Posts Tagged ‘International governance’

SEC’s Cross-Border Derivatives Rule

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday July 19, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Dan Ryan, Chairman of the Financial Services Regulatory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication.

The SEC provided the “who” but not much else in its final rule regarding cross-border security-based swap activities (“final rule”), released at the SEC’s June 25, 2014 open meeting. Although most firms have already implemented a significant portion of the CFTC’s swaps regulatory regime (which governs well over 90% of the market), the SEC’s oversight of security-based swaps means that the SEC’s cross-border framework and its outstanding substantive rulemakings (e.g., clearing, reporting, etc.) have the potential to create rules that conflict with the CFTC’s approach. The impact that the SEC’s regulatory framework will have on the market remains uncertain, but the final rule at least begins to lay out the SEC’s cross-border position.

…continue reading: SEC’s Cross-Border Derivatives Rule

2014 Mid-Year Update on Corporate Non-Prosecution and Deferred Prosecution Agreements

Posted by Joseph Warin, Gibson, Dunn & Crutcher LLP, on Wednesday July 16, 2014 at 9:02 am
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Editor’s Note: Joseph Warin is partner and chair of the litigation department at the Washington D.C. office of Gibson, Dunn & Crutcher. The following post and is based on a Gibson Dunn client alert; the full publication, including footnotes and appendix, is available here.

As the debate continues over whether and how to punish companies for unlawful conduct, U.S. federal prosecutors continue to rely significantly on Non-Prosecution Agreements (“NPAs”) and Deferred Prosecution Agreements (“DPAs”) (collectively, “agreements”). Such agreements have emerged as a flexible alternative to prosecutorial declination, on the one hand, and trials or guilty pleas, on the other. Companies and prosecutors alike rely on NPAs and DPAs to resolve allegations of corporate misconduct while mitigating the collateral consequences that guilty pleas or verdicts can inflict on companies, employees, communities, or the economy. NPAs and DPAs allow prosecutors, without obtaining a criminal conviction, to ensure that corporate wrongdoers receive punishment, including often eye-popping financial penalties, deep reforms to corporate culture through compliance requirements, and independent monitoring or self-reporting arrangements. Although the trend has been robust for more than a decade, Attorney General Eric Holder’s statements in connection with recent prosecutions of financial institutions underscore the dynamic environment in which NPAs and DPAs have evolved.

…continue reading: 2014 Mid-Year Update on Corporate Non-Prosecution and Deferred Prosecution Agreements

Does Mandatory Shareholder Voting Prevent Bad Corporate Acquisitions?

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday July 14, 2014 at 9:18 am
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Editor’s Note: The following post comes to us from Marco Becht, Professor of Corporate Governance at the Université libre de Bruxelles; Andrea Polo of the Department of Economics and Business at the Universitat Pompeu Fabra and Barcelona GSE; and Stefano Rossi of the Department of Finance at Purdue University.

In our paper, Does Mandatory Shareholder Voting Prevent Bad Corporate Acquisitions?, which was recently made publicly available as an ECGI and Rock Center Working Paper on SSRN, we examine how much power shareholders should delegate to the board of directors. In practice, there is broad consensus that fundamental changes to the basic corporate contract or decisions that might have large material consequences for shareholder wealth must be taken via an extraordinary shareholder resolution (Rock, Davies, Kanda and Kraakman 2009). Large corporate acquisitions are a notable exception. In the United Kingdom, deals larger than 25% in relative size are subject to a mandatory shareholder vote; in most of continental Europe there is no vote, while in Delaware voting is largely discretionary.

…continue reading: Does Mandatory Shareholder Voting Prevent Bad Corporate Acquisitions?

Volcker Rule and Covered Bonds

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday July 11, 2014 at 9:02 am
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Editor’s Note: The following post comes to us from Jerry Marlatt, Senior Of Counsel at Morrison & Foerster LLP, and is based on a Morrison & Foerster publication by Mr. Marlatt.

The subtler aspects of the Volcker Rule [1] continue to emerge. One of the subtleties is the extraterritorial reach of the Rule in connection with underwriting, investments in, and market making for covered bonds by foreign banks.

Foreign banks that underwrite, invest in, or conduct market making for covered bonds need to review their activity under the Volcker Rule.

…continue reading: Volcker Rule and Covered Bonds

Executive Remuneration and the Payout Decision

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday July 11, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Philipp Geiler of the Department of Economics, Finances, and Control at EMLYON Business School and Luc Renneboog, Professor of Finance at Tilburg University.

Corporations rely on dividends, share repurchases, or a combination of both payout methods to return earnings to their shareholders. Over the last decade, the importance of the dominating payout method—dividends—seems to be somewhat eroded at UK firms, with an increasing number of firms combining share repurchases with dividends. What explains the surge in the use of combined share repurchases and dividends in the UK? Is there a link between firm’s payout decision and executive remuneration?

