products (e.g., mortgage loans, auto loans, student loans and credit card receivables) are not covered funds.

26 Securitization Overview (cont’d)

• However, the Final Rule creates the possibility that certain securitization vehicles whose assets include securities or derivatives (as opposed to loans) may be covered funds. • Banking entities must closely examine the securitizations with which they are involved to determine if they are covered funds. • If a banking entity has an investment in, sponsors, or engages in certain transactions with a securitization vehicle that is a covered fund, it must closely examine such relationships to determine if they are permissible or require divestiture or restructuring. • NOTE – there is no grandfathering of existing ownership interests

27 Definition of Covered Fund

• The basic definition of “covered fund” is a three-pronged test previously described. • For most securitization issuers, the relevant test will be that set forth in the first prong of the definition – whether the issuer would be an investment company under the 1940 Act but for the exemptions set forth in Section 3(c)(1) or 3(c)(7) of the 1940 Act. • Many securitizations rely on other exemptions from the 1940 Act and are therefore not covered funds. • A banking entity involved with a securitization should be able to determine the applicable 1940 Act exemption by reviewing the offering documents. • If beneficial ownership of securities is limited to 100 or fewer persons, the deal probably relies on Section 3(c)(1).

• If investors are required to be “qualified purchasers” for purposes of the 1940 Act, the deal probably relies on Section 3(a)(7).

28 Definition of Covered Fund (cont’d)

• The Agencies have stated that a deal that relied on Section 3(c)(1) or 3(c)(7) may still not be a covered fund if another 1940 Act exemption is also available. • If a securitization issuer relied on 3(c)(1) or 3(c)(7), is another 1940 Act exemption available? • Section 3(c)(5)(C) – for certain mortgage-backed securities • Rule 3a-7 – for many traditional securitizations • Section 3(c)(5)(A) – for certain securitizations of consumer receivables • Section 3(c)(5)(B) – for certain securitizations of trade receivables • Rule 3a-5 – for finance subsidiaries whose securities are guaranteed by parent

29 Exclusions from Covered Fund Definition – General • If the issuer relied on Section 3(c)(1) or 3(c)(7) of the 1940 Act and another 1940 Act exemption is not available, it may still avail itself of one or more of the 14 enumerated exclusions from the definition of covered fund. • Of the 14 exclusions, four are most likely to be applicable to a securitization issuer: • Loan securitization exclusion • Qualifying asset-backed commercial paper (ABCP) conduit exclusion • Qualifying covered bond exclusion • Wholly owned subsidiary exclusion

30 Loan Securitization Exclusion

• This exclusion applies to an issuer of ABS if its underlying assets are comprised solely of:

• loans (defined as any loan, lease, extension of credit, or secured or unsecured receivable that is not a security or derivative);

• rights or other assets designed to assure the servicing or timely distribution of proceeds to security holders or related or incidental to purchasing or otherwise acquiring, and holding loans, subject to certain limitations;

• certain interest rate or foreign exchange derivatives that (i) directly relate to the loans in the issuing entity, the related ABS or certain related contractual rights or assets and (ii) reduce the interest rate and/or foreign exchange risks related to such loans, the related ABS or permitted contractual rights or assets;

31 Loan Securitization Exclusion (cont’d)

• certain special units of beneficial interest (“SUBIs”) and collateral certificates (which are issued by certain intermediate special purpose vehicles that themselves satisfy the requirements of the loan securitization exclusion); and • certain securities constituting cash equivalents and securities received in lieu of debts previously contracted with respect to the loans underlying the ABS. • In addition, in order to qualify for the loan securitization exclusion, the issuer may not hold (i) a security, including an ABS, or an interest in an equity or debt security other than as permitted above; (ii) a derivative, other than as permitted above; or (iii) a commodity forward contract. • The Agencies stated in the preamble that the determination whether a loan or other financial asset is a “security” is made by reference to the federal securities laws.

