Tuesday, October 25, 2016
Darian M. Ibrahim has posted Crowdfunding Without the Crowd on SSRN with the following abstract:
The final crowdfunding rules took three years for the SEC to pass, but crowdfunding — or offering securities over the Internet — is now a reality. Will crowdfunding be a wasteland of startups who cannot find other funding, only to be floated until failure by rubes who are easily parted with their money? This Essay argues that crowdfunding has a much better chance of success if we abandon the idea that it does (and should) employ “crowd-based wisdom” at all. Instead, crowdfunding needs intermediation by experts just like the successful forms of entrepreneurial finance (e.g., angel investing and venture capital) that have preceded it.
The final SEC rules move us in the right direction. At the heart of the crowdfunding experience lies the “funding portal,” or the website that will actually list the startup as an investment opportunity. As originally promulgated, funding portals were to be almost completely passive entities who could not subjectively “curate” (or screen) the startups that wished to list on the site. The final SEC rules permit some funding portal curation, which will allow funding portals to list better quality startups.
As I will argue, however, this permitted curation does not go far enough, given a funding portal’s justified concern over becoming a broker-dealer. Thus, I suggest ways in which expert investors participating in crowdfunding offerings can and should use message boards and investment clubs to further guide unsophisticated investors toward better investment choices. At the same time, I acknowledge potential liability concerns for experts who do so. Together, on balance, careful curation by funding portals and expert investors will give crowdfunding a better chance of success.
Tobias Adrian, Michael J. Fleming, and Erik Vogt have posted Market Liquidity after the Financial Crisis on SSRN with the following abstract:
This paper examines market liquidity in the post-crisis era, in light of concerns that regulatory changes might have reduced banks’ ability and willingness to make markets. We begin with a discussion of the broader trading environment, including a discussion of regulations and their potential effect on dealer balance sheets and market making, but also considering plausible alternative drivers of market liquidity. Using both high- and low-frequency data on U.S. Treasury securities and corporate bonds, we then investigate empirically whether liquidity has in fact deteriorated, and we review market behavior around three key post-crisis events. Overall, our findings, and those of recent papers we survey, do not suggest a significant decline in bond market liquidity. We conclude with ideas for future research, including the evaluation of additional data, methodological improvements, and closer analyses of liquidity risk and the interplay between market liquidity and funding liquidity.
Elisabeth de Fontenay, Josefin Meyer and G. Mitu Gulati have posted The Sovereign-Debt Listing Puzzle on SSRN with the following abstract:
The claim that stock exchanges perform certification and monitoring roles in securities offerings is pervasive in the legal and financial literatures. This article tests the validity of this “bonding hypothesis” in the sovereign-bond market — one of the oldest and largest securities markets in the world. Using data on sovereign-bond listings for the entire post-World War II period, we provide the first comprehensive report on sovereigns’ historical listing patterns. We then test whether a sovereign bond issue’s listing jurisdiction affects its yield at issuance, as the bonding hypothesis would predict. We find little evidence of bonding in today’s sovereign-debt market. Instead, we hypothesize that sovereign-bond listings are primarily a form of regulatory arbitrage. Because certain investors may be restricted to investing abroad only in listed securities, sovereigns are incentivized to list their bonds, but to seek out the least restrictive exchange that qualifies.
On October 21, 2016 at the Midwest Region Meeting of the American Accounting Association in Chicago, Illinois, Scott W. Bauguess, Deputy Director and Deputy Chief Economist of the SEC's Division of Economic and Risk Analysis delivered a speech entitled Has Big Data Made Us Lazy?, as part of the event.
Monday, October 24, 2016
The following law review articles relating to securities regulation are now available in paper format:
Sang Yop Kang, 'Generous Thieves': The Puzzle of Controlling Shareholder Arrangements in Bad-Law Jurisdictions, 21 Stan. J.L. Bus. & Fin. 57 (2015).
Joseph Quincy Patterson, Note, Many Key Issues Still Left Unaddressed in the Securities and Exchange Commission's Attempt to Modernize Its Rules of Practice, 91 Notre Dame L. Rev. 1675 (2016).
Susanna Kim Ripken, Paternalism and Securities Regulation, 21 Stan. J.L. Bus. & Fin. 1 (2015).
Michael Vignone, Note, Inside Equity-Based Crowdfunding: Online Financing Alternatives for Small Businesses, 91 Chi.-Kent L. Rev. 803 (2016).
Informing Investors of Climate Risk: The Impact of Securities Laws in the Environmental Context, Tom Mounteer, moderator; Leah A. Dundon, Kevin A. Ewing, Elizabeth Lewis, panelists. 46 Envtl. L. Rep. News & Analysis 10455-10465 (2016).
