Tag: Regulators

Building a Dynamic Framework for Offering Reform

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s recent Keynote Address at the 47th Annual Securities Regulation Institute. The full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I am very pleased to be here to help kick off the 47th Annual Securities Regulation Institute. As some of you know, I am no stranger to this program, nor is the SEC staff. I have participated since my early days as U.S. Attorney, and its tremendous success is largely due to its tireless organizers. For many years, that work was led by Anita Shapiro, who is now the President of PLI, along with Laura Shields. Laura has now taken over from Anita, and she will surely continue the program’s record of excellence. Thank you both for all that you do to make this program such a great one year after year.

I have selected a topic that I think is well-suited for a conference of such endurance and importance: how the Commission is building a more proactive and responsive regulatory framework to better assess the impact of regulatory changes on investors and issuers over time in the context of securities offerings. As your opening panelists will no doubt discuss, this important area has seen tremendous regulatory change over the last ten years, including significant new rules in the past year.


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.


Three Pathways to Global Standards: Private, Regulator, and Ministry Networks

The following post comes to us from Stavros Gadinis of University of California, Berkeley Law School.

Scores of governments around the world have chosen to introduce international standards as domestic law, even though they were not legally obliged to do so. The drafters of these standards are not sovereigns or international organizations, but transnational regulatory networks: informal meetings of experts from various countries, some with government affiliations, and others without. Networks have puzzled scholars for years. Fascinated by the institutional novelty of the network phenomenon, some theorists praised their speed, informality, and lack of hierarchy. Others were not so enthralled. They were concerned about the influence of interest groups or the weight of big countries. This debate has examined both the inputs to the network phenomenon—preferences—and the outputs—global coordination—but has not discussed the mechanism: how do we get from preferences to standards? How do these networks come together, what is their strategy for their success? My new study, Three Pathways to Global Standards: Private, Regulator, and Ministry Networks, seeks to open up the black box of network standard setting and analyze these mechanisms. It proposes a new theoretical framework that distinguishes among private, regulator, and ministry networks, and presents empirical evidence that illustrates why these three network types appeal to different countries for different reasons.


Incentives and Ideology

The following post comes to us from James Kwak at University of Connecticut School of Law.

The financial crisis that began in 2007 prompted a tidal wave of thinking about financial regulation. One major theme that has been pursued by the Financial Crisis Inquiry Commission, journalists, and scholars—most recently in Other People’s Houses, by Jennifer Taub—is the question of what went wrong in the years or decades leading up the crisis. A second strand of research answers the question of what substantive regulations we should have; one important book in this genre is The Banker’s New Clothes, by Anat Admati and Martin Hellwig. But beyond the issue of what regulations are appropriate for today’s complex financial system, a third important area of inquiry is the political and administrative landscape in which financial regulations (whether statutes, rules, administrative guidances, or court opinions) are hammered out. After all, if it were somehow possible to design a perfect regulatory framework, it could only become effective by navigating through the complicated web of interests and incentives that encompasses the legislative and executive (and perhaps judicial) branches.


The Labor Market for Bankers and Regulators

The following post comes to us from Philip Bond of the Department of Finance and Business Economics at the University of Washington, and Vincent Glode of the Department of Finance at the University of Pennsylvania.

The financial industry is heavily regulated. Whether it is in terms of spending or number of employees, financial regulation represents more than a third of all business- and industry-related regulation in the United States (De Rugy and Warren, 2009), even though the financial sector only contributes to 10% of the country’s GDP. However, many commentators express grave doubts about the current efficacy of financial regulation. For example, The Economist published a 2010 article entitled “Finance’s other bosses” in which it asked: “Does it really matter who is in charge of the regulators? The grunt work of supervision depends on more junior staff, who will always struggle to keep tabs on smarter, better-paid types in the firms they regulate.”


“Cowboy Company”

Bart Chilton is a Commissioner at the U.S. Commodity Futures Trading Commission. This post is based on Commissioner Chilton’s remarks to the Amcot 2013 Business Conference in Lake Tahoe, California, available here.

When people think of Tahoe, they may ponder “Tahoe, oh—skiing, the Lake, maybe golf or gambling. Heck, let’s go.” But today, well, let’s switch it up and talk about the Old West and Tahoe aglow, back in the day. This is a fitting place to do just that. The Ponderosa Ranch, from Bonanza, was just over yonder, on the Nevada side of the Lake. Remember the Cartwright’s? There was Ben who survived three wives, but begets a son from each one: Adam, Hoss, and Little Joe. And just a few miles from here, they hold the Genoa Cowboy Festival at the site of the first ranch in Nevada. (Not the Mustang Ranch—that’s 15 minutes east of Reno. Hey, you at the door, where ya going?) The first ranch in Nevada was Trimmer Ranch No. 1. Let’s assume there were others. The oldest saloon in Nevada is also in Genoa. A portion of the original bar from the 1800’s is still in use. And, the local phone book lists at least 25 places to “get your boots on” and get a pair.

