Banking and Finance Law Commons^™

An Agent-Based Model Of Financial Benchmark Manipulation, Gabriel Virgil Rauterberg, Megan Shearer, Michael Wellman

Articles

Financial benchmarks estimate market values or reference rates used in a wide variety of contexts, but are often calculated from data generated by parties who have incentives to manipulate these benchmarks. Since the the London Interbank Offered Rate (LIBOR) scandal in 2011, market participants, scholars, and regulators have scrutinized financial benchmarks and the ability of traders to manipulate them. We study the impact on market quality and microstructure of manipulating transaction-based benchmarks in a simulated market environment. Our market consists of a single benchmark manipulator with external holdings dependent on the benchmark, and numerous background traders unaffected by the benchmark. …

The Dark Side Of Reputation, Emily Kadens

Cardozo Law Review

This Article seeks to contribute to the literature challenging the role of reputation in disciplining commerce. The historical disputes discussed here, which arose in the supposedly privately-ordered zone of the premodern merchant, add nuance to our understanding of how commerce works in the real world. Part I briefly reviews some of the problems the economic and network theory literature has identified with reputation. Part II turns to the history and demonstrates how trust could be cheaply manufactured due in part to potential partners' failure to look beyond superficial indicia of reputation. Part III then considers why reputation might have been …

The Sec's Part 205.3(D)(2) And Wadler V. Bio-Rad Labs. Should Be Revisited: The Sec Exceeded Authority In Creating A Reporting Out Provision For In-House Attorneys, Briana Sheridan

Cardozo Law Review

This Note proceeds in three parts. Part I introduces relevant statutory law. Part I discusses federal law, notably Section 307 of the Sarbanes-Oxley Act and the SEC's Part 205.3(d)(2), as well as the American Bar Association (ABA) Model Rules and conflicting state law. Part II first examines case law involving the preemption of state ethics laws, including Wadler v. Bio-Rad Laboratories, which concluded broadly that Part 205 preempts California law.23 Part II then examines the doctrine of federal preemption, which is followed by a preemption analysis of Part 205.3(d)(2). Part III recommends that Part 205.3(d)(2) should be revisited, as the …

Financing The American Dream, David J. Reiss

Cornell Law Faculty Publications

Those who believe that government plays a positive role in the housing market by supporting affordable and sustainable homeownership have a fight ahead of them to move their agenda forward. The move to redistribute credit risk in the mortgage market from the government to the private sector should be seen as a step in the direction of creating a healthy market for mortgages that appropriately balances the role of the federal government with that of the private sector. But the jury is still out on whether the right type of regulation will be in place as the private sector gains …

Money's Past Is Fintech's Future: Wildcat Crypto, The Digital Dollar, And Citizen Central Banking, Robert C. Hockett

Cornell Law Faculty Publications

This Essay argues that crypto-currencies will soon go the way of the ‘wildcat’ banknotes of the mid-19th century. As central banks worldwide upgrade their payments systems, the Fed will begin issuing a ‘digital dollar’ that leaves no licit function for what the Author calls ‘wildcat crypto.’ But the imminent change heralds more than a shakeout in fintech. It will also make possible a new era of what the Author calls ‘Citizen Central Banking.’ The Fed will administer a national system of ‘Citizen Accounts.’ This will not only end the problem of the ‘unbanked,’ it will also simplify monetary policy. Instead …

The 'Too Big To Fail' Problem, Saule T. Omarova

Cornell Law Faculty Publications

“Too big to fail” – or “TBTF” – is a popular metaphor for a core dysfunction of today’s financial system: the recurrent pattern of government bailouts of large, systemically important financial institutions. The financial crisis of 2008 made TBTF a household term, a powerful rhetorical device for expressing the widely shared discontent with the pernicious pattern of “privatizing gains and socializing losses” it came to represent in the public’s eye. Ten years after the crisis, TBTF continues to frame much of the public policy debate on financial regulation. Yet, the analytical content of this term remains remarkably unclear.

Taking a …

Public And Private Enforcement Of Corporate And Securities Laws: An Empirical Comparison Of Hong Kong And Singapore, Wai Yee Wan, Christopher C. H. Chen, Say H. Goo

Research Collection Yong Pung How School Of Law

Current scholarship emphasises the correlation between enforcement of corporate and securities laws and strong capital markets. Yet, the issue of how private and public enforcement may achieve the objectives of compensation and optimal deterrence remains controversial. While enforcement strategies have been studied extensively in the US and the UK, comparatively less attention is placed on Asia, where concentrated shareholdings are the norm. This study fills the gap by focusing on Hong Kong and Singapore, two leading international financial centres in Asia. Post Asian financial crisis of 1997, Hong Kong and Singapore have changed their laws to strengthen the private enforcement …

