Securities Law Commons^™

Basel Iii E: Synthetic Financing By Prime Brokers, Christian M. Mcnamara, Andrew Metrick

Journal of Financial Crises

Hedge funds rely on “prime brokerage” units within banks to provide leverage. With the enhanced capital requirements and new liquidity standards introduced by Basel III driving up the cost to banks of engaging in such financing, prime brokers have begun to offer an alternative means of providing hedge fund clients with leveraged exposure to securities. Known as synthetic financing, this alternative requires the prime broker to enter into derivatives contracts with the clients. Under the Basel III framework, the ability of banks to hedge and net such derivative positions results in capital and liquidity costs for synthetic financing that are …

Basel Iii B: Basel Iii Overview, Christian M. Mcnamara, Michael Wedow, Andrew Metrick

Journal of Financial Crises

In the wake of the financial crisis of 2007-09, the Basel Committee on Banking Supervision (BCBS) faced the critical task of diagnosing what went wrong and then updating regulatory standards aimed at preventing it from occurring again. In seeking to strengthen the microprudential regulation associated with the earlier Basel Accords while also adding a macroprudential overlay, Basel III consists of proposals in three main areas intended to address 1) capital reform, 2) liquidity standards, and 3) systemic risk and interconnectedness. This case considers the causes of the 2007-09 financial crisis and what they suggest about weaknesses in the Basel regime …

Boards In Information Governance, Faith Stevelman, Sarah C. Haan

Scholarly Articles

This Article focuses on the evolving role of boards of directors. It charts the decline of the two leading, twentieth-century conceptual frameworks shaping corporate boards’ roles: agency cost theory, which produced the limited “monitoring board,” and “separate realms” theory, which ceded board responsibility for matters other than profit maximization to government regulation. Hedge fund activism and wild stock market swings have exposed the limits of the board’s role in agency cost theory. The 2020 pandemic, economic crises, investors’ demands for socially responsible stewardship, and corporations’ own political activism have rendered separate realms thinking untenable.

Although much theorizing in corporate law …

The Regulation Of Equity Index Futures, Lin (Lynn) Bai

Faculty Articles and Other Publications

Equity index futures are one of the most actively traded derivative instruments in financial markets around the world. Advancements in trading and clearing technologies transformed the marketplace over the past two decades. Regulation drastically changed to keep pace with the market’s development. New rules have been implemented covering trading activities, risk management, market surveillance, and customer protection. Legal literature on the regulation of this important financial instrument is surprisingly antiquated. Existing papers were written decades ago and do not reflect the true metes and bounds of today’s regulatory landscape. This paper fills the void. It provides a comprehensive discussion of …

Delaware's New Competition, William J. Moon

Faculty Scholarship

According to the standard account in American corporate law, states compete to supply corporate law to American corporations, with Delaware dominating the market. This “competition” metaphor in turn informs some of the most important policy debates in American corporate law.

This Article complicates the standard account, introducing foreign nations as emerging lawmakers that compete with American states in the increasingly globalized market for corporate law. In recent decades, entrepreneurial foreign nations in offshore islands have used permissive corporate governance rules and specialized business courts to attract publicly traded American corporations. Aided in part by a select group of private sector …

A Tale Of Two Markets: Regulation And Innovation In Post-Crisis Mortgage And Structured Finance Markets, William Wilson Bratton, Adam J. Levitin

Articles

This Article takes stock of post-financial crisis regulatory developments to tell a tale of two markets within a political economy of financial regulation. The financial crisis stemmed from excessive risk-taking and dodgy practices in the subprime home mortgage market, a market that owed its existence to private-label securitization. The pre-crisis boom in private label mortgage-backed securities could never have happened, however, without financing from an array of structured products and vehicles created in the capital markets-CDOs, CDO2 s, and SIVs. It was these capital markets products that magnified mortgage credit risk and transmitted it into the financial system's vulnerable nodes. …

Golden Parachutes And The Limits Of Shareholder Voting, Albert H. Choi, Andrew C.W. Lund, Robert Schonlau

Vanderbilt Law Review

With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, Congress attempted to constrain change-in-control payments (also known as “golden parachutes”) by giving shareholders the right to approve or disapprove such payments on an advisory basis. This Essay is the first to empirically examine the experience with the Say-on-Golden-Parachute (“SOGP”) vote. We find that unlike shareholder votes on proposed mergers, there is a significant amount of variation with respect to votes on golden parachutes. Notwithstanding the variation, however, the SOGP voting regime is likely ineffective in controlling golden parachute (“GP”) compensation. First, proxy advisors seem …

The Dodd-Frank Death Knell, Celia R. Taylor

Sturm College of Law: Faculty Scholarship

This Essay recounts a panel discussion regarding certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). It begins by discussing the repeal of the provision requiring SEC adoption of resource extractive industries rules. It then considers the fate of the conflict minerals rule promulgated by the SEC pursuant to Section 1502 of Dodd-Frank. Next, it details several provisions of the CHOICE Act, which is aimed at undermining Dodd-Frank, including the Act’s attempt to change the scope of the SEC’s whistleblower program. The Essay further discusses the Trump administration’s attempt to defund and restructure the Consumer Financial …

