Rolling Back the Repo Safe Harbors

Posted by Mark Roe, Harvard Law School, on Wednesday September 10, 2014 at 9:02 am
  • Print
  • email
  • Twitter
Editor’s Note: Mark Roe is the David Berg Professor of Law at Harvard Law School, where he teaches bankruptcy and corporate law. This post is based on an article co-authored by Professor Roe, Ed Morrison, Professor of Law at Columbia Law School, and Bankruptcy Judge Christopher Sontchi for the District of Delaware. All three are members of the Advisory Committee on Derivatives, Financial Contracts and Safe Harbors, which is working with the ABI Commission to Study the Reform of Chapter 11. The article was presented at the Federal Reserve’s recent conference on Wholesale Funding Markets.

Ed Morrison, Judge Christopher Sontchi and I recently posted to SSRN our article recommending a major narrowing of the repo safe harbors, after presenting it at the Federal Reserve’s recent conference on Wholesale Funding Markets in which the Boston Fed president warned of the dangers in the repo market. Overall, we conclude that the Bankruptcy Code has aggressively and unwisely sought to regulate market liquidity and systemic risk, with the Code’s “safe harbors” from the normal bankruptcy machinery largely backfiring during the financial crisis. The sounder policy would be to limit the repo safe harbors to U.S. Treasury repos and repos of similarly liquid government securities.

…continue reading: Rolling Back the Repo Safe Harbors

Cyber Security and Cyber Governance: Federal Regulation and Oversight—Today and Tomorrow

Posted by Paul Ferrillo, Weil, Gotshal & Manges LLP, on Wednesday September 10, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: Paul A. Ferrillo is counsel at Weil, Gotshal & Manges LLP specializing in complex securities and business litigation. This post is based on an article authored by Mr. Ferrillo and David J. Schwartz.

In our June 4, 2014 article on cyber security and cyber governance [1] we noted that for many reasons, boards of directors and executives of U.S. companies needed to reexamine how they protect (and respond to the successful hacking of) their most critical intellectual property and customer information. One of the reasons was that all signs out of Washington, D.C. pointed towards increasing federal regulation and oversight of cyber security for public and private companies, and particularly for those in the financial services sector. Further, we foresaw not only heightened scrutiny from regulators, but increasing class action litigation, with plaintiffs accusing boards and management of not taking the appropriate steps to protect company and client data. Our predictions were correct on all fronts.

…continue reading: Cyber Security and Cyber Governance: Federal Regulation and Oversight—Today and Tomorrow

Correcting Some of the Flaws in the ABS Market

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Tuesday September 9, 2014 at 9:07 am
  • Print
  • email
  • Twitter
Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at a recent 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 [August 27, 2014] the Commission takes an important step to protect investors and promote capital formation, by enhancing the transparency of asset-backed securities (“ABS”) and by increasing the accountability of issuers of these securities. The securitization market is critical to our economy and can provide liquidity to nearly all the major economic sectors, including the automobile industry, the consumer credit industry, the leasing industry, and the commercial lending and credit markets.

Given the importance of this market, let’s also remember why we are here and the magnitude of the crisis in the ABS market. At the end of 2007, the ABS market consisted of more than $7 trillion of mortgage-backed securities and nearly $2.5 trillion of other outstanding ABS. However, by the fall of 2008, the securitization market had completely seized up. For example, in 2006 and 2007, new issuances of private-label residential mortgage-backed securities (“RMBS”) totaled $686 billion and $507 billion, respectively. In 2008, private-label RMBS issuance dropped to $9 billion, and flat-lined in 2009.

…continue reading: Correcting Some of the Flaws in the ABS Market

How Efficient is Sufficient? Securities Litigation Post-Halliburton

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday September 9, 2014 at 9:06 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Bradford Cornell at California Institute of Technology.

In its recent decision in Halliburton Co., et al. v Erica P. John Fund, Inc., the U.S. Supreme Court upheld the legal standard for reliance in Rule 10b-5 securities fraud class actions that it had established some 25 years ago in Basic, Inc. v. Levinson. This standard, known as the fraud-on-the market doctrine, created a rebuttable presumption that plaintiffs relied on the integrity of the market price if they can establish that the market for that security was efficient. Defendants can rebut this presumption in several ways, including showing that the market for the security was not efficient or that the security’s price was not affected by the misrepresentations at issue. In delivering its ruling, the Halliburton Court noted that market efficiency is not a binary, yes-or-no proposition but is instead a matter of degree, pointing out that “a public, material misrepresentation might not affect a stock’s price even in a generally efficient market.” (Halliburton, 573 U.S. ___ at 10.)

…continue reading: How Efficient is Sufficient? Securities Litigation Post-Halliburton

The Spotlight on Boards

Posted by Martin Lipton, Wachtell, Lipton, Rosen & Katz, on Monday September 8, 2014 at 9:17 am
  • Print
  • email
  • Twitter
Editor’s Note: Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton.

The ever evolving challenges facing corporate boards prompts an updated snapshot of what is expected from the board of directors of a major public company—not just the legal rules, but also the aspirational “best practices” that have come to have almost as much influence on board and company behavior.

Boards are expected to:

…continue reading: The Spotlight on Boards

Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around The World

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday September 8, 2014 at 9:16 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Alex Edmans, Professor of Finance at London Business School; and Lucius Li and Chendi Zhang, both of the Finance Group at the University of Warwick.

