Securities Law Commons^™

A Theory Of Legal Presumptions, Antonio E. Bernardo, Eric L. Talley, Ivo Welch

Faculty Scholarship

This article analyzes how legal presumptions can mediate between costly litigation and ex ante incentives. We augment a moral hazard model with a redistributional litigation game in which a presumption parameterizes how a court 'weighs' evidence offered by the opposing sides. Strong prodefendant presumptions foreclose lawsuits altogether, but also engender shirking. Strong proplaintiff presumptions have the opposite effects. Moderate presumptions give rise to equilibria in which both shirking and suit occur probabilisitically. The socially optimal presumption trades off agency costs against litigation costs, and could be either strong or moderate, depending on the social importance of effort, the costs of …

A Normative Analysis Of New Financially Engineered Derivatives, Peter H. Huang

Publications

This Article analyzes whether the introduction of new derivative assets makes a society better or worse off. Because trading such non-redundant derivatives produces new distributions of income across time and over possible future contingencies, individuals can utilize such financial instruments to hedge risks not possible before the introduction of these assets. Thus, it may seem that new derivatives unambiguously benefit society. In fact, introducing sufficiently many new derivatives completes asset markets. Asset markets are complete if trading on them can attain every possible payoff pattern of wealth across time and over possible future contingencies. The first fundamental theorem of welfare …

The Efficient Norm For Corporate Law: A Neotraditional Interpretation Of Fiduciary Duty, Thomas A. Smith

Michigan Law Review

To economically oriented corporate law professors, distinguishing between directors' fiduciary duty to shareholders and a duty to the corporation1 itself smacks of reification - treating the fictional corporate entity as if it were a real thing. Now the orthodox view among corporate law scholars is that the corporate fiduciary duty is a norm that requires firm managers to "maximize shareholder value." Giving the corporation itself any serious role in the analysis of fiduciary duty, the thinking goes, obscures scientific insight with bad legal metaphysics. Some recent scholarship and legislation, such as constituency statutes, have challenged this "shareholder primacy" view. Contestants …

Private Ordering At The World's First Futures Exchange, Mark D. West

Michigan Law Review

Modern derivative securities - financial instruments whose value is linked to or "derived" from some other asset - are often sophisticated, complex, and subject to a variety of rules and regulations. The same is true of the derivative instruments traded at the world's first organized futures exchange, the Dojima Rice Exchange in Osaka, Japan, where trade flourished for nearly 300 years, from the late seventeenth century until shortly before World War II. This Article analyzes Dojima's organization, efficiency, and amalgam of legal and extralegal rules. In doing so, it contributes to a growing body of literature on commercial self-regulation while …

Integration Of International Financial Regulatory Standards For The Chinese Economic Area: The Challenge For China, Hong Kong, And Taiwan, Lawrence L.C. Lee

Northwestern Journal of International Law & Business

This article initially reviews the current development of financial services that converge regulatory systems around the world. Along with focusing on banking and securities, this article assesses financial systems and regulators within China, Hong Kong, and Taiwan respectively. The evaluation of the CEA's financial system is based on recommendations issued by the Basle Committee. In addition, with respect to the principle of national treatment, this article evaluates the operations of foreign financial institutions in the CEA. In the future, participation in the WTO will enable the CEA to experience greater growth and increase its participation in the internationalization of financial …

The Political Economy Of Statutory Reach: U.S. Disclosure Rules In A Globalizing Market For Securities, Merritt B. Fox

Michigan Law Review

This Article addresses the appropriate reach of the U.S. mandatory securities disclosure regime. While disclosure obligations are imposed on issuers, they are triggered by transactions:- the public offering of, or public trading in, the issuers' shares. Share transactions are taking o n an increasingly transnational character. The barriers to a truly global market for equities continue to lessen: financial information is becoming increasingly globalized and it is becoming increasingly inexpensive and easy to effect share transactions abroad. There are approximately 41,000 issuers of publicly traded shares in the world. For an ever larger portion of these issuers, there will be …

The Political Economy Of Statutory Reach: U.S. Disclosure Rules In A Globalizing Market For Securities, Merritt B. Fox

Faculty Scholarship

This Article addresses the appropriate reach of the U.S. mandatory securities disclosure regime. While disclosure obligations are imposed on issuers, they are triggered by transactions: the public offering of, or public trading in, the issuers' shares. Share transactions are taking on an increasingly transnational character. The barriers to a truly global market for equities continue to lessen: financial information is becoming increasingly globalized and it is becoming increasingly inexpensive and easy to effect share transactions abroad. There are approximately 41,000 issuers of publicly traded shares in the world. For an ever larger portion of these issuers, there will be significant …

Securities Disclosure In A Globalizing Market: Who Should Regulate Whom, Merritt B. Fox

Michigan Law Review

One of the most dramatic examples of increasing interaction across national boundaries in recent years has been the burgeoning volume of transnational transactions in corporate equities. Most developed capitalist countries impose affirmative obligations on issuers of corporate equity to disclose certain information about themselves. While these obligations are imposed on issuers, they are triggered by transactions. The growth in transnational transactions is thus increasingly raising difficult issues concerning the reach of differing national regimes. Given the magnitude of legal resources devoted to compliance with such disclosure regulations, they promise to feature prominently in the larger discussion of the role of …

