Friday, January 31, 2014
The SEC Actions Blog has compiled This Week In Securities Litigation (Week ending January 31, 2014).
Wednesday, January 29, 2014
On January 24, 2014 at the Forum for Corporate Directors in Orange County, California, Commissioner Daniel M. Gallagher develivered a speech on A Renewed Perspective on SEC Priorities. The speech mainly addressed the concerns relating to reforms focused the corporate disclosure system and the proxy advisory industry.
SEC Issues Risk Alert on Investment Advisers’ Due Diligence Processes for Selecting Alternative Investments
Monday, January 27, 2014
Stanislav Dolgopolov has posted High-Frequency Trading, Order Types, and the Evolution of the Securities Market Structure: One Whistleblower's Consequences for Securities Regulation on SSRN with the following abstract:
This Article analyzes — through the lens of securities regulation — the contributions of Haim Bodek, an advocate of reforming the securities market structure and a whistleblower who brought attention to several questionable practices of high-frequency traders and trading venues, including their use of complex and, arguably, nontransparent order types. More specifically, the Article addresses several key issues raised and discussed by Haim Bodek, such as the order type controversy and its implications for high-frequency traders, the status of self-regulatory organizations, trading obligations and privileges of market makers, and the duty of best execution, and aims to fit these issues into the evolving boundaries of civil liability under federal securities law and the reach of a private right of action.
The following law review articles relating to securities regulation are now available in paper format:
Samuel D. Brunson, Mutual Funds, Fairness, and the Income Gap, 65 Ala. L. Rev. 139 (2013).
Jared Chaykin, Note, U.S. v. Aguilar and the Foreign Corrupt Practices Act: Sending an S.O.S. to Congress, 44 U. Miami Inter-Am. L. Rev. 63 (2012).
Steven L. Schwarcz, Regulating Shadows: Financial Regulation and Responsibility Failure, 70 Wash. & Lee L. Rev. 1781 (2013).
On January 27, 2014 to the U.S. Chamber of Commerce in Washington, D.C., Commissioner Michael S. Piwowar gave a speech on Advancing and Defending the SEC’s Core Mission. Commissioner Piwowar stated "Regardless of the area, when making decisions, a Commissioner should be guided by the SEC’s core mission: to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation." Although all of these goals seem appropriate for the SEC based on its Congressional mandates and Commissioner Piwowar's speech was informative and thoughtfully written, the Commissioner's statement seems to reflect three separate missions, and one must wonder how the SEC decides priorities when these three missions conflict.
The International Organization of Securities Commission is reporting that the Indonesian Financial Services Authority has become the 100th signatory to its multilateral memorandum of understanding on cooperation and enforcement. IOSCO describes the event as follows:
Securities regulators use the MMoU to share with each other essential investigative material, such as beneficial ownership information, and securities and derivatives transaction records, including bank and brokerage records. The MMoU sets out specific requirements for the exchange of information, ensuring that no domestic banking secrecy, blocking law or regulation prevents the provision of enforcement information among securities regulators.
Gaining the 100 signatories to the MMoU--out of a total of 125 eligible IOSCO members--marks a watershed for the organization. Established in 2002, the MMoU is the cornerstone of IOSCO’s efforts to eradicate potential safe havens for wrong doers. As long as jurisdictions remain outside the international enforcement regime of the MMoU, they create gaps in IOSCO’s global enforcement network.
The SEC Actions Blog has compiled This Week In Securities Litigation (The week ending January 24, 2014).
Wednesday, January 22, 2014
Steven M. Sheffrin has posted Restitution for Ponzi Scheme Victims: The Symbiotic Relationship of Tax and Securities Laws on SSRN with the following abstract:
This paper contrasts the restitution processes used by the Securities Investment Protection Corporation ("SIPC") and the Internal Revenue Service ("IRS") to provide restitution to the victims of Ponzi schemes. With its roots in bankruptcy law, the goal of SIPC is to provide reimbursement to victims of Ponzi schemes in an equitable manner, while the IRS is principally concerned with the impact of Ponzi schemes for taxable income. On the surface, the methods used by SIPC and the IRS appears potentially contradictory. Despite these contradictions, these methods are broadly consistent with one another and have a collaborative relationship. Nonetheless, implementation of these policies has proven to bedifficult for both the SIPC and the IRS, which is highlight of this paper. It also provides a welfare framework for evaluating the consequences of alternative restitution strategies.