On October 24, 2016 at the The Evolving Structure of the U.S. Treasury Market Second Annual Conference in New York, New York, Chair Mary Jo White delivered a keynote address on Prioritizing Regulatory Enhancements for the U.S. Treasury Market.
Tuesday, October 18, 2016
Alan R. Palmiter has posted The Mutual Fund Investor on SSRN with the following abstract:
This chapter for an upcoming handbook on mutual funds (by Edward Elgar Publishing) offers an overview of the mutual fund market and the investors who inhabit it. On the supply side, mutual funds hold $16 trillion in financial assets and have become the largest component of our private retirement system. On the demand side, mutual fund ownership has become widespread, with 90 million fund-owning households composed mostly of middle-class, educated, and older investors.
The portrait of mutual fund investors, painted by a large and consistent body of academic and government studies over the past few decades, is disturbing. Fund investors are mostly ignorant of fund characteristics, inattentive to risks (and opportunities) of different asset classes, and often insensitive to fund fees. Instead, fund investors tend to chase past returns and attempt to time the market. As a result, the average returns for fund investors (both in stock and bond funds) have significantly trailed benchmark market returns – according to some studies, by several percentage points.
The role of financial intermediaries in the mutual fund market is also disconcerting. Often, financial advisers give fund investors conflicted advice, leading them to choose high-cost, under-performing funds on which the advisers garner commissions. Although some employers are shifting employees to low-cost, risk-appropriate balanced funds, many 401(k) plans remain less than optimal. Moreover, fund companies tout higher-cost actively managed funds, despite growing evidence that most, if not all, fund managers are unable to beat the market – particularly after fees.
There are, however, glimmers of hope. Recently, many fund investors have moved to lower-cost index funds – reflecting a new sensitivity both to the importance of low costs and to the empty promise of active fund management. Target date funds have also established a beachhead in the 401(k) market. The recent clarion calls of the financial press reinforces these trends, as a growing drumbeat of stories emphasizes the importance of fund fees, the counter-productivity of trying to beat or time the market, and the emptiness of chasing past fund performance.
Monday, October 17, 2016
On Oct. 17, 2016 at the National Society of Compliance Professionals 2016 National Conference in Washington, D.C., Marc Wyatt, Director of the SEC's Office of Compliance Inspections and Examinations delivered a keynote address entitled Inside the National Exam Program in 2016 that detailed the current state of the OCIE.
The following law review articles relating to securities regulation are now available in paper format:
Christina Batog, Note, Blockchain: A Proposal to Reform High Frequency Trading Regulation, 33 Cardozo Arts & Ent. L.J. 739 (2015).
Laura Bower Braunsberg, Asking the Right Question: The Mixed Consideration Denominator Problem, 40 Del. J. Corp. L. 989 (2016).
Jan De Bruyne, How the Threat of Holding Credit Rating Agencies Liable Might Increase the Accuracy of Their Ratings, 52 Willamette L. Rev. 173 (2015).
Levon Garslian, Towards a Universal Model Regulatory Framework for Derivatives: Post-Crisis Conclusions from the United States and the European Union, 37 U. Pa. J. Int'l L. 941 (2016).
Sarah R. Sandy & Erin J. Tilton, Community Development Districts as Creditors: The Role of Separation of Powers in Protecting the District's Fiscal Sovereignty, 45 Stetson L. Rev. 377 (2016).
Linn White, Title III of the JOBS Act: Congress Invites Investor Abuse and Leaves the SEC Holding the Bag, 52 Willamette L. Rev. 227 (2015).
Sunday, October 16, 2016
Lev Bromberg, George Gilligan, and Ian Ramsay have posted Enforcement of Financial Market Manipulation Laws: An International Comparison of Sanctions on SSRN with the following abstract:
Market manipulation has been a significant focus of regulators, the media and others in many countries, with widespread allegations of market manipulation, not just relating to securities, but in relation to interest rates, foreign exchange and commodities. This working paper presents the results of a detailed comparative empirical study of sanctions imposed for trade-based market manipulation in Australia, Canada (Ontario), Hong Kong, Singapore and the United Kingdom (UK). The comparative study is based on a dataset of around 250 sanctions imposed on individuals and companies found or alleged to have contravened market manipulation provisions across the jurisdictions. The study compares the type, magnitude and frequency of sanctions (custodial sentences, banning orders and various pecuniary sanctions) imposed by statutory bodies and the courts for market manipulation in the selected jurisdictions in the ten year period from 1 January 2006 to 31 December 2015. The study also examines pecuniary sanctions imposed relative to illegal profits obtained by the defendants. Key findings include substantial differences between the jurisdictions in the use of sanctions, with much higher use of custodial sentences in Hong Kong, Singapore and Australia, much higher use of banning orders in Ontario and the UK imposing the highest median pecuniary sanctions.
