The following comes to us from Charles M. Horn, a partner at Morrison & Foerster LLP.
The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act,” or “Dodd-Frank”) in 2010 was a watershed moment in the history of U.S. financial services regulation. As we move through 2013 with many key regulatory actions still hanging in the balance, it has become apparent that Dodd-Frank has catalyzed fundamental changes in the financial regulatory environment, and that banking organizations and other regulated firms will need to understand and respond to these changes in order to manage the new environment.… Read more
As annual meeting season approaches, so too does the first deadline for companies listed on the NASDAQ Stock Market (Nasdaq) to comply with amended compensation committee rules. Traditionally, evaluation of director independence of Nasdaq-listed companies differed for purposes of serving on an audit committee as compared to a compensation committee. Earlier this year, the Securities and Exchange Commission (SEC) approved Nasdaq’s proposed rule amendments to comply with certain requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), including changes intended to conform the compensation committee independence standard to the existing audit committee standard. The first … Read more
On May 1, Davis Polk & Wardwell LLP released its May 2013 Dodd-Frank Progress Report, which can be found here. Davis Polk issues these Progress Reports monthly to update the market on the progress of the rulemaking required under Dodd-Frank.
- No New Deadlines, 5 Requirements Met, 0 Proposed. No rulemaking requirements were due in April and 5 rulemaking requirements were met with finalized rules. No new rules were proposed to meet rulemaking requirements.
- Current Status. As of May 1, 2013, a total of 279 Dodd-Frank rulemaking requirement deadlines have passed. Of these 279 passed deadlines, 175 (62.7%) have
… Read more
The “European Market Infrastructure Regulation,” known as EMIR, was adopted on July 4, 2012, as the Regulation on OTC Derivatives, Central Counterparties and Trade Repositories (EU 648/2012), and took effect in all EU Member States on August 16, 2012. As an EU Regulation, EMIR is effective in EU Member States without the need for national regulations or legislation.
The EMIR regulatory framework is made up of Regulation EU 648/2012 (the “Regulation”) and several European Commission Implementing Regulations and Delegated Regulations which set out technical standards addressing matters of detail under the Regulation. The Implementing Regulations and Delegated Regulations were published … Read more
This is the heyday of institutional investor activism in proxy contests. Insurgents are running more slates and targeting larger companies. They are also enjoying a higher rate of success: 66% of proxy contexts this year have been at least partially successful. The reason is probably the support that activists have received from the principal proxy advisors: Institutional Shareholder Services (“ISS”) and Glass Lewis & Company. According to a recent N.Y. Times Dealbook survey, ISS has backed the insurgent slate in 73% of the cases so far in 2013.
All this may be well and good. Shareholders certainly have the right … Read more
My forthcoming article, Irredeemably Inefficient Acts: A Threat to Markets, Firms, and the Fisc, identifies a category of acts that clearly and inevitably reduce social welfare. These acts—which I call irredeemably inefficient—have not been expressly recognized in previous work. Yet the distinction I draw reflects a fundamental feature of the U.S. antitrust law, justifies several recent Delaware Chancery Court decisions, and suggests substantial rethinking of some important aspects of securities and commodities regulation.
Irredeemably inefficient acts have remained outside of the standard theory of public enforcement of law. That theory holds that inefficient conduct may be converted into … Read more
On April 1, 2013, the Commodity Futures Trading Commission (the “CFTC”) voted four to one to adopt final rules implementing an exemption from the mandatory clearing requirement (the “Clearing Mandate”) under section 2(h) of the Commodity Exchange Act, as amended (the “CEA”), for transactions between certain affiliated parties (the “Inter-Affiliate Exemption”). The Inter-Affiliate Exemption finalized previously proposed rules published on August 21, 2012 (the “Proposed Rules”).
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) amended the CEA to require clearing of any swap that the CFTC determines should be subject to mandatory clearing. However, the Dodd-Frank amendments to … Read more
On April 1, Davis Polk & Wardwell LLP released its April 2013 Dodd-Frank Progress Report, which can be found here. Davis Polk issues these Progress Reports monthly to update the market on the progress of the rulemaking required under Dodd-Frank.
- No New Deadlines, Requirements Met or Requirements Proposed. No rulemaking requirements were due in March and no new rules were adopted or proposed to meet rulemaking requirements.
- Current Status. As of April 1, 2013, a total of 279 Dodd-Frank rulemaking requirement deadlines have passed. Of these 279 passed deadlines, 176 (63.1%) have been missed and 103 (36.9%) have
… Read more
One of the highest-profile provisions of the Dodd-Frank Act is Section 922. That provision provides protection and monetary awards for whistleblowers. To qualify, the whistleblower must provide information to the Securities and Exchange Commission that leads to the recovery of monetary sanctions. While many have argued that this provision does not go far enough in providing incentives for whistleblowers, the reality is that it goes too far. By providing protection and compensation for whistleblowers without imposing any costs, Section 922 attracts both low- and high-quality tips without providing the SEC with any means of differentiating the two. This will lead … Read more
“Ring-fencing” is often touted as a potential regulatory solution to problems in banking, finance, public utilities, and insurance. However, both the precise meaning of ring-fencing, as well as the nature of the problems that ring-fencing regulation purports to solve, are ill defined. My new article, recently posted here on SSRN, examines the functions and conceptual foundations of ring-fencing.
