Tag: Capital markets


Acquisition Financing: the Year Behind and the Year Ahead

Eric M. Rosof is a partner focusing on financing for corporate transactions at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Rosof, Joshua A. FeltmanGregory E. Pessin, and Michael S. Benn.

Last year’s robust acquisition financing market helped drive the headline-grabbing deals and record volume of M&A in 2015. At the same time, credit markets were volatile in 2015 and appeared to have shifted fundamentally as the year went on—and with them, the types of deals that can get done and the available methods of financing them. U.S. and European regulation of financial institutions, monetary policy, corporate debt levels and economic growth prospects have coalesced to create a more challenging acquisition financing market than we’ve seen in many years. As a result, 2016 is likely to be a year that demands creativity from corporate deal-makers, and where financing costs, availability and timing have significant influence over the type, shape and success of corporate deal-making.

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Corporate Governance and Blockchains

David Yermack is Professor of Finance at the NYU Stern School of Business. This post is based on a recent article authored by Professor Yermack.

In the paper, Corporate Governance and Blockchains, which was recently made publicly available on SSRN, I explore the corporate governance implications of blockchain database technology. Blockchains have captured the attention of the financial world in 2015, and they offer a new way of creating, exchanging, and tracking the ownership of financial assets on a peer-to-peer basis. Major stock exchanges are exploring the use of blockchains to register equity issued by corporations. Blockchains can also hold debt securities and financial derivatives, which can be executed autonomously as “smart contracts.” These innovations have the potential to change corporate governance as much as any event since the 1933 and 1934 securities acts in the United States.

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Public Audit Oversight and Reporting Credibility

Christian Leuz is the Sondheimer Professor of International Economics, Finance and Accounting at the University of Chicago Booth School of Business. He is also an Economic Advisor to the PCAOB. This post is based on an article authored by Professor Leuz; Brandon Gipper, Ph.D. Candidate in Accounting at the University of Chicago Booth School of Business and Economic Research Fellow at the PCAOB; and Mark Maffett, Assistant Professor of Accounting at the University of Chicago Booth School of Business.

As the accounting scandals in the early 2000s illustrated, reliable financial reporting is a cornerstone of trust in the stock market, which in turn plays a key role for investor participation (Guiso et al., 2008). In an effort to restore trust in financial reporting after the scandals, the U.S. Congress passed the Sarbanes-Oxley Act (hereafter, “SOX”). One of its core provisions was the creation of the Public Company Accounting Oversight Board (hereafter, the “PCAOB”) and the requirement that the PCAOB inspect all audit firms (hereafter, “auditors”) of SEC-registered public companies (hereafter, “firms” or “issuers”). The introduction of the PCAOB represents a major regime shift, replacing self-regulation with public oversight.

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Shedding Light on Dark Pools

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement at an open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today, [November 18, 2015], the Commission considers proposing much-needed enhancements to the regulatory regime for alternative trading systems (“ATSs”) that trade national market system (“NMS”) stocks. I will support these proposals because they could go a long way toward helping market participants make informed decisions as they attempt to navigate the byzantine structure of today’s equity markets.

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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.

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The Continuing Work of Enhancing Small Business Capital Formation

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement at the SEC Government-Business Forum on Small Business Capital Formation; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

As everyone participating in today’s [November 19, 2015] Forum knows well, our nation’s small businesses spur innovation, produce technological change, and drive job creation across the greater economy. In fact, from mid-2009—or what some pinpoint as the end of the “Great Recession”—to mid-2013, small businesses accounted for approximately 60% of net new jobs. More recently, statistics compiled through the first three quarters of 2014 show that our nation’s 28 million small business owners have been responsible for an even greater share of overall job creation, accounting for between 73% and 84% of net new jobs during that period. There can be no doubt that facilitating an environment that nurtures and breeds successful startups and small companies is critical to the health of our greater economy.

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Making Capital Formation Work for Smaller Companies and Investors

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Small businesses are vital to our nation’s economic growth and well-being. In fact, our nation’s small business owners create almost two out of every three new jobs and employ more than half of the U.S. workforce. It is therefore important to provide opportunities for entrepreneurs and investors to come together and put capital to productive uses through the development of new ideas, products, and services that make America stronger and create new jobs that bring financial security.

