Category Archives: Banking & Financial Institutions

The Fed’s Finalized Liquidity Reporting Requirements

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Mike Alix, Adam Gilbert, and Armen Meyer. The complete publication, including Appendix, is available here.

On November 13th, the Federal Reserve Board (FRB) finalized liquidity reporting requirements for large US financial institutions and US operations of foreign banks (FBOs). [1] The requirements were proposed last year and are intended to improve the FRB’s monitoring of the liquidity profiles of firms that are subject to the liquidity coverage ratio (LCR) [2] and their foreign peers, and to enhance the FRB’s view of liquidity across institutions.


Increasing Transparency of Alternative Trading Systems

Kara M. Stein is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Stein’s recent remarks at a recent open meeting of the SEC; the complete publication, including footnotes, is available here. The views expressed in the post are those of Commissioner Stein and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [November 18, 2015], the Commission meets to consider a proposal to increase the transparency of alternative trading systems (ATS). Many ATSs are commonly referred to as “dark pools”. To most people, dark pools are a little bit of a mystery, and that’s because they often function in great secrecy. Today’s proposal seeks to shine a light into that darkness.

Modern ATSs are a product of the rapid technological advances that have revolutionized the way stocks are bought and sold. An ATS is an electronic order matching system operated by a broker-dealer. Much like an exchange, it brings together buyers and sellers. There are many types of ATSs, and they facilitate the purchase and sale of all types of securities ranging from equities to corporate bonds to Treasuries, and more. Unlike an exchange, which must disclose publicly quotes and prices at which securities transactions occur, an ATS can operate in the dark with only limited information about its operations.


Derivatives and Uncleared Margins

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Mike Alix, Adam Gilbert, Armen Meyer, and Christopher Scarpati.

Over the past two weeks, the US banking regulators released their much anticipated final margin requirements for the uncleared portion of the derivatives market. [1] This portion amounts to over $250 trillion of the global $630 trillion outstanding and has up to now been operating in “business as usual” mode, [2] while other derivatives have been pushed into clearing. The final rule’s release completes a long process since it was proposed in 2011 and re-proposed in 2014. [3]

The good news for the industry is that the final rule is generally aligned with international standards [4] and similar requirements proposed in major foreign jurisdictions. Most notably, the final rule increases the threshold of swap activity that would bring a financial end user (e.g., hedge fund) within the rule’s scope from $3 billion to $8 billion. This change, which aligns the rule with European and Japanese proposals, eases the compliance burden of smaller, less-risky market participants.


Shadow Resolutions as a “No-No” in a Sound Banking Union

Luca Enriques is Allen & Overy Professor of Corporate Law at Oxford University. The following post is based on a paper co-authored by Professor Enriques and Gerard Hertig.

Credit crisis related bank bailouts and resolutions have been actively debated over the past few years. By contrast, little attention has been paid to resolution procedures being generally circumvented when banks are getting insolvent in normal times.

In fact, supervisory leniency and political considerations often result in public officials incentivizing viable banks to acquire failing banks. In our book chapter Shadow resolutions as a no-no in a sound Banking Union, published in Financial Regulation: A Transatlantic Perspective 150-166 (Ester Faia et al. eds.), Cambridge University Press, 2015, we consider this a very unfortunate approach. It weakens supervision, distorts competition and, most importantly, gives resolution a bad name.


Fund Advisers and Fee Disclosure in SEC Enforcement Action

Veronica Rendón Callahan is a partner at Arnold & Porter LLP and co-chair of the firm’s Securities Enforcement and Litigation practice. This post is a based on an Arnold & Porter memorandum by Ms. Callahan, Ellen Kaye Fleishhacker, Daniel M. Hawke, Robert E. Holton, and Kevin J. Lavin.

October 7, 2015, the US Securities and Exchange Commission (the Commission or SEC) entered into a settlement agreement with Blackstone Management Partners L.L.C., Blackstone Management Partners III L.L.C., and Blackstone Management Partners IV L.L.C. (collectively, Blackstone) regarding certain Blackstone fee and expense disclosure practices. Without admitting or denying the Commission’s findings, Blackstone consented to a cease-and-desist order and agreed to pay nearly $40 million to settle the charges consisting of $26,225,203 of disgorgement, $2,686,553 of prejudgment interest, and $10,000,000 of civil money penalties. This action represents a continuing focus by the SEC on fee and expense allocation and disclosure practices of private fund advisers. [1] It serves as a reminder of the need for advisers to private investment funds to review and revise as necessary their compliance and disclosure policies and procedures related to the allocation of fees and expenses.


Are Institutions Informed About News?

Norman Schürhoff is Professor of Finance at the Swiss Finance Institute. This post is based on an article authored by Professor Schürhoff; Terrence Hendershott, Professor of Finance at the University of California, Berkeley; and Dmitry Livdan, Associate Professor of Finance at the University of California, Berkeley.