The recent report by the U.K. Independent Commission on Banking (known as the “Vickers Report”) proposes ring-fencing banks by legally separating certain of their risky assets from their retail banking operations. Federal regulators in the United States are considering requiring the … Read more
In the paper, “Management Influence on Investors: Evidence from Shareholder Votes on the Frequency of Say on Pay”, which was recently made publicly available on SSRN, my co-author (David Oesch of the University of St. Gallen) and I examine the peculiar non-binding shareholder votes required by the Dodd-Frank Act on the frequency of Say-on-Pay (SOP) votes (with a choice between every 1, 2, or 3 years). Our purpose is to obtain a direct estimate of management’s influence on investors. We also investigate whether management influence varies across firms and whether there is evidence of strategic use of management … Read more
Plaintiffs’ attorneys have continued to bring, or threaten, litigation against U.S. companies following the filing of their annual proxy statements. These complaints generally allege disclosure deficiencies in connection with the approval of equity compensation plans and/or the advisory shareholder “say-on-pay” vote and, as with merger-related “strike suits,” seek to enjoin the annual meeting. Early cases gained some traction, resulting in settlements yielding additional proxy disclosures and legal fees for the plaintiffs, though most companies have resisted settling. While some companies have taken the heightened litigation risk into account in crafting 2013 proxy disclosure, it seems likely that no level of … Read more
On March 1, Davis Polk & Wardwell LLP released its March 2013 Dodd-Frank Progress Report, which can be found here. Davis Polk issues these Progress Reports monthly to update the market on the progress of the rulemaking required under Dodd-Frank.
- No New Deadlines, Requirements Met or Requirements Proposed. No rulemaking requirements were due in February and no new rules were adopted or proposed to meet rulemaking requirements.
- Current Status. As of March 1, 2013, a total of 279 Dodd-Frank rulemaking requirement deadlines have passed. Of these 279 passed deadlines, 176 (63.1%) have been missed and 103 (36.9%) have
… Read more
On February 28, I submitted a letter on Money Market Fund Reform to the Financial Stability Oversight Council in response to their November 2012 request for comments on a number of alternative proposals. I endorse the so-called “Minimum Balance at Risk Proposal,” in which fund sponsors would create a capital buffer by contributing or raising capital of one percent of a money market fund’s assets while fund investors would be subject to delayed redemption of three percent of their account over $100,000. This approach could cause sponsors to internalize the costs of portfolio security selection while forcing large fund investors … Read more
The Dodd-Frank Act authorized the CFTC and the SEC to develop comprehensive regulations for swap transactions and security-based swaps, respectively. Considering swaps generally were unregulated before Dodd-Frank, the CFTC and the SEC have been writing for two years on a blank slate. In 2012, the agencies began to fill in many of the blanks, but much work remains for 2013 and beyond.
In 2012, the CFTC and the SEC finished the specific joint Dodd-Frank Act assignments Congress gave them: The agencies finalized the product definitions (rules defining “swaps” and “security-based swaps”) and the entity definitions (rules defining “swap dealer” and … Read more
On January 25, the D.C. Circuit issued a controversial decision in the Noel Canning case. The Court invalidated three of President Obama’s recess appointments to the National Labor Relations Board after finding that the President overreached in making the appointments without Senate confirmation. The holding implies that the President’s recess appointment of Richard Cordray, as Director of the Consumer Financial Protection Bureau (“CFPB”), would likewise be invalid. This is of great interest to banks and others in the financial services industry who are regulated by the new agency.
In my recent post, Columbia Law Professors Weigh in on Noel … Read more
The D.C. Circuit’s recent decision, Noel Canning v. NLRB, available here, has generated a barrage of commentary by law firms and others. Much of the interest in the business community has focused on the impact that the decision might have on the Bureau of Consumer Financial Protection (the “CFPB”). For views and reactions, I consulted three experts at Columbia Law School: Professors Henry Paul Monaghan, Trevor W. Morrison, and Peter L. Strauss. As described below, each believes that the Supreme Court is likely to take the case, but there is less certainty over how the case might ultimately … Read more
My forthcoming article, Interbank Discipline, draws attention to the important role that banks play monitoring and disciplining other banks. To understand the significance of interbank discipline, the Article proposes a new way of thinking about market discipline more generally. In the first wave, advocates of market discipline viewed it as a basis for deregulation. Why expend government resources duplicating the efforts of market participants, the rationale went, particularly considering that regulation can discourage market discipline and markets are often more effective than regulators? The 2007-2009 financial crisis, and numerous scandals preceding it, largely brought an end to such reasoning. … Read more
The article, The Custom-to-Failure Cycle, which I wrote with my research assistant Lucy Chang (Duke Law School class of 2012), examines how reliance on heuristic-based customs can lead to financial failures. In areas of complexity, people often rely on heuristics—by which we broadly mean simplifications of reality that allow people to make decisions in spite of their limited ability to process information. When this reliance becomes routine and widespread within a community, it can develop into a custom. This type of custom may not—and indeed, our article assumes, does not—become the basis for law per se. Rather, it is … Read more
On February 1, Davis Polk & Wardwell LLP released its February 2013 Dodd-Frank Progress Report, which can be found here. Davis Polk issues these Progress Reports monthly to update the market on the progress of the rulemaking required under Dodd-Frank.
- 46 New Deadlines. 42 rulemaking requirements and 4 studies were due in January.
- 12 Requirements Met, 0 Proposed. The CFPB released final rules on qualified mortgage standards, mortgage servicing and loan originator compensation. The CFPB, FDIC, Federal Reserve, FHFA, NCUA and OCC released a joint final rule that establishes new appraisal requirements for higher-priced mortgage loans.
- Current Status. As
… Read more