Ultimately, the success of small businesses depends on their ability to access capital. To that end, because many small businesses are thought to have more difficulty than established businesses in getting traditional loans, Congress has provided the Commission with authority to promulgate rules to facilitate access by small businesses to financing from the capital markets.

In order for these rules to be successful, and, just as critically, sustainable, the Commission is tasked with creating an ecosystem for capital formation that works for small businesses and investors alike. Thus, the challenge is to develop a system that enables businesses to raise capital in a cost-effective way and, at the same time, provide ways to benefit and protect investors. After all, without investors, there can be no capital formation.

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Opening Remarks at Equity Market Structure Advisory Committee Meeting

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s opening remarks at the October 2015 Meeting of the Equity Market Structure Advisory Committee, 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.

The discussions at our inaugural meeting underscored for me how invaluable this Committee’s insights are as the Commission continues its efforts to ensure that the equity markets optimally meet the needs of investors—both large and small—and issuers of all sizes. With the careful consideration, input, and approval of each of the Commissioners, we have been able to assemble a diverse group of widely respected experts to effectively represent the views of key stakeholders in the equity markets. And I thank each of you again for your service.

Since we announced the formation and membership of the Committee in January, we have had requests from other market participants with valuable perspectives to join the Committee; some of those requests have been reiterated recently. I wish we could accommodate them all. While this was not practical, to ensure transparency of our efforts and representation of all viewpoints on a committee of this kind, we have taken a number of additional steps to broaden our means of obtaining input. These include presentations at all Committee meetings by expert panels; the independent provision of relevant data, analysis, and public briefings by Commission staff for feedback from all interested parties; an open comment file; and a transparent public agenda. These mechanisms are designed to ensure that the Commission and the Advisory Committee benefit from the full range of perspectives on important market structure topics.

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Evolving Equity Markets Require Constant Attention

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent address at a Meeting of the Equity Market Structure Advisory Committee. The full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I want to extend a warm welcome to the members of the Equity Market Structure Advisory Committee (“Committee”). I appreciate the work that you do and, in turn, how this work informs the Commission’s efforts to fulfill its mission. I also want to welcome everyone in the audience, whether participating in person or via the internet.

Well, if we needed more proof of the importance of this Committee, we’ve gotten it. Although, it’s been only five months since this Committee’s first meeting, we have already witnessed two major market disruptions. The first was a software glitch in July that halted trading at one major exchange for several hours. That event highlighted a glaring shortcoming in our current market infrastructure, specifically, the fact that the primary exchanges still have no back-up plan for their opening and closing auctions. This was especially disconcerting because in November 2013, the exchanges issued a public statement acknowledging the importance of developing backup plans for their critical functions—including their opening and closing auctions.

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Corporate Use of Social Media

James Naughton is Assistant Professor of Accounting at Northwestern University. This post is based on an article authored by Professor Naughton; Michael Jung, Assistant Professor of Accounting at New York University; Ahmed Tahoun, Assistant Professor of Accounting at London Business School; and Clare Wang, Assistant Professor of Accounting at Northwestern University.

Social media has transformed communications in many sectors of the U.S. economy. It is now used for disaster preparation and emergency response, security at major events, and public agencies are researching new uses in geolocation, law enforcement, court decisions, and military intelligence. Internationally, social media is credited for organizing political protests across the Middle East and a revolution in Egypt. In the business world, social media is considered a revolutionary sales and marketing platform and a powerful recruiting and networking channel. Little research exists, however, on how firms use social media to communicate financial information to investors and how investors respond to investor disseminated through social media, despite firms devoting considerable effort to creating and managing social media presences directed at investors. Motivated by this lack of research, in our paper, Corporate Use of Social Media, which was recently made publicly available on SSRN, we provide early large-sample evidence on the corporate use of social media for investor communications. More specifically, we investigate why firms choose to disseminate investor communications through social media, whether investors and traditional media outlets respond to social media disclosures, and whether potential adverse consequences to the firm exist from the use of social media to disseminate investor communications.

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