32 Qualifying ABCP Conduit Exclusion

• This exclusion applies to an issuer of asset-backed commercial paper (ABCP) if the underlying assets are comprised solely of: • loans or other assets that would be permissible under the loan securitization exclusion described above, and • ABS that are supported solely by assets permissible under the loan securitization exclusion and are acquired by the ABCP conduit as part of the initial issuance of the securities. • In addition, to qualify for the qualifying ABCP conduit exclusion, a “regulated liquidity provider” (as defined in the Final Rule) must provide a legally binding commitment to provide full and unconditional liquidity coverage with respect to all the outstanding ABCP issued in the event that funds are required to redeem the maturing ABCP.

33 Qualifying Covered Bond Exclusion

• This exclusion applies to an entity that owns or holds a dynamic or fixed pool of assets that covers the payment obligations of covered bonds if such assets or holdings meet the requirements of the loan securitization exclusion. • In addition, the covered bonds must be debt obligations that are issued either directly • by a foreign banking organization (“FBO”) (in which case, the payment obligations of the covered bonds must be fully and unconditionally guaranteed by the entity that owns the permitted cover pool) or • by the entity that owns the permitted cover pool (in which case, the payment obligations of the covered bonds must be fully and unconditionally guaranteed by an FBO and the issuer of the covered bonds must be a wholly owned subsidiary that satisfies the requirements of the wholly owned subsidiary exclusion (described below) of the FBO.

34 Wholly Owned Subsidiary Exclusion

• This exclusion applies to an entity if all of its outstanding ownership interests are owned directly or indirectly by a banking entity or an affiliate thereof, except that: • up to five percent of the entity’s ownership interests may be owned by directors, employees, and certain former directors and employees of the banking entity or its affiliates; and • within the five percent ownership interest, up to 0.5 percent of the entity’s outstanding ownership interests may be held by a third party if the ownership interest is held by the third party for the purpose of establishing corporate separateness or addressing bankruptcy or insolvency. • This exclusion was added to the Final Rule to clarify that wholly owned “depositors” and other intermediate transferors of assets in a securitization are not considered covered funds. This exclusion is also likely to be very helpful for banking entities that establish or rely on special purpose funding programs that utilize trust or other tax pass-through vehicles.

35 Covered Fund Problem Areas

• Most covered fund problems arise for Section 3(c)(1) or Section 3(c)(7) funds whose assets include securities or derivatives: • CDOs backed by securities or derivatives (including CDOs backed by trust- preferred securities (“TruPS”)) • CLOs that hold debt securities • Certain CMOs backed by mortgage securities • Resecuritizations • Bond Repackagings • Synthetic ABS • Synthetic structured products • Auction rate preferred securities • Funding vehicles • Domestic covered bonds

36 Covered Fund Restrictions

• If a securitization issuer is determined to be a covered fund, banking entities are prohibited from: • acquiring “ownership interests” in the securitization issuer, • sponsoring the securitization issuer, and • making loans to, or entering into certain other types of transactions with a securitization issuer for which the banking entity acts as sponsor, investment manager, investment adviser or commodity trading advisor. • The prohibitions described in the third bullet point above are defined in the Final Rule by reference to the restrictions of Section 23A and 23B of the Act, and are commonly referred to by commenters as the “Super 23A” provisions. These restrictions, among other things, severely limit the ability of banking entities to provide credit and liquidity support to covered fund securitizations to which they are related as investors, sponsors or advisors. • Additionally, permitted transactions between the banking entity and the securitization issuer must be on market terms.

37 Covered Fund Restrictions (cont’d)

• The Final Rule also includes a limited exemption from ownership and sponsorship restrictions to the extent banking entities retain ownership interests in sponsored securitizations not otherwise excluded from the covered fund definition in order to comply with risk retention requirements. • This exemption, however, does not exempt banking entities from Super 23A restrictions. Additionally, the exemption does not apply if banking entities retain ownership interests in excess of the required retention under risk retention rules, defeating its utility in situations in which rating agencies or prospective investors require a retention in excess of the regulatory risk retention requirement. • The Final Rule does not itself “grandfather,” or exempt, structures and investments put in place before the effective date of the Final Rule or before the enactment of the Dodd-Frank Act. Accordingly, banking entities will need to closely examine their existing securitization investments and relationships, and prospective transactions, for compliance with the Volcker Rule.