Hans Bonde Christensen, Luzi Hail, and Christian Leuz have posted Capital-Market Effects of Securities Regulation: Prior Conditions, Implementation, and Enforcement on SSRN with the following abstract:
We examine the capital-market effects of changes in securities regulation in the European Union (EU) aimed at reducing market abuse and increasing transparency. To estimate causal effects for the population of EU firms, we exploit that for plausibly exogenous reasons, like national legislative procedures, EU countries adopted these directives at different times. We find significant increases in market liquidity, but the effects are stronger in countries with stricter implementation and traditionally more stringent securities regulation. The findings suggest that countries with initially weaker regulation do not catch up with stronger countries, and that countries diverge more upon harmonizing regulation.
Friday, October 14, 2016
SEC Adopts Rules to Modernize Information Reported by Funds, Require Liquidity Risk Management Programs, and Permit Swing Pricing
Wednesday, October 12, 2016
Shreya Solenkey has posted Listing and De-listing of Securities in India: A Comprehensive View on SSRN with the following abstract:
Ever since Stock Exchange came into being transfer of securities has become an easier and organized task. Stock exchange provides the convenience of trading in securities from any place, however in order to trade the securities are required to be listed on a recognized stock exchange. Only securities of a public company can be listed by agreeing to a Listing Agreement. Listing of securities allows liquidity, and protection of investors by ensuring full disclosure.
Similarly, there is a process of delisting securities, it is either voluntary or compulsory. Compulsory delisting can be due to non-compliance of rules of stock exchanges or listing agreement. Voluntary delisting takes place during a merger or acquisition.
The importance of the process of listing/delisting of securities has gained importance ever since 2012, Foreign Direct Investment policies have enabled mergers and acquisitions. With both foreign companies merging with domestic companies and a merger between domestic companies the process listing and delisting have become unavoidable as it one of the many steps included in merger/acquisition.
This paper will discuss the impact of various provisions and acts such as the Companies Act 1956, SEBI Act, Securities Contract (Regulation) Act, 1956, Securities Contract (Regulation) Rules, 1957, Stock Exchange guidelines, SEBI (Delisting of Securities) Guidelines 2003 etc. The researcher will discuss the process of growth in India for listing/delisting securities. Listing Agreement and its development will be discussed upon by the researcher in context of investor protection. A comprehensive summary of rules for listing and delisting under the National Stock Exchange and Bombay Stock Exchange keeping in mind the growing importance of the process after the FDI Policy 2012.
Robert B. Ahdieh has posted Notes from the Border: Writing across the Administrative Law/Financial Regulation Divide on SSRN with the following abstract:
A central feature – if not the central feature – of legal scholarship today is analysis across divides.
It is surprising, then, how little has been written across the divide that separates administrative law and financial regulation. That is perhaps especially so, given the modest nature of the relevant divide: one that is intra- rather than interdisciplinary, one that operates within rather than across geographic boundaries, and one that involves no temporal dimension but operates entirely within current-day law.
For all the proximity in their interests, targets of study, and even analytical tools, however, scholars of administrative law and of financial regulation (including securities regulation, in particular) have shown strikingly little interest in one another: scholars of each discipline rarely read one another, cite one another, or even talk to one another.
To engage this peculiar lacuna in the legal literature, this brief essay proceeds in four stages. First, I review the history of the divide, as well as recent efforts to bridge it. Second, I outline core characteristics of the divide: the two fields’ distinct motivations, divergent assumptions about the market, and particular limitations. With a clearer picture of the nature of the divide, I suggest some of the insights that might be gained from engagement across it. Finally, I conclude by acknowledging the challenges attendant to writing across the administrative law/financial regulation divide – while also highlighting the need to overcome those challenges.
Tuesday, October 11, 2016
Jill E. Fisch has posted Family Ties: Salman and the Scope of Insider Trading on SSRN with the following abstract:
On October 5, 2016, the Supreme Court heard oral argument in Salman v. United States. Salman raises questions about the scope of insider trading liability for tippees under the personal benefit test previously articulated in Dirks v. SEC. Some critics have argued the Second Circuit’s decision last year in United States v. Newman demonstrates that the personal benefit test is unduly restrictive and should be reconsidered. Salman offers an opportunity for the Supreme Court to do so.
This essay argues that Salman does not require the Court to reexamine the parameters of insider trading liability. Instead, the Court can affirm Salman on the basis of a simple principle: family is different. Specifically, the essay explains the reasons that tips to close family members provide a personal benefit to the tipper consistent with the Dirks test. As Justice Breyer observed at oral argument in Salman, “to help a close family member is like helping yourself.”
Dirks was motivated by an effort to provide sufficient predictability to enable market participants to search out information without undue fear of liability. The test has proved workable in practice – imposing liability in cases of insider self-dealing while constraining overreaching by government prosecutors. It is unnecessary to revisit this balance to affirm Salman’s conviction.