The current proposals to accelerate the timing of beneficial ownership disclosure under Section 13(d) of the 1934 Securities Exchange Act and to broaden the definition of beneficial ownership to include derivative positions that provide economic exposure to stock price movement but not a right to vote or acquire stock, gets the problem precisely backwards. The mismatch of problem and solution is apparent when we focus on two dates: 1968, when the Williams Act adding Section 13 was adopted, and 2010, when Section 766 of the Dodd-Frank legislation gave the SEC the authority, but not the obligation, to consider whether derivative … Read more
In a delightful essay, Ron Gilson and Jeff Gordon remind us that the times have changed and the Williams Act belongs in their view to the era of the Beatles. (Personally, I have trouble believing that Sgt. Pepper was really that long ago. Next, they will try to tell me that John Lennon is dead). Even if they are right, I must respond with a counter-truism. Plus ca change, plus la meme chose. And I will raise their bid, by invoking two other familiar maxims: First, power corrupts, and absolute power is at least within view for institutional … Read more
The third proxy season of the Dodd-Frank Act’s mandatory shareholder “say-on-pay” advisory votes is well underway, and “round two” of shareholder say-on-pay litigation is in full swing. Unlike the first round of say-on-pay lawsuits, which were based on negative advisory votes that had already occurred, this second wave of shareholder litigation, which began in 2012, seeks to enjoin advisory votes on executive compensation based on allegedly deficient proxy disclosures. Some cases seek also to enjoin binding shareholder votes on proposals to issue additional shares of stock for equity incentive plans.
Because these lawyer-driven suits do not allege an actual violation … Read more
The CLS Blue Sky Blog presents the final part of the second installment of our new series, entitled “The Marketplace of Ideas.” Parts I, II, III, and IV can be found here, here, here, and here. Earlier installments are available here. The intent is to present different perspectives on the same subject by two or more authors.
The subject is Professor Katharina Pistor’s Legal Theory of Finance (LTF). For a short description of her theory and the format of the commentary we are releasing, please see here. In the final release, LTF – The … Read more
Discussing the Legal Theory of Finance (LTF) on the Marketplace of Ideas has been a great experience. I want to thank my colleague Kathryn Judge for coming up with the idea and for writing an inspiring blog post that raises important questions about the content and boundaries of the theory’s core features. The response to the call for blog posts from practitioners and academics was equally uplifting – and I am extremely grateful to the contributors for their engagement with LTF and the critiques they offered. Thanks also to Jason Parsont who manages the CLS Blue Sky Blog and kept … Read more
The OCC has issued a final rule specifying the methods for calculating credit exposure arising from derivatives and securities financing transactions for purposes of the federal lending limits that apply to national banks, federal and state branches and agencies of foreign banks and federal and state savings associations. The final rule reflects a further convergence in methods for measuring credit exposure from derivatives and securities financing transactions between bank capital rules and legal lending limits.
The final rule, like the June 2012 interim final rule that it revises, implements Section 610 of the Dodd-Frank Act, which is one of several … Read more
The CLS Blue Sky Blog presents Part IV of the second installment of our new series, entitled “The Marketplace of Ideas.” Parts I, II, and III can be found here, here, and here. Earlier installments are available here. The intent is to present different perspectives on the same subject by two or more authors.
In A legal theory of finance, Katharina Pistor outlines a theory designed to deal with the law-finance paradox, that is, the observation that when “the full force of law is relaxed or suspended to take account of changes in circumstances” – precisely to avoid bringing down the financial system –, “the credibility law lends to finance in the first place is undermined” (Pistor, 2013: 323). In building her argument, Pistor advances the concept of law’s elasticity, which she defines as “the probability that ex ante legal commitments will be relaxed or suspended in the future” (2013: 320). The … Read more
Richard Shamos is an Associate in the Investment Management practice at Schulte Roth & Zabel LLP in New York.
The relationship between free markets and government is perhaps one of the most prominent economic issues of modern political economy. In A Legal Theory of Finance, Katharina Pistor presents a powerful tool for analyzing this relationship by emphasizing the central role law plays in defining markets and market instruments. This article examines Pistor’s mode of analysis and then explores how it may be applied within the investment fund context to draw on real world examples of the relationship between law … Read more
The CLS Blue Sky Blog presents Part III of the second installment of our new series, entitled “The Marketplace of Ideas.” Parts I and II can be found here and here. Earlier installments are available here. The intent is to present different perspectives on the same subject by two or more authors.
