Credit Risk Retention: Agencies Propose Revised Rule

The following is a joint press release from six federal agencies on the revised credit risk retention rule, available here.

Six federal agencies on Wednesday issued a notice revising a proposed rule requiring sponsors of securitization transactions to retain risk in those transactions. The new proposal revises a proposed rule the agencies issued in 2011 to implement the risk retention requirement in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

This proposal is being issued jointly by the Board of Governors of the Federal Reserve System, the Department of Housing and Urban Development, the Federal Deposit … Read more

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The Geography of Revlon-Land in Cash and Mixed Consideration Transactions: A Response to Professor Bainbridge

The following comes to us from Mohsen Manesh, an Assistant Professor at the University of Oregon School of Law.

In the recently published The Geography of Revlon-Land,[1] Professor Stephen Bainbridge attempts to crisply delineate the boundaries and contours of the evolving doctrine first articulated by the Delaware Supreme Court in Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.[2]— or Revlon-land, more colloquially. The Revlon doctrine famously dictates that in certain transactions involving the “sale or change in control” of a corporation, the corporation’s board of directors has a duty to “get[] the … Read more

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Editor's Tweet: Prof. Manesh of Oregon Law Respond to Bainbridge on Revlon-Land

Swaps Pushout Rule: Federal Reserve Banks Revise Discount Window Documentation

Effective July 16, 2013, the Federal Reserve Banks’ Operating Circular No. 10 (“OC-10”) has been amended to include a new appendix entitledProhibition Against Federal Assistance to Any Swaps Entity (“Appendix 6”).  Appendix 6 is intended to ensure that the Federal Reserve Banks comply with the requirements of Section 716 of the Dodd-Frank Act (“Swaps Pushout Rule”) when making discount window advances under OC-10.  OC-10 sets forth the terms and conditions under which an entity may obtain advances from, incur obligations to, or pledge collateral to a Federal Reserve Bank.

The Swaps Pushout Rule … Read more

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Cleary Gottlieb Discusses Supreme Court Decision in Italian Colors Restaurant to Uphold Class Arbitration Waivers

On June 20, 2013, the Supreme Court issued American Express v. Italian Colors Restaurant, a 5-3 opinion delivered by Justice Scalia reaffirming that federal courts must enforce arbitration agreements strictly according to their terms, including agreements containing class arbitration waivers. The Court emphasized that such waivers are enforceable even where the cost of pursuing an individual claim would be prohibitively expensive.1

 The Supreme Court’s Decision

Merchants who accepted American Express card products filed class action suits against American Express in the District Court for the Southern District of New York alleging violations of federal antitrust law. The merchants claimed … Read more

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Federal District Court Expresses Skepticism That Dodd-Frank Extraterritorial Jurisdiction Provision Overturns Morrison in Government Enforcement Actions

Federal District Court Expresses Skepticism That Dodd-Frank Extraterritorial
Jurisdiction Provision Overturns Morrison in Government Enforcement Actions

In a memo we wrote on the day the Dodd-Frank Act was signed into law, we discussed a provision in that law seemingly intended to render the Supreme Court’s decision in Morrison v. National Australia Bank inapplicable to cases brought by the SEC or the Justice Department. We noted that this “extraterritorial jurisdiction” provision, Section 929P(b), contains a significant drafting error, one that likely makes it a practical nullity. Since then, much academic commentary has concurred in our view. Last week, a federal … Read more

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Editor's Tweet: Wachtell's George Conway on District Court Skepticism That Dodd-Frank Extraterritorial Jurisdiction Provision Overturns Morrison

The Marketplace of Ideas: Concluding Remarks on the Legal Theory of Finance (LTF)

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 hereherehere, 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

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Editor's Tweet: The Marketplace of Ideas: Concluding Remarks on the Legal Theory of Finance (LTF)

LTF – The Work Ahead

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

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Editor's Tweet: Katharina Pistor delivers closing remarks on the Marketplace of Idea Installment on LTF

The Marketplace of Ideas: Bruno Salama, Osny da Silva Filho, and Richard Shamos on Pistor’s Legal Theory of Finance

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.

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.

