Securities Law Prof Blog

Diamond & Kuan on High Frequency Trading

Stephen F. Diamond & Jennifer W. Kuan have posted Are the Stock Markets 'Rigged'? An Empirical Analysis of Regulatory Change on SSRN with the following abstract:

Volatile events in the stock market such as the 2010 Flash Crash have sparked concern that financial markets are "rigged" in favor of trading firms that use high frequency trading ("HFT") systems. We analyze a regulatory change implemented by the SEC in 2007 by examining its effect on a key market metric, the bid-ask spread, an investor cost, and find that the regulatory shift, indeed, disadvantages investors. We link the implementation of this change to a shift in the volume of trades from a low-cost venue to a high-cost venue. We argue that this outcome is predicted by the incentives of the venues, non-profit stock exchanges owned by different types of members. The less-volatile, lower-cost New York Stock Exchange was owned by underwriters and included a specialist system that is less vulnerable to HFT tactics that can disadvantage investors.

New Securities Law Articles in Print

The following law review articles relating to securities regulation are now available in paper format:

Scott D. Hughes, Cryptocurrency Regulations and Enforcement in the U.S., 45 W. St. L. Rev. 1 (2017).

Dorothy S. Lund, The Case Against Passive Shareholding Voting, 43 J. Corp. L. 493 (2018).

Jeremy Kidd, Quacks or Bootleggers: Who's Really Regulating Hedge Funds?, 75 Wash. & Lee L. Rev. 367 (2018).

Hester Peirce, Rethinking the National Market System, 43 J. Corp. L. 649 (2018).

Gladriel Shobe, Private Benefits in Public Offerings: Tax Receivable Agreements in IPOs, 71 Vand. L. Rev. 889 (2018).

Anne M. Tucker, The Long and the Short: Portfolio Ratios & Mutual Fund Investment Time Horizons, 43 J. Corp. L. 581 (2018).

New Securities Law Articles in Print

The following law review articles relating to securities regulation are now available in paper format:

Alexander Hall, Comment, Whistling Different Tunes: A Comprehensive Look at the Future of Whistleblowers under Dodd-Frank, 86 UMKC L. Rev. 681 (2018).

Tamilla Nurizada, Note, A Global Body and a Global Problem: The Curious Case of the G-20 and Securities Regulation, 50 Cornell Int'l L.J. 643 (2017).

A.C. Pritchard, Book review, Insider Trading Law and the Ambiguous Quest for Edge, 116 Mich. L. Rev. 945 (2018).

New Securities Law Articles in Print

The following law review articles relating to securities regulation are now available in paper format:

Ryan Bubb & Marcel Kahan, Regulating Motivation: A New Perspective on the Volcker Rule, 96 Tex. L. Rev. 1019 (2018).

Jacqueline K. Chang, Note, Kokesh v. SEC: The Demise of Disgorgement, 22 N.C. Bank. Inst. 309 (2018).

Matthew Fagan, Note, Third-Party Institutional Proxy Advisors: Conflicts of Interest and Roads to Reform, 51 U. Mich. J.L. Reform 621 (2018).

Anthony Michael Sabino, Reflections Upon the Jurisprudence of Justice Antonin Scalia: Selections from Securities Law, Arbitration, and Administrative Law, 46 Hofstra L. Rev. 445 (2017).

Joanne Wu, Note, Investors' Trash, Taxpayers' Treasure: The Banco Popular Wipeout and Contingent Convertible Bonds, 22 N.C. Bank. Inst. 405 (2018).

Sharfman on Dual Class Share Voting Versus “Empty Voting” of Mutual Fund Advisors

Bernard S. Sharfman has a nice post on Dual Class Share Voting Versus the “Empty Voting” of Mutual Fund Advisors over at the The Conference Board Governance Blog.  In part, he writes:

From time to time I am asked to explain how I can support the disproportionate voting found in dual class shares while at the same time strongly criticizing the “empty voting” of mutual fund advisors. While both are corporate governance issues that need to be addressed separately, both do involve the same phenomenon, the ability of certain shareholders to obtain voting power that is much greater than their economic interest. . . . Dual class shares are a value maximizing result of a specific firm’s private ordering of corporate governance arrangements.  They are only agreed to when it is expected to result in a successful offering to new investors.  In contrast, empty voting has become a new systemic risk for all those who invest in the equities of U.S. public companies and for public companies in general.  It is an agency cost that needs to be addressed and controlled.

Book Announcement: Anderson on Insider Trading

John P. Anderson has just published a new book with Cambridge University Press, Insider Trading: Law, Ethics, and Reform.  The description of the book from the website is as follows:

As long as insider trading has existed, people have been fixated on it. Newspapers give it front page coverage. Cult movies romanticize it. Politicians make or break careers by pillorying, enforcing, and sometimes engaging in it. But, oddly, no one seems to know what’s really wrong with insider trading, or - because Congress has never defined it - exactly what it is. This confluence of vehemence and confusion has led to a dysfunctional enforcement regime in the United States that runs counter to its stated goals of efficiency and fairness. In this illuminating book, John P. Anderson summarizes the current state of insider trading law in the US and around the globe. After engaging in a thorough analysis of the practice of insider trading from the normative standpoints of economic efficiency, moral right and wrong, and virtue theory, he offers concrete proposals for much-needed reform.