Criminal Prosecutions And The 2008 Financial Crisis In The U.S. And Iceland: What Can A Small Town Icelandic Police Chief Teach The U.S. About Prosecuting Wall Street?, Justin Rex

Concordia Law Review

Politicians, journalists, and academics alike highlight the paucity of criminal prosecutions for senior financial executives in the US in the wake of the 2008 financial crisis. One common argument for the lack of prosecutions is that, though industry players behaved recklessly, they did not behave criminally. I evaluate this claim by detailing the civil, and small number of criminal, actions actually taken and by reviewing leading arguments about whether behavior before the crisis was criminal. Rejecting the “reckless innocence” explanation, I provide examples of criminal behavior that could have been prosecuted and review the literature on why there were few …

Blame It On The Blockchain: Cryptocurrencies Boom Amidst Global Regulations, Jorge Galavis

University of Miami International and Comparative Law Review

Blockchain technologies created the most valuable digital currency in the world; Bitcoin. Bitcoin uses a Blockchain to be decentralized and widely accessible: Blockchains work by recording all transactions into online ledgers that are saved onto many separate blocks across the internet. Coins that use Blockchain technology are inherently difficult to modify, and transactions are permanently recorded because of the redundancy and reliability of the Blockchain system. So, this widely-available means of exchange has gained appeal as an online alternative to traditional currencies and securities. Blockchain coins gain popularity as currencies where there is reason to doubt the existing traditional currencies …

Grants, Nicholson Price Ii

Articles

Innovation is a primary source of economic growth and is accordingly the target of substantial academic and government attention. Grants are a key tool in the government’s arsenal to promote innovation, but legal academic studies of that arsenal have given them short shrift. Although patents, prizes, and regulator-enforced exclusivity are each the subject of substantial literature, grants are typically addressed briefly, if at all. According to the conventional story, grants may be the only feasible tool to drive basic research, as opposed to applied research, but they are a blunt tool for that task. Three critiques of grants underlie this …

Consenting To Counterclaims Under The Icsid Convention, Harshad Pathak

Pepperdine Dispute Resolution Law Journal

Counterclaims in investment treaty arbitration hold immense significance. Counterclaims have the potential to nullify biases and bolster the confidence of States in investment treaty arbitration. That being said, the multitude of jurisdictional hurdles faced by counterclaims under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) risk dampening the aforementioned potential. It is two of these hurdles emanating from the consensual nature of arbitration that I address herein. Part II of this article commences by analyzing the provisions of the ICSID Convention to derive the prerequisites of a valid counterclaim in investment …

Why Does The Sec Hate Lawyers And Will The Bitterness Ever Go Away: A Review Of The Reasons For The Current State Of This Relationship And A Proposed Path Forward, Ernest Edward Badway, Joshua Horn, Christie Mcguinness

Brooklyn Journal of Corporate, Financial & Commercial Law

The United States Securities and Exchange Commission (“SEC” or “Commission”) and its staff (“Staff”) have brought numerous actions against lawyers in a variety of contexts over the last several years. These enforcement actions have arguably prevented zealous advocacy as well as potentially leaving lawyers reluctant to make certain arguments on behalf of their clients so as to avoid potential disciplinary actions against them. While it is important for the Commission and its Staff to ensure that lawyers do not engage in violative conduct, this Article notes that the SEC and its Staff’s actions should be limited to only those occasions …

Corporate Governance By Index Exclusion, Scott Hirst, Kobi Kastiel

Faculty Scholarship

Investors have long been unhappy with certain governance arrangements adopted by companies undertaking initial public offerings, such as dual-class voting structures. Traditional sources of corporate governance rules—the Securities and Exchange Commission, state law, and exchange listing rules—do not constrain these arrangements. As a result, investors have turned to a new source of governance rules: index providers.

This Article provides a comprehensive analysis of index exclusion rules and their likely effects on insiders’ decision-making. We show that efforts to portray index providers as the new sheriffs of the U.S. capital markets are overstated. Index providers face complex and conflicting interests, which …

The Specter Of The Giant Three, Lucian Bebchuk, Scott Hirst

Faculty Scholarship

This Article examines the large, steady, and continuing growth of the Big Three index fund managers — BlackRock, Vanguard, and State Street Global Advisors. We show that there is a real prospect that index funds will continue to grow, and that voting in most significant public companies will come to be dominated by the future “Giant Three.”
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The Nationalization Of The Dutch Owned Plantations In North Sumatra: To Whom The Communal Land Belong?, Edy Ikhsan

Indonesia Law Review

This article has been developed through an analysis of primary and secondary sources concerning the nationalization’s policy of the Dutch enterprises in Indonesia as had been conducted by Soekarno’s regime back in 1958. The impact of this said policy has been so much felt very strongly to these days, most especially on the ex-concessionary lands of the Dutch enterprises in North Sumatera. The flaws made by the Indonesian government in interpreting the terminology of Concession to the Cultivation Rights on Lands, in the said nationalization policy, have created various endless conflicts among central and regional governments, state-owned enterprises, the Sultanates …

