Securities Law Prof Blog

IOSCO Launches Web Portal on Securities Markets

The International Organization of Securities Commissions has launched a web portal to provide statistics on various securities markets.  The press release states:

The objectives of the new portal are threefold. First, it seeks to provide a centralized point for monitoring global trends, risks and vulnerabilities; second, to provide a mechanism for comparison of how well markets are recovering in light of the crisis; and finally, to provide IOSCO members and the broader financial community with easy access to key statistics, charts and indicators on a number of securities markets, including: 
• Corporate Debt - including global and regional issuances of investment grade and high yield debt 
• Covered Bonds 
• Securitized Products - including issuance since the crisis 
• Islamic finance - sukuk bonds, with more products to be covered in the coming months 
• Equity IPO volumes 
• Equity market valuations - CAPE and Tobin's q measure 
• Syndicated Loans - including average cost of deals 
• Housing price indices - of selected countries

SEC Roundtable On Proxy Advisory Services

On December 5th, the SEC will convene a Roundable on Proxy Advisory Services at the SEC’s Washington, D.C. headquarters.  The panelists for the event are available here.  It looks like a wonderful event, although it would be nice if a few law professors had been included at the table.

November 25, 2013 Issue of the SEC News Digest Posted

The SEC has posted the November 25th issue of the SEC News Digest here.

November 22, 2013 Issue of the SEC News Digest Posted

The SEC has posted the November 22nd issue of the SEC News Digest here.

November 21, 2013 Issue of the SEC News Digest Posted

The SEC has posted the November 21th issue of the SEC News Digest here.

Dorantes on the Mexican Stock Market

Carlos Alberto Dorantes has posted The Relevance of Using Accounting Fundamentals in the Mexican Stock Market on SSRN with the following abstract:

This paper examines the value relevance of accounting fundamentals in the Mexican Stock Market ([BMV] – Bolsa Mexicana de Valores). The research question that motivated the paper was: Can accounting fundamentals provide relevant information to better understand firm value? More specifically, the paper examines whether the application of an accounting fundamental strategy to select stocks of a portfolio can systematically yield significant and positive excess market buy-and-hold returns after one and two years of portfolio formation. Based on valuation theory, accounting research and the maturity level of the BMV, a set of accounting fundamental signals is proposed that reflects information that influences security prices, but not necessarily in a timely manner. Using quarterly financial and market data from 196 BMV stocks from 1991 to 2011, it is shown that after controlling for earnings, book-to-market ratio and firm size, the fundamental strategy proposed here provides value information relevant to investors. The relationship between the accounting fundamental signals proposed and the buy-and-hold market future return (one-year and two-year returns) is significant and positive considering the 1991-2011 period. Portfolios formed with high scores of these signals show an average of 1.62% market excess annual return between 1991 and 2011, and about 9% between 1997 and 2011. Besides the practical implication of the findings – e.g. the possibility mispriced securities – this paper contributes to the scarce accounting research in Latin American capital markets by furthering understanding of the “post-earnings” drift phenomenon in the BMV.

Commissioner Stein Speaks at the ABA Business Law Section’s Federal Regulation of Securities Committee Fall Meeting

On November 22, 2013, Commissioner Kara M. Stein spoke at the American Bar Association Business Law Section’s Federal Regulation of Securities Committee Fall Meeting in Washington, D.C.  Her remarks focused on a variety of different topics, including her thoughts on SEC rulemaking, the role of technology in securities markets, and enforcement.

Commissioner Piwowar Speaks at the Los Angeles County Bar Association Securities Regulation Seminar

On November 22, 2013, Commissioner Michael S. Piwowar spoke at the Los Angeles County Bar Association Securities Regulation Seminar in Los Angeles, California.  His remarks focused on the SEC's enforcement and rulemaking programs.

Schwartz on Crowdfunding

Andrew A. Schwartz has posted Rural Crowdfunding on SSRN with the following abstract:

One reason that economic development in rural America lags behind its urban counterpart is the persistent lack of venture capital for rural entrepreneurs. Geography deserves much of the blame, as angel investors and venture capitalists tend to live and work in metropolitan areas on the coasts, in places like Silicon Valley and Boston. Many rural areas are literally thousands of miles away, with the result that venture capital has rarely found its way to rural regions.

Recent federal legislation, however, has the potential to change this dynamic. The JOBS Act authorizes the sale of securities over the Internet to large numbers of investors, each of whom only invests a small dollar amount. This “crowdfunding” of securities is a promising means for rural entrepreneurs, as well as farmers and others, to access venture and business capital.

Hanley & Nikolova on Credit Rating Agencies

Kathleen Weiss Hanley and Stanislava Nikolova have posted The Removal of Credit Ratings from Capital Regulation: Implications for Systemic Risk on SSRN with the following abstract:

We examine whether the removal of references to credit ratings affects one channel for the transmission of systemic risk identified by the Financial Stability Oversight Council: asset liquidation. In 2009 and 2010 insurance regulators replaced credit ratings with model-generated valuations for determining required capital and accounting treatment of residential and commercial mortgage-backed securities. We document that this regulatory change results in significant capital savings though much of the savings are accompanied by large write-downs. We find that insurers who save more capital under the new regime are less likely to sell distressed RMBS and CMBS, and also less likely to gains trade corporate bonds. We also show that the regulatory change reduces the need for insurers to raise additional capital through equity issuance. Finally, valuation-based capital regulations, in contrast to credit-rating-based ones, allow insurance companies to purchase assets below investment grade and retain an investment grade equivalent capital treatment. This creates the potential for yield chasing and may shift insurance companies’ portfolios toward greater risk-taking than may be advisable from a regulatory perspective.