Realizing The Re-Emergence Of The Chinese Stock Market: Fact Or Fiction?, Ann P. Vandevelde

Vanderbilt Journal of Transnational Law

The stock market which currently exists in the People's Republic of China (PRC) is a product of the "open door policy" introduced by Deng Xiaoping in 1978, following the death of Mao Zedong, to promote economic development over class struggle. Following limited experimentation with stock issuance at the local level, the Shanghai and Shenzhen stock exchanges opened in 1990 and 1991 respectively. Since its recent inception, China's stock market--which comprises the trading of domestically owned A-Shares and foreign-owned B-Shares--has experienced impressive growth together with periods of volatility as well as lackluster performance. Recent performance of A-Share trading has been strong, …

Securities Market And Securities Regulations In China, Fengxia Dai

LLM Theses and Essays

China is a large developing country with a socialist ideology that is currently undergoing a period of reform and transformation. In December 1990, China opened its first national securities market - the Shanghai Securities Exchange. This was soon followed in November 1991 by the first special shares denominated in foreign currencies and sold only to overseas investors. These important steps in the development of China’s securities industry indicate commitment by Chinese authorities to the two key components of the nation’s economic reform program - economic systemic reform, and opening to the outside world. China’s securities market and securities regulations contain …

F. Hodge O'Neal Corporate And Securities Law Symposium: Path Dependence And Comparative Corporate Governance, Ronald J. Mann, Curtis J. Milhaupt

Faculty Scholarship

The study of institutions, and particularly the study of institutions that societies use to govern business enterprises, is at a point of transition. In the last two or three decades, scholars focusing on economic principles to define appropriate legal rules and corporate institutions rose up to challenge the traditional orthodoxy of corporate governance found in the Berle and Means corporation.

One of the most exciting trends in the literature rests upon the "increasing marginal returns" school of economics associated with Brian Arthur and the Santa Fe Institute. The traditional neoclassical economic theory of production, familiar from decades of undergraduate and …

Transfers Of Control And The Quest For Efficiency: Can Delaware Law Encourage Efficient Transactions While Chilling Inefficient Ones?, John C. Coffee Jr.

Faculty Scholarship

At first glance, few corporate law principles seem to be better established than the widely prevailing rule that a controlling shareholder may receive a control premium for its shares. From a comparative law perspective, however, this consensus may seem surprising, because the United States stands virtually alone in failing to accord minority shareholders any presumptive right to share in a control premium. Yet, from an economic perspective, the permissive U.S. rule is not surprising because economists generally agree that economic efficiency is promoted by privately negotiated control transfers at premiums not offered to minority shareholders.

The puzzling fact that this …

Producing Information: Initial Public Offerings, Production Costs, And The Producing Lawyer, Manuel A. Utset

Scholarly Publications

No abstract provided.

Disciplining Managers: Shareholder Cooperation In The Shadow Of Shareholder Competition, Manuel A. Utset

Scholarly Publications

No abstract provided.

The Value Of Public-Notice Filing Under Uniform Commercial Code Article 9: A Comparison With The German Legal System Of Securities In Personal Property, Jens Hausmann

LLM Theses and Essays

In contrast to the public-notice filing system under U.C.C. Article 9, the modern German law of securities in personal property lacks publicity of security interests. The German courts have developed a mesh of priority rules exhaustively described in this analysis. Despite the costs and risks arising under the formal filing system, the U.C.C. accomplishes a preferable balance of interests involved in secured transactions. It assures certainty to creditors about the priority of security interests in particular assets, whereas the German law comprehensively recognizes the debtor’s interest in the secrecy of the transaction and the need for external capital. Regarding the …

Thinking To Be Paid Versus Being Paid To Think, Merritt B. Fox

Faculty Scholarship

In the first chapter of The Economic Structure of Corporate Law, Frank Easterbrook and Daniel Fischel make an arresting statement:

... [P]eople who are backing their beliefs with cash are correct; they have every reason to avoid mistakes, while critics (be they academics or regulators) are rewarded for novel rather than accurate beliefs. Market professionals who estimate these things wrongly suffer directly; academics and regulators who estimate wrongly do not pay a similar penalty. Persons who wager with their own money may be wrong, but they are less likely to be wrong than are academics and regulators, who are wagering …

Controlling The Dark Side Of Relational Investing, Edward B. Rock

Cardozo Law Review

This season's candidate for shareholders' champion is the "relational investor." If only more investors would take large positions and then carefully and patiently work with managers to maximize long-term value, corporations would thrive, takeovers would be unnecessary, and we would grow rich or at least richer. Others have focused on the possibilities and patterns. In this Article, I focus on some of the problems.

Relational Investing And Agency Theory, Ian Ayres, Peter Cramton

Cardozo Law Review

This Article analyzes how, and when, corporate governance could be improved by utilizing "relational investing." The term relational investing is just coming into vogue and there does not yet seem to be a consensus on what it means. Although the term has been trumpeted on the cover of Business Week, before the Conference on Relational Investing at Columbia University, relatively little legal writing had been published on the subject.