Data First, Tax Next: How Fiji’S Technology Can Improve New Zealand’S 'Netflix Tax' (Part 2), Richard Thompson Ainsworth

Faculty Scholarship

This is the second in a four-part series addressing VAT/GST avoidance schemes involving remote sales of services. These schemes have been growing in importance. The IMF reports that the services component of cross-border trade has been on the rise for fifty-years or more, making the Internet a serious threat to revenue. Technology has accelerated tax avoidance.

Statutory draftsmen in New Zealand have looked at this problem directly with what has been called the Netflix Tax. Technologist in Fiji have been struggling with similar problems and have developed technology-based security systems that would seem to address remote sales of services more …

Could Distributed Ledger Shares Lead To An Increase In Stockholder-Approved Mergers And Subsequently An Increase In Exercise Of Appraisal Rights?, Alyson Brown

William & Mary Business Law Review

Blockchain, the distributed ledger technology underlying cryptocurrencies like Bitcoin, is poised to revolutionize industries and processes across disciplines. In particular, government agencies and companies are looking for ways to leverage blockchain’s efficiencies to facilitate safe record-keeping. Municipalities are employing blockchain-issued deeds to accurately record property ownership. Progressive legal professionals are employing blockchainissued “smart-contracts” to more accurately record contract terms. Intellectual property attorneys and related government agencies are researching blockchain-issued copyrights and patents.

This Note examines how utilizing blockchain technology in securities trading to maintain accurate stockholder ledgers will allow for current market forces to be reflected in stockholder voting. Further, …

A Multi-Jurisdictional Review Of Legislative And Regulatory Changes In Relation To The Banking/Commercial Separation Doctrine, And The Business Of Banking, Cristie Ford

All Faculty Publications

Banks have long provided essential services to the economy and to Canadians. In return, they have had access to special privileges, and been subject to special prohibitions. Across the world, there are boundaries around what we in Canada would call the “business of banking”. Such boundaries are important, because they set the conditions under which institutions may be recognized as “banks,” and may have access to those privileges and prohibitions. This report summarizes research undertaken across five jurisdictions – Australia, Japan, Singapore, the United Kingdom (UK), and the United States (US, federal level only) – with respect to a particular …

Data First, Tax Next: How Fiji’S Technology Can Improve New Zealand’S 'Netflix Tax' (Part 1), Richard Thompson Ainsworth

Faculty Scholarship

Over the past decade the VAT in the South Pacific has been changing. More change is coming. Change is needed in both the larger economies (Australia and New Zealand) and the smaller ones (the Pacific Island Countries or PICs). The changes we see currently are propelled by cross-border remote sales of services and low-value goods.

The government response in the South Pacific is not uniform. The larger economies have relied on statutory remedies; the smaller economies are turning to technology. The larger economies are crafting complex, extra-territorial compliance provisions targeting remote sellers. The smaller economies are mandating secure digital invoices, …

The Banking/Commercial Separation Doctrine In Comparative Perspective, Cristie Ford

All Faculty Publications

This report, prepared for the Department of Finance, Government of Canada, summarizes research undertaken across five jurisdictions – Australia, Japan, Singapore, the United Kingdom (UK), and the United States (US, federal level only) – with respect to a particular kind of boundary on the business of banking: the separation of banking business from commercial business. “Commercial” here means the provision of non-financial goods and services. This separation exists under what in the United States has long been referred to as the “banking/commercial separation doctrine”. The report considers the historical justifications for the doctrine in the context of the modern “business …

Afterlife Of The Death Tax, Samuel D. Brunson

Indiana Law Journal

More than a century ago, Congress enacted the modern estate tax to help pay for World War I. Unlike previous iterations of the estate tax, though, this one outlived the war and accumulated additional goals beyond merely raising revenue. The estate tax helped ensure the progressivity of the tax system as a whole, and it limited the hereditary ability to accumulate wealth.