The Indian Securities Fraud Class Action: Is Class Arbitration The Answer?, Brian T. Fitzpatrick, Randall S. Thomas

Northwestern Journal of International Law & Business

Abstract:

In 2013, India enacted one of the most robust private enforcement regimes for securities fraud violations in the world. Unlike in most other countries, Indian shareholders can now initiate securities fraud lawsuits on their own, represent all other defrauded shareholders unless those shareholders affirmatively opt out, and collect money damages for the entire class. The only thing missing is a better financing mechanism: unlike the United States, Canada, and Australia, India does not permit contingency fees, so class action lawyers cannot front the costs of litigation in exchange for collecting a percentage of what they recover. On the other …

Post-Crisis Financialization Through Product Innovation: Assessing Complexity, Growth & Design In Exchange Traded Funds, Ryan Clements

Duke Law SJD Dissertations

This dissertation examines emerging risks and regulatory concerns in exchange traded funds (ETFs). It makes four core arguments through four published or accepted (and forthcoming) law review articles, alongside two published blog posts, all of which were written and previously submitted to the SJD Committee during the author’s dissertation research period. These articles are organized herein as dissertation chapters together with a contextual introduction and a summary conclusion which frames the dissertation within the scholarly literature on economic “financialization,” and emerging challenges associated with the growth of large interconnected asset managers.

The four core arguments in this dissertation are as …

Stay In The Fight With Civility And Professionalism, David Spratt

Scholarly Articles in Law Reviews & Journals

No abstract provided.

Crowding Out Theory: Protecting Shareholders By Balancing Executives’ Incentives In France, The United States, & China, Palden Flynn

Northwestern Journal of International Law & Business

This paper explores the differences between executive compensation regimes in France, the United States, and China. It asks whether there is a link between state regulation of real options as a form of executive compensation and state regulation of shareholder protections. This paper argues that if a country regulates the use of real options as compensation, then that country is also more likely to have strong shareholder protection laws. This argument seems to be true based on a descriptive review of executive compensation law and shareholder protections in France, the United States, and China.

If it is true that countries …

Comparative Analysis Of U.S. And Saudi Arabia Investment Funds Regulations, Gabriella Tang

Northwestern Journal of International Law & Business

The investment funds sector has always been a major player in the financial industry globally. As such, many countries with mature financial markets have enacted regulations to govern the activity and management of investment funds. The U.S. Securities and Exchange Commission (SEC) enacted the Investment Company Act of 1940(the Act) as an effort to restore investor confidence in investment funds and safeguard investors from future abuses after the market crash in 1929. On the other hand, emerging financial markets started to take part in regulations in the hope to attract more investors and outside resources. The Capital Market Authority of …

De Facto Shareholder Primacy, Jeff Schwartz

Maryland Law Review

No abstract provided.

Halliburton Ii At Four: Has It Changed The Outcome Of Class Certification Decisions?, Noah Weingarten

Fordham Journal of Corporate & Financial Law

The U.S. Supreme Court's decision in Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014) (Halliburton II) appeared to give corporate defendants a new tool to defeat class certification in the context of securities fraud class action litigation: rebutting the requisite presumption of reliance by showing a lack of "price impact"-a term that Halliburton II used to describe whether the price of an allegedly affected company's stock went up or down. However, based on an empirical study of pre- versus post-Halliburton II class certification decisions, it appears that the outcomes of class certification decisions have become even …

Shapeshifting Securities, Wendy Gerwick Couture

Articles

No abstract provided.

In Memory Of Professor James E. Bond, Janet Ainsworth

Seattle University Law Review

Janet Ainsworth, Professor of Law at Seattle University School of Law: In Memory of Professor James E. Bond.

Anticipating Venezuela’S Debt Crisis: Hidden Holdouts And The Problem Of Pricing Collective Action Clauses, Robert E. Scott, Stephen J. Choi, Mitu Gulati

Faculty Scholarship

A creditor who asks for stronger enforcement rights upon its debtor’s default will rationally accept a lower interest rate reflecting the greater expected recovery the exercise of those rights provides. Over a dozen studies, however, have failed to document this basic relationship in the context of the collective action clause, a key provision in sovereign bonds. We conjecture that this failure is because enforcing the rights in question requires collective decision-making among anonymous creditors with different interests, impeding market predictions regarding future price effects. The pricing of rights that require collective enforcement thus turns on whether the market observes an …

Foreign Corruption As Market Manipulation, Gina-Gail S. Fletcher

Faculty Scholarship

No abstract provided.

Securities Regulation And Social Media, Seth C. Oranburg

Loyola University Chicago Law Journal

Federal securities regulation originally divided corporate finance into two neat categories, public and private. In 1933, private financing was limited to “sophisticated” investors but otherwise lightly regulated. Public financing became heavily regulated. In 1982, the SEC introduced Reg D, which introduced the concept of “general solicitation” to clarify the distinction between public and private offerings. Reg D is well understood to prohibit newspaper advertisements and permit direct solicitations to venture capital investors. This enabled great wealth consolidation in regions like Silicon Valley while effectively banning general solicitations in private offerings.

Now, social media communication challenges the definition of “general solicitation.” …