The International Monetary Fund (IMF) recently published its first major policy treatment of sovereign debt restructuring since 2003. It was prompted by the flawed restructuring in Greece, high profile litigation against Argentina, and recurring crises in smaller economies that failed to deliver needed relief in a timely way. The paper proposes a work program to bolster the Fund’s analytical and policy tools, as well as contract reform to expand countries’ restructuring capacity.
The U.S. District Court for the District of Columbia has released two important rulings this month that speak to the SEC’s ability to promulgate rules. On July 23rd, the court upheld the SEC’s conflict minerals rule (see here) and on July 2nd, the court vacated and remanded the SEC’s resource extraction payment rule (see here). Both rules were implemented pursuant to the Dodd-Frank Act.
On June 26, in a House Committee on Financial Services hearing, “Examining How the Dodd-Frank Act Could Result in More Taxpayer-Funded Bailouts,” former FDIC Chair Shelia Bair testified to being “surprised at the lack of concern over the designation of “financial market utilities,” and particularly Section 806 which permits the Federal Reserve to provide safety net access to designated financial market utilities.”
Indeed, these reforms in Dodd-Frank’s Title VIII have received little attention. Related provisions in Dodd-Frank’s Title XI mandating disclosure of the use of the Federal Reserve’s currency swap line authority with nongovernmental third parties have similarly been largely … Read more
The CLS Blue Sky Blog presents Part II of the second installment of our new series, entitled “The Marketplace of Ideas.” Part I can be found here. Earlier installments are available here. The intent is to present different perspectives on the same subject by two or more authors.
Our second and third releases comes to us from Cathy M. Kaplan of Sidley Austin and Jeremiah S. Pam … Read more
In a move that appears at once to be shrewd, savvy and largely symbolic, the SEC has modified its longstanding policy that it will not require a defendant to admit or deny liability, or facts that might establish its liability, in a settlement with the SEC. Now, such an admission may be required “when appropriate.”1 Whatever the outcome in the SEC’s mandamus appeal of Judge Jed S. Rakoff’s Citigroup decision,2 Rakoff has effectively won the war, even if he loses the Citigroup battle. Although denying that Rakoff influenced them, the SEC conceded (effectively, if not formally) that its policy was
The following post comes to us from Bradley Berman, Of Counsel at Morrison & Foerster LLP.
On July 10, 2013, the Securities and Exchange Commission (the “SEC” or “Commission”) adopted amendments to rules promulgated under Regulation D to implement Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The amendments add “bad actor” disqualification requirements to Rule 506 of the Securities Act of 1933 (the “Securities Act”), which prohibit issuers and others such as underwriters, placement agents, directors, executive officers, and certain shareholders of the issuer from participating in exempt securities offerings, if they … Read more
The CLS Blue Sky Blog presents the second installment of our new series, entitled “The Marketplace of Ideas.” Earlier installments are available here. The intent is to present different perspectives on the same subject by two or more authors.
Today, the subject is Professor Katharina Pistor’s Legal Theory of Finance (LTF). Her theory grew out of a two year research project – the Global Finance and Law Initiative (further described here) – that set out to critique existing theories in economics and sociology on the relation of law to finance and developed an alternative approach. It was distilled … Read more
In A Legal Theory of Finance, Katharina Pistor introduces a provocative new theory about the relationship between law and finance and the role of law in producing and addressing financial instability. Pistor shows that law plays a constitutive role in the financial system; yet, because of irreducible uncertainty and uneven liquidity, legal obligations, fully enforced, “would inevitably bring down the financial system.” Hence, the law-finance paradox. Collapse is avoided, and predictably so, by the relaxation or suspension of legal obligations, revealing law to be inherently elastic. Significantly, however, law’s elasticity is not uniform. “Law tends to be relatively elastic … Read more
A common denominator of regulatory responses to crises is the use of stable and presumptively optimal rules. The term “stable and presumptively optimal rules” refers to rules that, once in place, do not change other than through other rules and Acts of Congress. Congress, financial regulators, and the literature on financial regulation rely almost exclusively on such rules. However, the economic conditions and the corresponding requirements for optimal and stable rules are constantly evolving, suggesting that different sets of rules could be optimal – in contrast with previous expectations. This has played out in the reaction to the financial crisis. … Read more
The U.S. Basel III final rule is the most complete overhaul of U.S. bank capital standards since the U.S. adoption of Basel I in 1989 – nearly a quarter of a century ago. The final rule comprehensively revises the regulatory capital framework for the entire U.S. banking sector by implementing many aspects of Basel III as well as key provisions of the Dodd-Frank Act, including the Collins Amendment capital floor in Section 171 and the ban on references to credit ratings in Section 939A. The U.S. Basel III final rule also makes significant changes to the 2012 U.S. Basel III … Read more