38 Definition of “Ownership Interest”

• An ownership interest includes any equity or partnership interest in a covered fund or any other interest in or security issued by a covered fund that exhibits any of certain characteristics on a current, future or contingent basis, including:

• has the right to participate in the selection or removal of a general partner, managing member, member of the board of directors, investment manager, investment adviser or commodity trading advisor (not including rights of a creditor to exercise remedies in the event of a default);

• has the right under the terms of the interest to receive a share of the income, gains or profits of the covered fund (regardless of whether the right is pro rata with other owners);

• has the right to receive the underlying assets of the covered fund, after all other interests have been redeemed and/or paid in full (the “residual” in securitizations);

• has the right to receive all or a portion of excess spread;

39 Definition of “Ownership Interest” (cont’d)

• provides that the amounts payable by the covered fund with respect to the interest could, under the terms of the interest, be reduced based on losses arising from the underlying assets of the covered fund, such as allocation of losses, write-downs or charge-offs of the outstanding principal balance, or reductions in the amount of interest due and payable on the interest; • receives income on a pass-through basis from the covered fund, or has a rate of return that is determined by reference to the performance of the underlying assets of the covered fund (excluding interests that are entitled to received dividend amounts calculated at a fixed or floating rate); and • any synthetic right to have, receive or be allocated any of the rights described above (which would not allow banking entities to obtain derivative exposure to these characteristics). • Of particular importance to banking entities engaged in activities, notwithstanding the general prohibition of a banking entity acquiring an “ownership interest” in a covered fund, a banking entity may acquire such an ownership interest in connection with certain permitted underwriting and market making-related activities.

40 Definition of “Ownership Interest” (cont’d)

• It is also important to note that the definition of ownership interest in the Final Rule may include interests in a covered fund that might not usually be considered an ownership interest or an equity interest.

• Of particular concern is the first of the indicia of an ownership interest list above – that the interest has the right to participate in the selection or removal of a general partner, managing member, director, investment manager, investment adviser or commodity trading advisor.

• Many CLOs and CDOs provide rights to a “controlling class” of senior debt security holders to participate in the designation of investment managers or investment advisers, creating the potential that the holders of even the most senior, highly rated debt securities may be considered to hold “ownership interests.”

• It is hoped that further regulatory guidance will clarify whether senior debt interests in such structures are susceptible to classification as “ownership interests.”

41 Definition of “Sponsor”

• The Final Rule defines “sponsor” to mean any entity that: • serves as general partner, managing member, or trustee of a covered fund, or that serves as a commodity pool operator of a covered fund, • selects or controls (or has employees, officers, or directors, or agents who constitute) a majority of the directors, trustees, or management of a covered fund, or • shares with a covered fund, for corporate, marketing, promotional, or other purposes, the same name or a variation of the same name. • A key question for trustees of ABS issuing trusts (which are typically appointed by the party usually regarded as the sponsor of the securitization) is whether such trustees may themselves be considered “sponsors” of the securitization. • The Agencies stated in the Preamble that the term “sponsor” includes a trustee that has the right to exercise any investment discretion with respect to the securitization. • The Agencies also indicated that for ABS issuers, this would generally not include a trustee that executes decision making, including investment of funds prior to the occurrence of an event of default, solely in accordance with the provisions of a written contract or at the written direction of an unaffiliated party.

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Interim Final Rule re TruPS CDOs

• The Final Rule caused considerable industry outcry over the definition of “ownership interest” as applied to CDOs and CLOs—particularly from community banks that hold CDOs backed by trust preferred securities (“TruPS”). • On January 14, 2014 the Agencies issued an interim final rule providing grandfathering for certain existing TruPS CDOs. • The interim final rule allows the retention of an interest in or sponsorship of covered funds by banking entities if, among other things, the following conditions are met: • The TruPS CDO was established, and the interest was issued, before May 19, 2010; • The banking entity reasonably believes that the offering proceeds received by the TruPS CDO were invested primarily in qualifying TruPS collateral; and • The banking entity’s interest in the TruPS CDO was acquired on or before December 10, 2013, the date the Agencies issued the Final Rule implementing the Volcker Rule.

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Thank You!

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