This modern estate tax almost instantly met with opposition, though. The opposition has never been sufficient to entirely eliminate the estate tax, but it has severely weakened its ability to raise revenue and to prevent the accumulation of …

Stock Market Reactions To India's 2016 Demonetization., Vikramaditya S. Khanna, Dhammika Dharmapala

Articles

On November 8, 2016, the Indian government made a surprise announcement that certain currency notes (representing 86 percent of the currency then in circulation) would no longer be legal tender (although they could be deposited in banks over a limited period). The stated reason for this sudden “demonetization” was to combat tax evasion and corruption associated with “unaccounted for” cash. We compute abnormal returns for different subsamples of firms—defined by industry, ownership structure, and other characteristics—on the Indian stock market around this event. There is little evidence that sectors thought to be associated with greater tax evasion or corruption experienced …

Disclosure's Purpose, Hillary A. Sale

Georgetown Law Faculty Publications and Other Works

The United States securities regulatory infrastructure requires disclosure of a wide array of information both by and about covered companies. The basic purpose of the disclosures is to level the playing field – for investors, for issuers, and for the public. Although investor protection is the disclosure goal often touted, this article develops the purposes of disclosure extending beyond investors to issuers and the public. Indeed, the disclosure system is designed to level the playing field for issuers— addressing confidentiality concerns, for example. In addition, the system helps to promote confidence in the markets, which, in turn, enables growth and …

Cashless Societies And The Rise Of The Independent Cryptocurrencies: How Governments Can Use Privacy Laws To Compete With Independent Cryptocurrencies, Matla Garcia Chavolla

Pace International Law Review

Many individuals (including governments) envision living in a future world where physical currency is a thing of the past. Many countries have made great strides in their efforts to go cashless. At the same time, there is increasing awareness among citizens of the decreasing amount of privacy in their lives. The potential hazards cashless societies pose to financial privacy may incentivize citizens to hold some of their money in independent cryptocurrencies. This article argues that in order for governments in cashless societies to keep firm control over their money supply, they should enact stronger privacy law protections for its citizens …

Hedge Funds In The Periphery: An Analysis Of Structures Influencing Fund Behavior In The Icelandic And Cypriot Financial Crises, Jameson K. Mah

Undergraduate Economic Review

Hedge funds are often viewed from a positive or negative lens in the public and academic forum. However, both of these perspectives neglect structuralist factors. This paper analyzes the effect of these antecedent economic, political, and legal structures. I argue that these structures are at the root of hedge fund behavior, particularly during financial crises. The financial crises of two peripheral countries, Iceland and Cyprus, are used as case studies to illustrate how hedge fund involvement diverges as a result of structural factors.

Lessons Learned: Thomas C. Baxter, Jr., Esq., Alec Buchholtz, Rosalind Z. Wiggins

Journal of Financial Crises

Baxter, who was General Counsel of the Federal Reserve Bank of New York during the crisis, gives us his take on how best to prepare for future crises.

Yale Program On Financial Stability Lessons Learned: Scott Alvarez, Esq., Alec Buchholtz, Rosalind Z. Wiggins

Journal of Financial Crises

Alvarez, who was General Counsel of the Federal Reserve System, Board of Governors during 2007-2009, gives us his take on how best to prepare for future crises.

The Lehman Brothers Bankruptcy H: The Global Contagion, Rosalind Z. Wiggins, Andrew Metrick

Journal of Financial Crises

When Lehman Brothers filed for bankruptcy on September 15, 2008, it was the largest such filing in U.S. history and a huge shock to the world’s financial markets, which were already stressed from the deflated housing bubble and questions about subprime mortgages. Lehman was the fourth-largest U.S. investment bank with assets of $639 billion and its operations spread across the globe. Lehman’s clients and counterparties began to disclose millions of dollars of potential losses as they accounted for their exposures. But the impact of Lehman’s demise was felt well beyond its counterparties. Concern regarding its real estate assets, its large …

The Lehman Brothers Bankruptcy G: The Special Case Of Derivatives, Rosalind Z. Wiggins, Andrew Metrick

Journal of Financial Crises

When it filed for bankruptcy protection in September 2008, Lehman Brothers was an active participant in the derivatives market and was party to 906,000 derivative transactions of all types under 6,120 ISDA Master Agreements with an estimated notional value of $35 trillion. The majority of Lehman’s derivatives were bilateral agreements not traded on an exchange but in the over-the-counter (OTC) market. Because derivatives enjoyed an exemption from the automatic stay provisions of the U.S. Bankruptcy Code, parties to Lehman’s derivatives could seek resolution and self-protection without the guidance and restraint of the bankruptcy court. The rush of counterparties to novate …

The Lehman Brothers Bankruptcy F: Introduction To The Isda Master Agreement, Christian M. Mcnamara, Andrew Metrick

Journal of Financial Crises

When Lehman Brothers Holdings, Inc. (LBHI) sought Chapter 11 protection, the more than 6,000 counterparties with which its subsidiaries had entered into over 900,000 over-the-counter (OTC) derivatives transactions faced the question of how best to respond to protect their interests. The existence of standardized documentation developed by the International Swaps and Derivatives Association (ISDA) for entering into such transactions meant that the counterparties likely thought that they were dealing with a well-defined and robust set of options in answering this question. Yet, in practice, the resolution of Lehman’s OTC derivatives portfolio ended up being less orderly than the existence of …