Though a bit provocative, this headline raises a liminal question on the various projects of Central Bank Digital Currencies (CBDBs): Which governance will apply to them? Or as Juvenal, the poet in ancient Rome, famously asked, “Who will guard the guards themselves?”
What Is a Central Bank Digital Currency?
A CBDC is the digital form of a country’s fiat currency and, like traditional currency, represents a claim on that country’s government. Instead of printing money, the central bank issues electronic coins backed by the full faith and credit of the government. As a result, for the first time, … Read more
Although it has been used in the past, the resurgence of the Special Purpose Acquisition Company (SPAC) has been spectacular in the last two years. According to its promoters, a SPAC offers relatively easy access to a listing on a regulated exchange for a private company looking to go public. The sudden proliferation of SPACs has prompted the SEC to investigate how underwriters are managing the risks involved, according to Reuters.  The investigation has so far involved letters from the SEC’s enforcement division asking the underwriters to provide the information voluntarily and, as such, has not yet risen to … Read more
The reach of American law has recently entered familiar territory: listings of international companies on U.S. exchanges. Yet the listings of Chinese companies have in particular prompted a backlash. I want to shed some light on the situation – and outline U.S. government responses to Chinese listings – given my experience bringing Chinese companies to the New York Stock Exchange (NYSE) as its group executive vice president from 1996 to 2003.
The Listings Wave
During that period, listings of foreign companies improved their transparency and governance, thanks to the listing standards of the exchanges and Securities and Exchange Commission, and … Read more
On September 26, 2019, the SEC released the much-anticipated new rule and form amendments designed to modernize the regulation of Exchange-Traded Funds (ETFs). Rule 6c-11 under the Investment Company Act permits ETFs that satisfy certain conditions to operate without the expense and delay of obtaining an exemptive order from the commission under the act – and it is most welcome.
There is something fascinating about this initiative. What started 28 years ago as a way to avoid the taxation of mutual funds has avoided extensive SEC regulation. Now, there are about 3,000 U.S. ETFs with a total value of … Read more
The announcement on June 18 by Facebook of what it calls “a simple global currency and financial infrastructure that empowers billions of people” was sure to receive immediate attention. Facebook founder and CEO Mark Zuckerberg is now on a global “mission.” However, the Libra White Paper is long on Libra’s technology and short on the regulatory challenges it faces around the world.
The need for Libra is based on a diagnostic: People lack access to a global, open, instant, and low-cost way to move money. The project focuses on international payments.
Why is cross-border payment expensive? First, … Read more
In 2018, U.S. companies spent $1 trillion to buy back their shares, while they spent $4 trillion to do so between 2008 and 2017. This is raising strong criticism from different quarters in the political sphere. Not only do key Democrats consider it an anathema, but Republican Senator Marco Rubio proposed to end the preferential tax treatment of share buybacks. Other Republicans, though, see it as normal.
There is no substantial financial and economic difference between the distribution of a special dividend and a share buyback. However, dividends are taxed immediately, while share buybacks induce an … Read more
Every security traded in public markets represents several data points that can be valuable to future trades (not to mention compliance). The Regulation National Market System (or “Reg NMS”) grants exchanges, licensed as self-regulatory organizations (“SROs”), the responsibility to disseminate market data consolidated from their platforms. Exchange data is vital to matching orders, especially in today’s electronic and automated markets.
Like most “platform” companies, exchanges seek to monetize the data generated by their trading platforms. This market data has obvious value: Virtually instantaneous access to granular information on previous trades translates into clear competitive advantages for market participants. Exchanges … Read more
As the March 29, 2019 deadline approaches, the United Kingdom prepares its withdrawal from the European Union amidst political turbulence that would suit a television drama. Center stage is what to do about the financial services industry. For the UK as well as the European continent, it makes the most sense to keep Europe’s financial sector integrated with the UK and to be pragmatic in interpreting the EU Treaty on the Single Market freedoms.
UK Financial Services
The UK openly seeks an arrangement acceptable to the EU. The latest UK White Paper proposes to stay in the EU’s Single … Read more
“Culture, more than rule books, determines how an organization behaves.” – Warren Buffet
In recent years, there have been ongoing occurrences of serious professional misbehavior, ethical lapses and compliance failures at financial institutions. It was the crisis that exposed systematic mentality errors in finance.
The hope was that post-crisis regulatory reforms would tackle the typical mindset of short-term oriented self-enrichment in finance, considered as one of the origins of the financial crisis. Now, almost ten years after the crash in 2007, the lack of fundamental change raises the question whether there is an endemic issue within the financial … Read more
The European insurance sector has approximately 6.8 trillion euros of assets under management. It is the largest European institutional investor, a fundamental element of financial stability and provides support for the global economy. Additionally, the European insurance sector is a significant source of jobs, providing employment for more than one million people. The chart below illustrates the share of GDP represented by insurance premiums, generally defined as penetration ratios.
What is Solvency II?
The Solvency II Directive is a set of regulatory requirements for the European insurance industry. Adopted in 2009, the Directive was slated to take effect … Read more
Over the last decades, a number of initiatives taken by various US administrations on both sides of the aisle have raised concerns about the actual legality of the extraterritoriality attached to laws imposed by the United States of America on other jurisdictions around the world, often using “persuasion” rather than legal due process.
In my first course on International Private Law at the Catholic University of Louvain, we were taught that tax laws could not extend beyond the borders of the taxation authorities. The territoriality of tax laws is confirmed by the literature. The double taxation treaties confirm this principle … Read more
In the turmoil created by the decision of the Cyprus Government to impose a 6.75% levy on deposits up to 100,000 euros and 9% above, it might be useful to look at the legal aspects of this decision. The issue of a guarantee scheme for deposits is not new, and even Cyprus established such a scheme in 2000. This posts walks through the relevant European and Cypriot regulation. I argue that there is no precedent for Cyprus’ levy and that it creates a serious risk of contagion.
On July 12, 2010, the European Commission adopted a legislative proposal … Read more
In 2011, the Deutsche Boerse Group launched an offer on the New York Stock Exchange. Everybody expected that the U.S. authorities would object to this foreign acquisition of the most iconic Stock Exchange in the United States, and arguably in the world. Not only did it not happen, but very quickly the U.S. Department of Justice, quite naturally, concluded that there was no antitrust issue. Incidentally, NASDAQ made a desperate attempt to purchase the NYSE for $11.8 billion and the merger of the two largest cash equity exchanges of the United States was stiffly rejected by the U.S. authorities. Even … Read more