Ian K. Peck has posted Where are the Jobs in the Jobs Act? An Examination of the Uneasy Connection between Securities Disclosure and Job Creation on SSRN with the following abstract:
The JOBS Act, passed in April 2012, is designed to produce American jobs through removing various regulatory barriers for small companies to access investor capital. As the regulations continue to be implemented, commentators have dissected the various ways in which the JOBS Act attempts to achieve this goal. One of the methods involves making the IPO process initially less burdensome, through scaling back financial and corporate governance disclosures. Crowdfunding, which will eventually permit companies to raise investor capital through an online “funding portal”, has garnered both deep criticism from regulators and praise from small business owners. Yet little attention has been paid to the notion that the very reason for disclosure reform is job creation. This matters because job creation has not historically played a direct role in the reform of securities disclosure statutes and regulations. This Article analyzes what role, if any, job creation should occupy in the reform of securities disclosure laws. After establishing the normative baseline for disclosure theory and reform, this Article highlights various unintended consequences of using job creation as a justification for reform and proposes a framework for understanding job creation-based disclosure reforms going forward.
Robert C. Bird, Paul Borochin, and John D. Knopf have posted The Value of the Chief Legal Officer to the Firm on SSRN with the following abstract:
We examine the value of the CLO to the firm in varying internal environments. Using the shock of a securities class action lawsuit, we measure the value of the CLO through changes in firm value through the metrics of relative total and incentive compensation of the CLO and other C-suite members. We find that BHARs increase by 1% when the CLO is one of the top five highest compensated executives, and increase by nearly 4% when the CLO is similarly high-paid and a securities class action lawsuit has been filed.
We consider two possible hypotheses to explain why the CLO increases firm value: legal expertise and internal monitoring. We test these alternative hypotheses by examining how CLO compensation is affected by inside versus outside board control, the presence of CEO with a law degree, firm opacity, Tobin’s Q, and executive turnover. We conclude that it is the monitoring function of the CLO, rather than her legal expertise, that is the source of the CLO’s greatest contribution to the firm.
Natalia Polezhaeva has posted Self-Regulatory Organizations of Professional Securities Market Participants: Membership Features on SSRN with the following abstract:
Based on the analysis of Russian legislation and self-regulatory organizations of professional securities market participants documents the article describes the main membership conditions of such organizations and defines membership features.
Robert B. Ahdieh has posted Reanalyzing Cost-Benefit Analysis: Toward a Framework of Function(s) and Form(s) on SSRN with the following abstract:
The analysis herein arises from the collision course between the sweeping reforms mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and a single sentence of the U.S. Code, adopted nearly fifteen years earlier and largely forgotten ever since. Few were likely thinking of Section 106 of the National Securities Market Improvement Act when the Dodd-Frank Act was enacted on July 21, 2010. As applied by the D.C. Circuit less than a year later in Business Roundtable v. SEC, however, that provision’s peculiar requirement of cost-benefit analysis could prove the new legislation’s undoing.
To help navigate this potential impasse, the Article that follows suggests the need to more carefully analyze the function and form of the cost-benefit analysis mandate in Section 106 and develops a generally applicable framework for doing so. Discussions of cost-benefit analysis have traditionally approached it as a fairly singular phenomenon — with broad aspirations of “efficiency” as its purpose and with its application in environmental and risk regulation understood to capture its form. In reality, cost-benefit analysis is both more ad hoc — and more systematically varied — than this account suggests.
The framework proposed herein thus makes an important contribution to our understanding of the complexities and varieties of cost-benefit analysis generally. In the particular case of Section 106, meanwhile, it counsels a distinct function and particular characteristics of form that will better direct its application — both to the myriad regulations mandated by the Dodd-Frank Act and beyond. Properly understood, Section 106 is designed to encourage SEC attention to substantive considerations that might otherwise be neglected, given the Commission’s traditional focus on investor protection. As to form, Section 106 constitutes a true mandate and one properly subject to judicial review. Contrary to the analysis in Business Roundtable, however, that mandate is procedural rather than substantive in nature. By comparison with formal cost-benefit analysis, it is less rigidly quantitative. It does, however, demand careful attention to the distributional impacts of relevant rulemaking. To such particularized ends and in such tailored form, ultimately, cost-benefit analysis has the potential to generate significant insight — both under Section 106 and for financial regulation as a whole.
