Monday, October 24, 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.
Abraham J. B. Cable has posted Fool's Gold? Equity Compensation & the Mature Startup on SSRN with the following abstract:
There are a record number of startups valued at $1 billion or more, but there are signs that these so-called unicorns (or “mature startups”) are faltering. Employees who are compensated with stock options may bear the brunt of these disappointments due to senior rights of managers and financial investors.
Private placement regulations are surprisingly lax when it comes to protecting employees as compared to other types of investors. While securities laws once followed other fields in considering employees to be vulnerable, the SEC has gradually relaxed regulation of equity grants to employees.
This essay considers a fundamental question: are startup employees capable investors? The analysis reveals a counter-intuitive possibility: startup employees may be relatively capable investors in a company's early stages (when the risk of investment is sometimes perceived as highest) but poorly equipped to navigate the risks of a mature startup.
Trish Keeper has published Equity Crowdfunding in New Zealand: A Progressive Experiment on SSRN with the following abstract:
When the first tranche of provisions of the Financial Markets Conduct Act 2013 (‘the FMC Act’) came into force on 1 April 2014, a new licensing regime for crowdfunding service providers (‘CSPs’) was introduced into New Zealand law – one of the most progressive and innovative operating in the world today. The regime works on the basis that an offer of financial products to an investor does not require the FMC Act's standard disclosure documents necessary for an initial public offering, if the offer of financial products is by, or through, a licensed CSP and the offer is under the market service licence held by the CSP.
The paper starts with an overview of the nature of equity crowdfunding and how it implicates securities law. It then briefly outlines how this activity was regulated in New Zealand previously and discusses how the new regulatory framework operates. The final part of the paper describes how the crowdfunding markets have developed in the last two years and identifies future developments and potential threats to the operation of New Zealand’s crowdfunding regime.
Monday, October 10, 2016
Jeremy Kidd has posted Quacks or Bootleggers: Who's Really Regulating Hedge Funds? on SSRN with the following abstract:
Influential scholars of corporate law have questioned previous federal interventions into corporate governance, calling it quackery. Invoking images of medical malpractice, these critiques have argued persuasively that Congress, in responding to crises, make policy that disrupts efficient private rules and established state laws. This article applies the Bootleggers and Baptists theory to show that Dodd-Frank’s hedge-fund rules are more than just negligent or reckless, but designed to benefit special interests that compete with the hedge fund model. Those rules offer no solutions to any real or perceived risks arising from hedge-fund investing, but might offer an advantage to competitors of hedge funds.
Urska Velikonja has posted Securities Settlements in the Shadows on SSRN with the following abstract:
The Dodd-Frank Act authorized the Securities and Exchange Commission (“SEC”) to obtain civil fines against any person in administrative proceedings. Since 2011, the SEC has significantly increased the number of settlements filed in administrative proceedings instead of in federal district court. Before Dodd-Frank, 40% of settlements were filed in administrative proceedings; in fiscal year 2015, over 80% were. The shift to filing settled actions in administrative proceedings instead of in court is significant because it reduces transparency and oversight of settlement practices. Settled actions filed in administrative proceedings are confidential until after the Commission has approved it. By contrast, settled actions filed in court are reviewed by the judge. On occasion, judges have requested additional briefing and even oral argument to ensure that the proposed settlement is in the public interest. Although such interventions are rare, they have had a significant impact on settlement practices. Now that settlements have migrated to administrative proceedings, any oversight that courts exercised is gone, and SEC settlements have departed from SEC’s own announced objectives. The Essay proposes reintroducing some external constraint on securities settlements, whether through courts, administrative processes, or greater transparency.