Tag: Liquidity


A Conversation with SEC Chair Mary Jo White

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s recent interview at the Keynote Session of the 43rd Annual Securities Regulation Institute, 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.

SEC Chair Mary Jo White participated in a Q&A session with Steven Bochner, Chair of the Securities Regulation Institute. The Q&A was part of Northwestern University School of Law’s 43rd Annual Securities Regulation Institute. The event was held in San Diego, California. This transcript was edited for clarity.

Steven Bochner: It is my great honor to introduce the Alan Levenson keynote speaker and I’m going to read her resume, even though I know most of it by heart, because it’s a long, impressive resume and we’re honored to have you here, Chair White.

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Recovery Planning for Large National Banks

This post is based on a Sullivan & Cromwell LLP publication by C. Andrew GerlachRebecca J. Simmons, Mark J. Welshimer and Connie Y. Lam. Mr. Gerlach, Ms. Simmons, and Mr. Welshimer are partners in the Financial Services Group; and Ms. Lam is a firm associate.

On December 16, 2015, the Office of the Comptroller of the Currency (the “OCC”) solicited public comment, through a Notice of Proposed Rulemaking (the “NPR”), [1] on proposed guidelines to establish standards for recovery planning by certain large insured national banks, insured Federal savings associations and insured Federal branches of foreign banks (the “Guidelines”).
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Oversight of the Financial Stability Oversight Council

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s recent testimony before the United States House Committee on Financial Services, 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.

Thank you for inviting me to testify regarding the Financial Stability Oversight Council (Council). Below I highlight my perspective on the Council and my role on it.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) established the Council to provide comprehensive monitoring of the stability of our nation’s financial system. Specifically, the Council is responsible for:

  • Identifying risks to the financial stability of the United States that could arise from the material financial distress or failure—or ongoing activities—of large, interconnected bank holding companies or nonbank financial companies, or that could arise outside the financial services marketplace;
  • Promoting market discipline by eliminating expectations on the part of shareholders, creditors, and counterparties of such companies that the government will shield them from losses in the event of failure; and
  • Responding to emerging threats to the stability of the United States financial system. [1]

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Bankruptcy Versus Bailout of Socially Important Non-Financial Institutions

Shlomit Azgad-Tromer is a visiting scholar at Berkeley Law School. This post is based on the article Too Important to Fail: Bankruptcy Versus Bailout of Socially Important Non-Financial Institutions.

Systemically important financial institutions are broadly considered to pose a risk to the entire economy upon failure. Thus governments act upon their failure, providing them with an implied insurance policy for ongoing liquidity. Yet governments frequently provide de facto liquidity insurance for non-financial institutions as well. For example, recently in the U.K., 35 hospital trusts were sharing £536 million in non-repayable bailouts in order to keep services running smoothly during 2013-2014. A decade earlier, a federal bankruptcy judge approved California’s multibillion-dollar bailout of Pacific Gas & Electric Corporation. In an effort to stabilize and sustain air transportation after 9/11, the U.S. Congress passed the Air Transportation Safety and System Stabilization Act, which provided the airline industry with financial aid valued at as much as $10 billion. In all of these cases, taxpayer money was used to rescue non-financial institutions.

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Insider Trading and Innovation

Ross Levine is Professor of Finance at the University of California, Berkeley. This post is based on an article authored by Professor Levine; Chen Lin, Professor of Finance at the University of Hong Kong; and Lai Wei of the School of Economics and Finance at the University of Hong Kong.

In our paper, Insider Trading and Innovation, which was recently made publicly available on SSRN, we investigate the impact of restricting insider trading on the rate of technological innovation. Our research is motivated by two literatures: the finance and growth literature stresses that financial markets shape economic growth and the rate of technological innovation, and the law and finance literature emphasizes that legal systems that protect minority shareholders enhance financial markets. What these literatures have not yet addressed is whether legal systems that protect outside investors from corporate insiders influence a crucial source of economic growth—technological innovation. In our research, we bridge this gap. We examine whether restrictions on insider trading—trading by corporate officials, major shareholders, or others based on material non-public information—influences technological innovation.

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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.

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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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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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Shareholder Activism and Voluntary Disclosure

Jordan Schoenfeld is Assistant Professor of Accounting at the University of Utah. This post is based on an article authored by Professor Schoenfeld and Thomas Bourveau, Assistant Professor of Accounting at the Hong Kong University of Science and Technology. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here), The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here), The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here), and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.

Information is the foundation on which traders form their beliefs about a company and ultimately their investment decisions. In empirical settings, information often arrives in the form of a company disclosure. Since managers have significant discretion over disclosure, researchers have extensively studied the relation between disclosure and trading via the price system. In our paper, Shareholder Activism and Voluntary Disclosure, which was recently made available on SSRN, we study the relation between disclosure and a specific class of traders, shareholder activists. The activism literature has only indirectly explored the link between company disclosures and activism. For example, several papers include financial statement variables as regressors in their empirical models of activist targeting (e.g., Brav, Jiang, Partnoy, and Thomas, 2008). We extend this literature by looking at disclosure explicitly.

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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.

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