Our sixth and seventh releases come to us from Professor Bruno Read more

Elasticity, Incompleteness, and Constitutive Rules

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

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Editor's Tweet: Bruno Meyerhof Salama and Osny da Silva Filho on Elasticity, Incompleteness, and Constitutive Rules

Free Markets and the Legal Theory of Finance

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

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Editor's Tweet: Richard Shamos of Schulte Roth discusses Free Markets and the Legal Theory of Finance

The Marketplace of Ideas: Professor Anna Gelpern and James P. Sweeney Weigh in on Pistor’s Legal Theory of Finance

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 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.

Our fourth and fifth releases comes to us from Professor Anna Gelpern of Georgetown Law … Read more

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Editor's Tweet: The Marketplace of Ideas: Professor Anna Gelpern and James P. Sweeney Weigh in on Pistor's Legal Theory of Finance

Rules, Institutions, and the Legal Theory of Finance

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.

Taking initiative on sovereign debt is a risky move for the Fund. Between 2001 and 2003, IMF staff designed and lobbied for a treaty-based Sovereign Read more

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Editor's Tweet: Prof. Anna Gelpern discusses Rules, Institutions, and the Legal Theory of Finance

In Search of Broader Perspectives about our Financial System

James P. Sweeney is a Managing Director on the Global Strategy Team in Fixed Income Research at Credit Suisse in New York.  

Increasingly, economists and regulators are seen on trading floors and investors are seen in libraries. The challenge of understanding the Global Financial Crisis’s causes and implications has forced everyone who thinks about the economy to broaden their perspective.

Bridging the investment, academic, and regulatory worlds is not easy. Investors chuckle when an academic claims credit for “discovering” that LIBOR-OIS spreads or repo haircuts played a critical role in the crisis. And the professors and regulators cringe when investors … Read more

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The Marketplace of Ideas: Cathy M. Kaplan and Jeremiah S. Pam Weigh in on Pistor’s Legal Theory of Finance

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.

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.

Our second and third releases comes to us from Cathy M. Kaplan of Sidley Austin and Jeremiah S. Pam … Read more

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The Legal Theory of Finance is a Starting Point

In her article “A Legal Theory of Finance” Katharina Pistor outlines an important theory about the relationship between laws and finance and highlights the basic legal construction of finance.  A legal theory of finance (LTF) asserts that the legal structure of financial markets can contribute not only to the success of the financial markets, but also to their undoing.  As a lawyer who has practiced more than 30 years in the finance area, I agree with the starting premise of LTF that laws and finance are inextricably linked, that laws affect finance both in the creating and structuring of the … Read more

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Sovereigns and Safety Valves in the Legal Theory of Finance

Katharina Pistor’s ‘Legal Theory of Finance’ (LTF) is an important contribution to our evolved understanding of international finance following the most recent (and in the case of Europe, ongoing) international financial crises. By probing the implications for international finance of that fundamental or irreducible uncertainty about the future that both Keynes and Knight described in 1921 – but which has all too damagingly been forgotten or suppressed for most of the time since – Pistor helps us better understand both the positive and negative relationships between law and financial crises. This post begins by singling out a key … Read more

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Editor's Tweet: Columbia Law's Jeremiah Pam discusses Sovereigns and Safety Valves in the Legal Theory of Finance

The Marketplace of Ideas: Kathryn Judge takes on Katharina Pistor’s Legal Theory of Finance

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

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Editor's Tweet: The Marketplace of Ideas: Kathryn Judge takes on Katharina Pistor's Legal Theory of Finance

Systemic Stability and Fairness: An Analysis of Pistor’s Legal Theory of Finance

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

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Editor's Tweet: Prof. Kathryn Judge of Columbia Law School Evaluates Prof. Katharina Pistor's Legal Theory of Finance

Davis Polk discusses U.S. Basel III Final Rule

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

Torys on why Chinese Companies Need More Than the JOBS Act

Although the JOBS Act was passed just over a year ago to facilitate capital raising in the United States, allegations of accounting fraud, diminished investor confidence and a regulatory impasse over audit work papers have caused many Chinese companies to exit the U.S. capital markets in the past two years. A large number of Chinese companies went public in the United States in 2010 through IPOs or reverse mergers, but in 2011, the trend began to reverse. In 2012, only two Chinese companies went public in the United States; so far in 2013, only one Chinese company has filed an … Read more

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Editor's Tweet: Torys on why Chinese Companies Need More Than the JOBS Act