More information about the book can be obtained here.  Although Professor Anderson and I reach different conclusions on insider trading in some instances, I highly recommend this text for anyone interested in the topic.  The book has already received excellent reviews from many top corporate law scholars.  A discounted copy can by obtained by using this flyer.

 

 

Trautman on Virtual Currencies

Lawrence J. Trautman has posted Bitcoin, Virtual Currencies, and the Struggle of Law and Regulation to Keep Pace on SSRN with the following abstract:

At less than a decade old, Bitcoin and other virtual currencies have had a major societal impact, and proven to be a unique payment systems challenge for law enforcement, financial regulatory authorities worldwide, and the investment community. Rapid introduction and diffusion of technological changes throughout society, such as the blockchain that serves as Bitcoin’s crypto-foundation, continue to outpace the ability of law and regulation to keep pace. During 2017 alone, the market price of Bitcoin rose 1,735 percent, from about $970 to $14,292, causing an investor feeding frenzy. As of March 31, 2018, a total of 1,595 cryptocurrencies are reported, having an approximate market capitalization of $266.97 billion at that date. A brief history of the fast moving adoption of blockchain-based technology is provided, along with a look at the efforts of regulators to keep up with the staggering worldwide growth in the usage of virtual currencies.

In the United States, enforcement actions for violations of law involving virtual currencies are brought primarily by: The Commodities Futures Trading Commission (CFTC); The Securities and Exchange Commission (SEC) and The Department of The Treasury through the Financial Crimes Enforcement Network (FinCEN). This Article contributes to the literature and our understanding of the constant struggle of law and regulation to keep pace with rapid technological developments.

Gurrea-Martínez & Remolina on Initial Coin Offerings

Aurelio Gurrea-Martínez and Nydia Remolina have posted The Law and Finance of Initial Coin Offerings on SSRN with the following abstract:

The rise of new technologies is changing the way companies raise funds. Along with the recent increase of crowdfunding in the past years, a new form of funding has emerged more recently: the use of Initial Coin Offerings (ICOs). In 2017, companies raised more than $4 billion through ICOs in the United States, and more than $11billion has been raised during the first semester of 2018. In a typical ICO, a company raises cryptocurrencies giving some rights in return. The different nature and features of these rights, known as “tokens”, are generating many controversies among securities regulators around the world. Namely, it is not clear whether and, if so, when these tokens should comply with securities law. Securities regulators are addressing this issue in a very different manner across jurisdictions: while countries like the United States, Switzerland and Singapore are requiring companies to comply with existing securities rules only when a company issues “security tokens”, other jurisdictions, such as China and South Korea, have prohibited ICOs, and Mexico subject any issuance of tokens to a system of full control ex ante. Nevertheless, ICOs not only generate these challenges for securities regulators. They also arise many other issues from an accounting, finance, corporate governance, data protection, anti-money laundry and insolvency law perspective. By providing a comparative and interdisciplinary analysis of ICO, our paper seeks to provide regulators and policy-makers with a set of recommendations to deal with ICOs in a way that may promote innovation and firms’ access to finance without harming investor protection, market integrity and the stability of the financial system.

Anand, Choi, Pritchard & Puri on Insider Trading

Anita Anand, Stephen J. Choi, Adam C. Pritchard, and Poonam Puri have posted An Empirical Comparison of Insider Trading Enforcement in Canada and the United States on SSRN with the following abstract:

Canadian and American securities market regulators have differing approaches to enforcement. In this article, we present the results of an empirical study comparing a highly salient aspect of securities enforcement—insider trading—in Canada and the United States. We make a number of important findings. First, adjusting for trading volume, Canada has a greater intensity of enforcement when compared to the U.S. Second, Canadian securities regulators primarily concern themselves with insider trading in Canadian companies, while the SEC brings more enforcement actions involving insider trading in companies incorporated outside the U.S. Third, we do not find significant differences in the fraction of actions involving multiple traded companies between Canada and the U.S.. However, we do see that U.S. investigations involve a significantly greater number of defendants and that the SEC is more than twice as likely to pursue tippers or tippees (although we observe no significant difference in the likelihood that top insiders will be pursued). Fourth, we find that U.S. cases are significantly more likely to result in a criminal referral leading to prosecution. Fifth, we find that settlements are more likely in the U.S. Finally, in terms of penalties, we find no significant difference in monetary penalties between the two countries. However, we do find that Canada is more likely to apply a bar as a sanction, but if a bar is applied, the U.S. is more likely to make the bar permanent. These findings neither demonstrate a need for systemic reform in either jurisdiction nor suggest that centralized regulation is necessarily better from an enforcement perspective. But, they do provide insight into the differing points of regulatory emphasis in two jurisdictions. From a comparative perspective, our research thus allows regulators to begin to evaluate whether their enforcement approach is optimal on the basis of quantitative data.