Right about now, some of you might be thinking, “Whoa, hold your horses there, long hair.” Isn’t this supposed to be about financial regulation or commodity markets or something?” Yeah, Sundance, it is. We’re just going to kick up the dust a bit as we “tumble along with the tumbling tumbleweeds” and have our cordial conversationalizing. After all, like George Strait sings, “I ain’t here for a long time. I’m here for a good time.” So, let’s get to it and talk some about the Old West and our financial markets today.


Smart Regulation: A Worthy and Achievable Goal

The following post comes to us from Andrew Liveris, President, Chairman and CEO of The Dow Chemical Company, and Chair of the Business Roundtable Select Committee on Smart Regulation.

Business Roundtable CEOs, who lead major U.S. companies representing every sector of the economy, understand that well-conceived, science-based regulations are essential to protect human health and safety. Regulations can help ensure that businesses retain the capacity to innovate and simultaneously promote the health and welfare of our employees, customers and communities. But overlapping, conflicting and poorly executed regulations can—and do—impose substantial costs on the U.S. economy, sometimes with only theoretical benefits.

That is why we have embraced a concept we call smart regulation that seeks to realize the goals of regulation without harming economic growth and job creation. About 18 months ago, we released a plan, Achieving Smarter Regulation, which laid out a roadmap for reform, including changes to current law and actions the Administration could take on its own, to streamline the federal regulatory process, reduce the economic burden of regulation and protect the public interest.


Corporate Governance in the Shadow of the State

The following post comes to us from Marc Moore, Deputy Director of the University College London Centre for Commercial Law.

Over recent decades, corporate governance has become an increasingly high profile aspect of legal scholarship and practice. But despite this widespread interest, there remains considerable uncertainty about how exactly corporate governance should be defined or understood. Of particular concern is whether corporate governance is most appropriately understood as an aspect of ‘private’ (facilitative) law, or else as a part of ‘public’ (regulatory) law. In my recent book, Corporate Governance in the Shadow of the State (2013, Hart Publishing), I demonstrate that this question is not just an academic one in the pejorative sense. On the contrary, it is arguably the most important issue confronting those who study or teach the subject of corporate governance in any level of depth or analytical rigour.


FINRA: Broker-Dealer Email Systems Must Keep Pace with Firm Growth

The following post comes to us from Daniel Nathan, partner in the Securities Litigation, Enforcement and White-Collar Defense Group at Morrison & Foerster LLP, and is based on a client alert by Mr. Nathan and Kelley Howes.

A recent FINRA disciplinary action sends a strong message to broker-dealers that the development of their compliance systems—particularly with respect to email review and retention—must keep pace with the growth of their businesses.

FINRA fined LPL Financial LLC (LPL) $7.5 million for significant failures in its email system that prevented LPL from accessing hundreds of millions of emails, and from reviewing tens of millions of other emails over an approximately six-year period. FINRA stressed that LPL’s inadequate systems and procedures caused the firm to provide incomplete responses to email requests from regulators, and also likely affected the firm’s production of emails in arbitrations and private actions. Accordingly, FINRA also required the firm to establish a $1.5 million fund to pay discovery sanctions to customer claimants that were potentially affected by the system failures, and to notify regulators that may have received incomplete email production.


Cross-Border at the Crossroads: The SEC’s “Middle Ground”

John Ramsay is acting director of the Division of Trading and Markets at the U.S. Securities and Exchange Commission. This post is based on Mr. Ramsay’s remarks at the New York City Bar Association, available here. The views expressed in the post are those of Mr. Ramsay and do not necessarily reflect those of the Securities and Exchange Commission, the Commissioners, or the Staff.

I’d like to describe the Commission’s recent set of proposals on the cross-border regulation of derivatives. First, though, I’ll describe the state of play among international regulators, both in developing their derivatives regimes and in grappling with the thorny cross-border aspects of derivatives trading.

Status of International Regulatory Efforts

Countries are at various stages of implementing their derivatives regimes in response to the G20 commitments.

The U.S. is further along in this effort. The SEC has now proposed substantially all of the rules required by Title VII, and we have adopted the foundational definitional rules and those governing swap clearing agencies standards, among others. The CFTC is further along in the adoption mode and is on track to complete the adoption of their rules later this year.

Other jurisdictions are further behind, which means that it is difficult to assess at this point how similar their requirements may be to those that the U.S. is implementing.


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