In our paper, Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around The World, which was recently made publicly available on SSRN at, we study the relationship between employee satisfaction and abnormal stock returns around the world, using lists of the “Best Companies to Work For” in 14 countries.

Theory provides conflicting predictions as to whether employee satisfaction is beneficial or harmful to firm value. On the one hand, employee welfare can be a valuable tool for recruitment, retention, and motivation. For the typical 20th-century firm, the bulk of its value stemmed from its physical capital. In contrast, most modern firms’ key assets are their workers. Employee-friendly policies can attract high-quality workers to a firm and ensure that they remain within the firm, to form a source of sustainable competitive advantage.

…continue reading: Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around The World

Commissioner Gallagher Offers Advice to Public Companies on Handling Proxy Advisors

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday September 7, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Yafit Cohn, Associate at Simpson Thacher & Bartlett LLP, and is based on a Simpson Thacher memorandum.

Commissioner Daniel M. Gallagher of the Securities and Exchange Commission (“SEC”) authored a working paper, published last month by the Washington Legal Foundation, regarding the outsized power and influence of proxy advisory firms. [1] In his paper, Commissioner Gallagher provides his view of the most important aspects of Staff Legal Bulletin No. 20 (“SLB 20”), in which the SEC staff recently “moved toward addressing some of the serious issues” resulting from the emergence of proxy advisory firms as a dominant player in American corporate governance. Notably, Gallagher also offers some critical advice to public companies engaging with proxy advisory firms.

…continue reading: Commissioner Gallagher Offers Advice to Public Companies on Handling Proxy Advisors

Bankruptcy Court Holds Secured Creditors Can Be “Crammed Down” With Below-Market Replacement Notes

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday September 6, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Mark I. Bane, Partner focusing on corporate restructurings at Ropes & Gray LLP, and is based on a Ropes & Gray Alert.

On August 26, 2014, in the case In re MPM Silicones, LLC, Case No. 14-22503 (Bankr. S.D.N.Y.) (“Momentive”), the United States Bankruptcy Court for the Southern District of New York held that secured creditors could be “crammed down” in a chapter 11 plan with replacement notes bearing interest at substantially below market rates. Unless overturned on appeal, this decision will introduce a new level of risk to leveraged lending—secured lenders will face the specter of losing in a bankruptcy restructuring not only their negotiated rates, but any semblance of market treatment. This risk could result in a tightening of availability and increased costs to borrowers in levered transactions.

…continue reading: Bankruptcy Court Holds Secured Creditors Can Be “Crammed Down” With Below-Market Replacement Notes

Outsized Power & Influence: The Role of Proxy Advisers

Posted by Daniel M. Gallagher, Commissioner, U.S. Securities and Exchange Commission, on Friday September 5, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: Daniel M. Gallagher is a Commissioner at the U.S. Securities and Exchange Commission. The following post is based on a Washington Legal Foundation working paper by Mr. Gallagher; the complete publication, including footnotes, is available here.

Shareholder voting has undergone a remarkable transformation over the past few decades. Institutional ownership of shares was once negligible; now, it predominates. This is important because individual investors are generally rationally apathetic when it comes to shareholder voting: value potentially gained through voting is outweighed by the burden of determining how to vote and actually casting that vote. By contrast, institutional investors possess economies of scale, and so regularly vote billions of shares each year on thousands of ballot items for the thousands of companies in which they invest.

…continue reading: Outsized Power & Influence: The Role of Proxy Advisers

The Million-Comment-Letter Petition: The Rulemaking Petition on Disclosure of Political Spending Attracts More than 1,000,000 SEC Comment Letters

Posted by Lucian Bebchuk, Harvard Law School, and Robert J. Jackson, Jr., Columbia Law School, on Thursday September 4, 2014 at 11:00 am
  • Print
  • email
  • Twitter
Editor’s Note: Lucian Bebchuk is Professor of Law, Economics, and Finance at Harvard Law School. Robert J. Jackson, Jr. is Professor of Law at Columbia Law School. Bebchuk and Jackson served as co-chairs of the Committee on Disclosure of Corporate Political Spending, which filed a rulemaking petition requesting that the SEC require all public companies to disclose their political spending, discussed on the Forum here. Bebchuk and Jackson are also co-authors of Shining Light on Corporate Political Spending, published last year in the Georgetown Law Journal. A series of posts in which Bebchuk and Jackson respond to objections to an SEC rule requiring disclosure of corporate political spending is available here. All posts related to the SEC rulemaking petition on disclosure of political spending are available here.

In July 2011, we co-chaired a committee of ten corporate and securities law experts that petitioned the Securities and Exchange Commission to develop rules requiring public companies to disclose their political spending. We are delighted to announce that, as reflected in the SEC’s webpage for comments filed on our petition, the SEC has now received more than a million comment letters regarding the petition. To our knowledge, the petition has attracted far more comments than any other SEC rulemaking petition—or, indeed, than any other issue on which the Commission has accepted public comment—in the history of the SEC.

…continue reading: The Million-Comment-Letter Petition: The Rulemaking Petition on Disclosure of Political Spending Attracts More than 1,000,000 SEC Comment Letters

« Previous PageNext Page »
 
  •  » A "Web Winner" by The Philadelphia Inquirer
  •  » A "Top Blog" by LexisNexis
  •  » A "10 out of 10" by the American Association of Law Librarians Blog
  •  » A source for "insight into the latest developments" by Directorship Magazine