Law Commons^™

Regulating Robo Advice Across The Financial Services Industry, Tom Baker, Benedict G. C. Dellaert

All Faculty Scholarship

Automated financial product advisors – “robo advisors” – are emerging across the financial services industry, helping consumers choose investments, banking products, and insurance policies. Robo advisors have the potential to lower the cost and increase the quality and transparency of financial advice for consumers. But they also pose significant new challenges for regulators who are accustomed to assessing human intermediaries. A well-designed robo advisor will be honest and competent, and it will recommend only suitable products. Because humans design and implement robo advisors, however, honesty, competence, and suitability cannot simply be assumed. Moreover, robo advisors pose new scale risks that …

The New Bond Workouts, William W. Bratton, Adam J. Levitin

All Faculty Scholarship

Bond workouts are a famously dysfunctional method of debt restructuring, ridden with opportunistic and coercive behavior by bondholders and bond issuers. Yet since 2008 bond workouts have quietly started to work. A cognizable portion of the restructuring market has shifted from bankruptcy court to out-of-court workouts by way of exchange offers made only to large institutional investors. The new workouts feature a battery of strong-arm tactics by bond issuers, and aggrieved bondholders have complained in court. The result has been a new, broad reading of the primary law governing workouts, section 316(b) of the Trust Indenture Act of 1939 (“TIA”), …

The Problem With Consenting To Insider Trading, Leo Katz

All Faculty Scholarship

No abstract provided.

The Broken Buck Stops Here: Embracing Sponsor Support In Money Market Fund Reform, Jill E. Fisch

All Faculty Scholarship

Since the 2008 financial crisis, in which the Reserve Primary Fund “broke the buck,” money market funds (MMFs) have been the subject of ongoing policy debate. Many commentators view MMFs as a key contributor to the crisis because widespread redemption demands during the days following the Lehman bankruptcy contributed to a freeze in the credit markets. In response, MMFs were deemed a component of the nefarious shadow banking industry and targeted for regulatory reform. The Securities and Exchange Commission’s (SEC) misguided 2014 reforms responded by potentially exacerbating MMF fragility while potentially crippling large segments of the MMF industry.

Determining the …

Why Do Retail Investors Make Costly Mistakes? An Experiment On Mutual Fund Choice, Jill E. Fisch, Tess Wilkinson-Ryan

All Faculty Scholarship

There is mounting evidence that retail investors make predictable, costly investment mistakes, including underinvestment, naïve diversification, and payment of excessive fund fees. Over the past thirty-five years, however, participant-directed 401(k) plans have largely replaced professionally managed pension plans, requiring unsophisticated retail investors to navigate the financial markets themselves. Policy-makers have struggled with regulatory interventions designed to improve the quality of investment decisions without a clear understanding of the reasons for investor mistakes. Absent such an understanding, it is difficult to design effective regulatory responses.

This article offers a first step in understanding the investor decision-making process. We use an internet-based …

A Floating Nav For Money Market Funds: Fix Or Fantasy?, Jill E. Fisch, Eric D. Roiter

All Faculty Scholarship

The announcement by the Reserve Primary Fund, in September 2008, that it was “breaking the buck,” triggered a widespread withdrawal of assets from other money market funds and led the U.S. Government to adopt emergency measures to maintain the stability of the short term credit markets. In light of these events, the SEC heightened the regulatory requirements to which money market funds – a three trillion dollar industry -- are subject. Regulators and commentators continue to press for further regulatory change, however. The most controversial reform proposal would eliminate the ability of money market funds to purchase and sell shares …

Making Sense Of The New Financial Deal, David A. Skeel Jr.

All Faculty Scholarship

In this Essay, I assess the enactment and implications of the Dodd-Frank Act, Congress’s response to the 2008 financial crisis. To set the stage, I begin by very briefly reviewing the causes of the crisis. I then argue that the legislation has two very clear objectives. The first is to limit the risk of the shadow banking system by more carefully regulating the key instruments and institutions of contemporary finance. The second objective is to limit the damage in the event one of these giant institutions fails. While the new regulation of the instruments of contemporary finance—including clearing and exchange …

Predicting Corporate Governance Risk: Evidence From The Directors' & Officers' Liability Insurance Market, Tom Baker, Sean J. Griffith

All Faculty Scholarship

No abstract provided.