Who is informed on the stock market? There are plenty of reasons to believe that institutional investors possess value-relevant information. Unlike retail investors, institutions often directly communicate with publicly traded firms as well as brokerage firms through their investment banking, lending, and asset management divisions. Most mutual funds and hedge funds employ buy-side analysts and enjoy better relationships with sell-side analysts. Their economies of scale allow institutions to monitor many sources of information. Last but not least, institutions employ professionals and technologies with superior information processing skills. Yet, the academic literature has struggled to identify the information channel in institutional trading. There is some evidence that institutional investors are informed, but studies examining institutional order flow around specific events provide mixed evidence.


Building Effective Relationships with Regulators

Norm Champ is a lecturer at Harvard Law School and the former Director of the Division of Investment Management at the U.S. Securities & Exchange Commission. This post is based on a Keynote Address by Mr. Champ at the CFO Compliance & Regulation Summit.

Today [September 10, 2015] I will try to bring together my experience at the SEC in the Division of Investment Management and the Office of Compliance Inspections and Examinations to talk about how you can build effective relationships with regulators. Each business, no matter what the industry, must decide what strategy it is going to pursue with regulators. As a former CCO of an investment management business and a former regulator, I propose that you follow a strategy of constructive engagement with the regulator in your industry. I know there are those who disagree with that strategy and advocate a posture of avoidance of your regulator and even those who advocate a strategy of opposition to your regulator. I have dealt with that advice in my ten years in a regulated financial services business and seen it in action in five years as a regulator. I’m going to argue that the strategies of avoidance and opposition are misguided and that constructive engagement is the only viable choice for a business seeking an effective relationship with its regulator.


Regulatory Competition in Global Financial Markets

Wolf-Georg Ringe is Professor of International Commercial Law at Copenhagen Business School and at the University of Oxford. This post is based on an article authored by Professor Ringe.

The decades-long discussion on the merits of regulatory competition appears in a new light on the global financial market. There are a number of strategies that market participants use to avoid the reach of regulation, in particular by virtue of shifting trading abroad or else relocating activities or operations of financial institutions to other jurisdictions. Where this happens, such arbitrage can trigger regulatory competition between jurisdictions that may respond to the relocation of financial services (or threats to relocate) by moderating regulatory standards. Both arbitrage and regulatory competition are a reality in today’s global financial market, and the financial sector is different from their traditional fields of application: the ease of arbitrage, the fragility of banking and the risks involved are exceptional. Most importantly, regulatory arbitrage does not or only rarely occurs by actually relocating the financial institution itself abroad: rather, banking groups tend to shift trading to foreign affiliates.


Broker-dealers: Lock in your Liquidity

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Adam Gilbert, Grace Vogel, Armen Meyer, and Peter Melz.

The credit crisis of 2008 highlighted the criticality of effective liquidity management and demonstrated the difficulties broker-dealers face without adequate funding sources. In response, the Financial Industry Regulatory Authority (“FINRA”) has been taking steps to impose new requirements that will impact many broker-dealers, especially those that hold inventory positions or that clear and carry customer transactions.

Following up on guidance issued in November of 2010, FINRA last month issued new liquidity risk management guidance after a year-long liquidity review of 43 member firms under a stressed environment.


Regulatory Approvals for Bank M&A

Edward D. Herlihy is a partner and co-chairman of the Executive Committee at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Herlihy and Richard K. Kim.

The Federal Reserve’s approval last week of M&T’s pending acquisition of Hudson City has prompted a great deal of speculation as to the current state of the regulatory approval process for bank mergers and acquisitions. Announced over three years ago, on August 27, 2012, the M&T/Hudson City transaction has taken longer to receive Federal Reserve approval than any other bank merger. Many in the industry have interpreted the delay in receiving approval for the merger as representing a policy change by the Federal Reserve. As discussed below, we view the transaction as largely an idiosyncratic event that is a result as much of timing as any policy shifts by the Federal Reserve. With this approval, taken together with the others that the Federal Reserve has issued over the past several months, there is now more clarity and certainty to the regulatory approval process for bank M&A. With the exception of the largest systemically important banks, there is no regulatory policy impeding bank mergers.


  • Subscribe

  • Cosponsored By:

  • Supported By:

  • Programs Faculty & Senior Fellows

    Lucian Bebchuk
    Alon Brav
    Robert Charles Clark
    John Coates
    Alma Cohen
    Stephen M. Davis
    Allen Ferrell
    Jesse Fried
    Oliver Hart
    Ben W. Heineman, Jr.
    Scott Hirst
    Howell Jackson
    Robert J. Jackson, Jr.
    Wei Jiang
    Reinier Kraakman
    Robert Pozen
    Mark Ramseyer
    Mark Roe
    Robert Sitkoff
    Holger Spamann
    Guhan Subramanian

  • Program on Corporate Governance Advisory Board

    William Ackman
    Peter Atkins
    Joseph Bachelder
    John Bader
    Allison Bennington
    Daniel Burch
    Richard Climan
    Jesse Cohn
    Isaac Corré
    Scott Davis
    John Finley
    David Fox
    Stephen Fraidin
    Byron Georgiou
    Larry Hamdan
    Carl Icahn
    Jack B. Jacobs
    Paula Loop
    David Millstone
    Theodore Mirvis
    James Morphy
    Toby Myerson
    Morton Pierce
    Barry Rosenstein
    Paul Rowe
    Rodman Ward