Benign Restraint: The Sec's Regulation Of Execution Systems, David M. Schizer

Faculty Scholarship

To the handful of traders who founded the New York Stock Exchange (NYSE) in 1792 – and perhaps even to the securities traders of the 1960's – today's securities markets would be virtually unrecognizable. New communications and data processing technologies, the globalization of investment portfolios, and a surge in trading volume have created new needs and possibilities. As a result, revolutionary advances have occurred in the design and performance of execution systems: the technologies (computers, telephones, modems) and formats (auction-based stock exchanges, dealer-based "over-the-counter" markets, computerized single price auctions) that traders use to conduct trades. These advances enable trades on …

Combine And Conquer: Rethinking The Regulation Of Stock Index Futures, Marianne T. Spinelli

Cardozo Law Review

No abstract provided.

The Unimportance Of Being Efficient: An Economic Analysis Of Stock Market Pricing And Securities Regulation, Lynn A. Stout

Michigan Law Review

Part I of this article describes how perceptions that market efficiency is an important regulatory objective have influenced the development of securities law. For illustration, Part I examines the role of market efficiency goals in recent debates on the scope of insider trading liability, on trading in stock index futures, and on mandatory disclosure of merger negotiations. Part II then evaluates the notion that more efficient stock markets necessarily produce more optimal resource allocation. A closer look at the economic consequences of stock prices suggests that the principal function of stock prices is not resource allocation but rather the redistribution …

Volatility And Market Inefficiency: A Commentary On The Effects Of Options, Futures, And Risk Arbitrage On The Stock Market , Thomas Lee Hazen

Washington and Lee Law Review

No abstract provided.

Legal Factors In The Acquisition Of A United State Corporation: Litigation By Hostile Targets, Johan E. Droogmans

LLM Theses and Essays

Acquisitions of United States corporations have become increasingly complex takeover contests, where bidders and target corporations are forced into offensive and defensive litigation strategies to protect their respective interests. Targets often assert that the bidders have violated federal or state securities laws, federal antitrust laws, federal margin regulations, federal and state regulatory systems, and federal anti-racketeering laws. These lawsuits are primarily based on the principal federal regulation of takeovers in section 14(a) of the Securities and Exchange Act of 1934 and the Williams Act. Target litigation is customary, but entails certain disadvantages; a lawsuit rarely stops an offer, is expensive, …

On A Just Measure Of The Efficiency Of Law And Governmental Policies, John L. Hanks

Cardozo Law Review

No abstract provided.

Efficient Markets, Costly Information, And Securities Research, Jeffrey N. Gordon, Lewis A. Kornhauser

Faculty Scholarship

Courts, administrative policy makers and legal scholars have widely embraced the theory that well-developed markets are efficient. In this Article, Professors Gordon and Kornhauser cast doubt on the wisdom of reliance on the efficient market hypothesis as applied to various areas of corporate law. Their charge is that legal decision makers and scholars have misunderstood the assumptions and limitations of the theory and have neglected recent critical economics scholarship. Professors Gordon and Kornhauser begin by detailing the assertions of the hypothesis in relation to the workings of securities markets, focusing on various asset pricing models used to test the hypothesis …

Market Failure And The Economic Case For A Mandatory Disclosure System, John C. Coffee Jr.

Faculty Scholarship

Recent academic commentary on the securities laws has much in common with the battles fought in historiography over the origins of the First World War. The same progression of phases is evident. First, there is an orthodox school, which tends to see historical events largely as a moral drama of good against evil. Next come the revisionists, debunking all and explaining that the good guys were actually the bad. Eventually, a new wave of more professional, craftsmanlike scholars arrives on the scene to correct the gross overstatements of the revisionists and produce a more balanced, if problematic, assessment.

The Interpretation Of Contracts Governing Corporate Debt Relationships, William W. Bratton Jr.

Cardozo Law Review

No abstract provided.

An Economic Analysis Of Section 16(B) Of The Securities Exchange Act Of 1934

William & Mary Law Review

No abstract provided.

Forming A Subsidiary In The European Common Market, Alfred F. Conard

Michigan Law Review

The appearance of a new market which is open to free enterprise and contains almost as many customers as the United States has opened immense opportunities to American enterprises, with their unique experience in mass production and mass marketing. General counsel for large American enterprises are confronted with a new need for some understanding of the problems of organizing subsidiary companies in this new market. The present article is written to supply an introduction to the legal factors which bear on solutions of these problems.

Some Legal Problems Connected With Stock Market Transactions, S. Ashley Guthrie, Henry F. Tenney

Michigan Law Review

If any one were asked what was the most dramatic event of the last year, he probably refer at once to the collapse of the great Bull Market on the New York Stock Exchange. This was not only a dramatic event, but it was literally a tragedy for hundreds of thousands of people. Securities shrank to less than half their former inflated values and hundreds of millions of dollars in cash and paper profits were lost over night, or possibly we should say over two nights, for the crash occurred in two stages, one in October and one in November, …