…continue reading: Executive Remuneration and the Payout Decision

Republic of Argentina v. NML Capital

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday July 5, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Irwin H. Warren, senior partner in the Securities Litigation practice at Weil, Gotshal & Manges LLP, and is based on a Weil alert authored by Mr. Warren, Ted Posner, and Adam Banks.

The Supreme Court issued its decision yesterday [June 16, 2014] in Republic of Argentina v. NML Capital, No. 12-842, holding that the Foreign Sovereign Immunities Act (FSIA) does not limit the scope of discovery available to a judgment creditor in post-judgment execution proceedings against a foreign sovereign.

As part of NML’s efforts to collect on various litigation judgments entered against Argentina following its default on bond obligations, NML sought discovery of Argentina’s assets around the world in an attempt to locate Argentine property that might be subject to attachment and execution. Those efforts included subpoenas served on Bank of America and Banco de la Nacion Argentina, both of which had offices in New York. The subpoenas generally sought information about Argentina’s accounts, balances, transaction histories and funds transfers. Argentina and the banks sought to quash the subpoenas, contending that they violated the FSIA by seeking discovery of Argentina’s extraterritorial assets that were beyond the reach of U.S. courts. The district court denied the motion to quash, and the Second Circuit affirmed. Only Argentina sought review in the Supreme Court.

…continue reading: Republic of Argentina v. NML Capital

Defining Dealers and Major Participants in the Cross-Border Context

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Sunday June 29, 2014 at 9:00 am
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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.

Dealers and major participants play a crucial role in the derivatives market, a market that has been estimated to exceed $710 trillion worldwide, of which more than $14 trillion represents transactions in security-based swaps. In the United States, the Commodity Futures Trading Commission (“CFTC”) and the SEC share responsibility for regulating the derivatives market. Out of the total derivatives market, the SEC is responsible for regulating security-based swaps. As evidenced in the most recent financial crisis, the unregulated derivatives market had devastating effects on our economy and U.S. investors. In response to this crisis, Congress enacted the Dodd-Frank Act and directed both the CFTC and SEC to promulgate an effective regulatory framework to oversee the derivatives market.

…continue reading: Defining Dealers and Major Participants in the Cross-Border Context

Speaking of Corporate Social Responsibility

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday June 26, 2014 at 9:10 am
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Editor’s Note: The following post comes to us from Hao Liang and Luc Renneboog, both of the Department of Finance at Tilburg University, Christopher Marquis of the Organizational Behavior Unit at Harvard Business School, and Sunny Li Sun of the Department of Global Entrepreneurship and Innovation.

Linguists suggest that obligatory future-time-reference (FTR) in a language reduces the psychological importance of the future. Applying this to a corporate context, we theorize in this paper that companies with strong-FTR languages as their official/working language would be less future orientated and hence perform worse in future-oriented activities such as corporate social responsibility (CSR)—firms’ environmental, social, and governance engagement—compared to those in weak-FTR language environments.

…continue reading: Speaking of Corporate Social Responsibility

Comparing Insider Trading in the US and Europe

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday June 19, 2014 at 9:24 am
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Editor’s Note: The following post comes to us from Marco Ventoruzzo of Pennsylvania State University, Dickinson School of Law, and Bocconi University.

In the European Union insider trading has been regulated much more recently than in the United States, and it can be argued that, at least traditionally, it has been more aggressively and successfully enforced in the United States than in the European Union. Several different explanations have been offered for this difference in enforcement attitudes, focusing in particular on resources of regulators devoted to contrasting this practice, but also diverging cultural attitudes toward insiders. This situation has evolved, however, and the prohibition of insider trading has gained traction also in Europe. Few studies have focused on the substantive differences in the regulation of the phenomenon on the two sides of the Atlantic.

…continue reading: Comparing Insider Trading in the US and Europe

How Foreign Firms Communicate with US Investors

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday June 17, 2014 at 9:05 am
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Editor’s Note: The following post comes to us from Russell Lundholm, Rafael Rogo, and Jenny Li Zhang, all of the Accounting Division at the University of British Columbia.

Foreign companies that trade their equity in the US face serious obstacles. They must navigate a complex set of SEC disclosure requirements, while at the same time satisfying US investor expectations about the frequency and content of voluntary disclosures. Their home country may be far from the US, speak a different language, use different accounting rules, and offer different types of investor protection than the US, and each of these differences presents a friction that must be mitigated in order to attract US investors. Given these cultural, procedural, and linguistic differences, one might expect that the disclosures of foreign firms would be of lower quality than their US firm counter-parts. Nonetheless, in our paper, Restoring the Tower of Babel: How Foreign Firms Communicate with US Investors, forthcoming in The Accounting Review, we find that foreign firms traded in the US present more numerical data and write more readable text in the Management Discussion and Analysis (MD&A) section of their 10-K, and write more readable text in their earnings press releases, than comparable US firms. More importantly, we find that the readability of text and amount of numerical data in both the MD&A and earnings press releases increase with the foreign firm’s distance from the US. Finally, we find that within a country, firms with relatively more readable disclosures attract relatively more US institutional investment.

…continue reading: How Foreign Firms Communicate with US Investors

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