Saturday, January 18, 2014
The following law review articles relating to securities regulation are now available in paper format:
Hilary J. Allen, A New Philosophy for Financial Stability Regulation, 45 Loy. U. Chi. L.J. 173 (2013).
Carl S. Bjerre, Investment Securities, 68 Bus. Law. 1243 (2013).
James Doring, Comment, Not Much to "Like" about the Facebook IPO: How Regulation FD Can Help Fix the Waning Confidence of the Reasonable Investor, 15 Duq. Bus. L.J. 45 (2013).
Jenny Liu, Note, Reframing Commodity Pools in the Wake of Dodd-Frank and the Volcker Rule, 99 Cornell L. Rev. 201 (2013).
Task Force on Securities Law Opinions, ABA Business Law Section, Legal Opinions in SEC Filings (2013 Update), 68 Bus. Law. 1149 (2013).
Friday, January 17, 2014
James Brugler and Oliver B. Linton have posted Circuit Breakers on the London Stock Exchange: Do They Improve Subsequent Market Quality? on SSRN with the following abstract:
This paper uses proprietary data to evaluate the efficacy of single-stock circuit breakers on the London Stock Exchange during July and August 2011. We exploit exogenous variation in the length of the uncrossing periods that follow a trading suspension to estimate the effect of auction length on market quality, measured by volume of trades, frequency of trading and the change in realised variance of returns. We also estimate the effect of a trading suspension in one FTSE-100 stock on the volume of trades, trading frequency and the change in realised variance of returns for other FTSE-100 stocks in the same industrial sector. While we find that auction length has a significant detrimental effect on market quality for the suspended security, we also show that trading suspensions help to ameliorate the spread of market microstructure noise and price inefficiency across securities. In both cases we find asymmetric effects in rising and falling markets with suspensions only having a significant impact in the latter case. Although trading suspensions may not improve the trading process within a particular security, they do play an important role preventing the spread of poor market quality across securities and therefore can be effective tools for promoting market-wide stability.
Carol Liao has posted A Canadian Model of Corporate Governance: Where Do Shareholders Really Stand? on SSRN with the following abstract:
This feature article in the Director Journal summarizes the findings from the report, "A Canadian Model of Corporate Governance: Insights from Canada's Leading Legal Practitioners," produced for the Canadian Foundation for Governance Research and the Institute of Corporate Directors (also available on SSRN).
In the report, interviews were conducted with 32 leading senior legal practitioners across Canada to opine on the fundamental principles that are driving the development of Canadian corporate governance. The report found that Canadian common law has made the process of considering stakeholders in the "best interests of the corporation" more overt, well beyond what is assumed in Anglo-American corporate legal scholarship. Layered onto this corporate legal base, the securities commissions are now playing a major role in shaping Canadian corporate governance practices, and their influence has pushed Canada toward a more shareholder-centric model of governance. Securities regulators have increased shareholders’ rights well beyond what has ever been contemplated under Canadian corporate law. It remains to be seen from the pending determinations by the Canadian Securities Administrators on the regulation of poison pills as to whether the regulators will be tempering their positions toward shareholder primacy in the future.
The SEC Actions Blog has compiled This Week In Securities Litigation (The week ending January 17, 2014).
Thursday, January 16, 2014
Scott W. Bauguess, John Cooney Jr., and Kathleen Weiss Hanley have posted Investor Demand for Information in Newly Issued Securities on SSRN with the following abstract:
The existence of informed investors is a necessary condition for informationally efficient prices. Numerous studies examine the role of information suppliers in the price discovery process (e.g., underwriters, analysts, auditors, venture capitalists). From the investor’s perspective, researchers typically rely on proxies for informativeness (e.g., institutional versus retail investors, trade size) due to a lack of observable data. Our study directly measures investor demand for information and its impact on security prices using search traffic associated with corporate filings on the EDGAR system of the Securities and Exchange Commission (SEC). Our analysis focuses on the registration period for IPOs when the lead underwriter solicits information from purchasing investors to establish the firm’s market value. Information asymmetries between investors and the issuing firm are likely to be high during this period, increasing the value of information acquisition. Consistent with the important role of informed investors in the price discovery process, we find that EDGAR search traffic significantly increases for peer firms on IPO filing dates. We also find that investor demand for information is positively related to the probability of IPO success, and can predict both price revisions and initial returns. Overall, our results indicate that information acquisition is reflected in the pricing of newly issued securities.