NASAA: Statement on SEC Investment Adviser Exam Funding

North American Securities Administrators Association President, Andrea Seidt, has issued a statement on the SEC Adviser Exam Funding.  Seidt states:

NASAA shares the concerns of the [Securities and Exchange Commission’s Investor Advisory Committee] and SEC Chair Mary Jo White that existing SEC resources are inadequate to detect or credibly deter frauds that might occur in federally-registered investment advisers. To hear the SEC Chair say, five years after the financial meltdown, that approximately 40 percent of SEC-registered investment advisers (who collectively manage $50 trillion) still have not received their first SEC examination should be a wake-up call to everyone. . . .

By authorizing the SEC to use revenue derived from the self-funding of examinations to augment [Office of Compliance Inspections and Examinations's] exam program, the legislation recommended by the IAC would permit the SEC to establish and maintain a robust adviser examination program that periodically adjusts to correspond to changes in its examination responsibilities. It would appear to create a viable, long-term solution to a problem that has plagued the SEC for decades.

NASAA: Statement on the SEC’s Support for Fiduciary Duty for Broker-Dealers

North American Securities Administrators Association President, Andrea Seidt, has issued a statement on the SEC’s Support for Fiduciary Duty for Broker-Dealers.  Seidt reports, "State securities regulators strongly support the recommendations of the SEC’s Investor Advisory Committee to extend a fiduciary duty to broker-dealers when they provide personalized investment advice to retail investors, and to call for legislation to fund investment adviser examinations. NASAA encourages the SEC and Congress to take swift action on each of these important recommendations."

NASAA: President's Message on Regulation A+

North American Securities Administrators Association President, Andrea Seidt, has issued a statement on Regulation A+.  Seidt states:

Title IV of the JOBS Act requires the SEC to adopt a rule to provide an exemption for certain offerings up to $50 million. Because of its similarity to the current exemption under Regulation A, which is capped at only $5 million, this new exemption is commonly referred to as Regulation A+.

These offerings will be exempt from SEC registration under the new Section 3(b)(2) of the Securities Act of 1933, but they will be subject to registration at the state level unless the securities are listed on a national securities exchange or sold to a qualified purchaser as defined by the SEC.

Given the risky nature of investments in startups, and the fact that the states have traditionally been the primary regulator of small offerings, NASAA believes state oversight of these offerings is essential. However, we recognize the need to change some of our longstanding policies to make Reg A+ successful.

Toward that end, NASAA has consulted with a task force of the American Bar Association to develop a proposal that peels back some of our normal guidelines to accommodate this new type of offering.

As part of the proposal, we have designed a multistate review process in which one or two states will take a lead role in reviewing a registration application and working through any deficiencies with the company issuing the securities in a set timeframe.

In addition, we are developing a multistate electronic filing platform that will allow one-stop filing with all states, and we intend to build out that system to accommodate Reg A+ filings. Think of it as the equivalent of a CRD/IARD system for multistate offerings for the corporation finance world.

NASAA recently released for public comment a proposal to establish this new multistate review program.

November 20, 2013 Issue of the SEC News Digest Posted

The SEC has posted the November 20th issue of the SEC News Digest here.

This Week in Securities Litigation

The SEC Actions Blog has compiled This Week in Securities Litigation.

Julie Lutz Named Director of SEC Denver Regional Office

Julie Lutz has been named director of the SEC Denver regional office.

November 19, 2013 Issue of the SEC News Digest Posted

The SEC has posted the November 19th issue of the SEC News Digest here.

Seki on Korean Capital Markets

Yuta Seki has posted Capital Market Reform and the Challenges Facing the New Government in Korea on SSRN with the following abstract:

Korea's capital market reforms gathered momentum when the IMF program it adopted following the Asian Currency Crisis came to an end in 2001. The reforms (e.g., the establishment of Korea Exchange through the integration of the country's three existing exchanges, measures to promote the exchange-traded derivative market, and the enactment of the Financial Investment Services and Capital Markets Act) have had a certain degree of success, leading, for example, to the expansion of Korea's capital markets and greater participation by overseas investors. Nevertheless, some critics say that Korea's capital markets lack dynamism as a result, for example, of an absence of competition among the exchanges and an excessive degree of concentration in the chaebol. There has also been some concern about the country's rapidly aging population, the strength of the currency, falling property prices, and a perceived decline in the ability of the country's banks and companies to weather hard times. It will therefore be interesting to see how the new government tries to restructure the economy and revitalize its markets.

November 18, 2013 Issue of the SEC News Digest Posted

The SEC has posted the November 18th issue of the SEC News Digest here.

November 15, 2013 Issue of the SEC News Digest Posted

The SEC has posted the November 15th issue of the SEC News Digest here.