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
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Commissioner Daniel M. Gallagher delivered the below remarks before the Corporate Directors Forum at the University of San Diego, San Diego, California, on January 29, 2013:
Thank you Anne [Sheehan] for your very kind introduction. I am honored to be here today. Conferences like this are critically important, and all too rare, opportunities for directors, executives, shareholders, and regulators to interact.
Before I go any further, I need to provide the standard disclaimer that my remarks today are my own and do not necessarily reflect the views of the Commission or my fellow Commissioners.
Today I would like to talk … Read more
A panel of three judges in the D.C. Circuit stunned Washington on Friday by striking down President Obama’s recess appointments to the NLRB in Noel Canning v. NLRB on a basis much more sweeping than had been anticipated. The two holdings in the decision cast doubt over the longstanding practice of intrasession recess appointment, which has been used especially frequently in the last two decades.
For financial institutions, the decision is of direct interest because it calls into question President Obama’s recess appointment that same day of Richard Cordray as Director of the CFPB and, as a result, all of … Read more
Many domestic and foreign companies that file periodic reports with the US Securities and Exchange Commission (“SEC” or “Commission”) are now coming to grips with three novel and highly prescriptive disclosure requirements dictated by Congress. What distinguishes these new requirements from most, if not all, existing securities disclosure standards is their unique focus on achieving humanitarian and/or foreign policy objectives that are largely unrelated to the central purposes of the federal securities laws – the protection of investors and the facilitation of efficient capital formation and secondary market trading through full and fair disclosure. Two “miscellaneous” provisions of the Dodd-Frank … Read more
Yesterday, Davis Polk & Wardwell LLP released its January 2013 Dodd-Frank Progress Report, which can be found here. This report is one in a series of Davis Polk presentations that illustrate graphically the progress of the rulemaking work that has been done and is yet to occur under the Dodd-Frank Act. The Progress Report has been prepared using data from the Davis Polk Regulatory Tracker™, an online subscription service offered by Davis Polk to help market participants understand the Dodd-Frank Act and follow regulatory developments on a real-time basis. Earlier blog posts about the progress report can be found … Read more
Columbia Law School Professor Robert J. Jackson Jr. recently moderated a lively debate on financial innovation before a panel of experts including Congressman Barney Frank, The New York Times’ Andrew Ross Sorkin, Nobel Laureate Robert Solow, and Gary Gensler, chairman of the Commodity Futures Trading Commission.
The full press release can be viewed here and the entire debate can be viewed here.… Read more