Yesterday the Securities and Exchange Commission (“SEC”) proposed rules and interpretive guidance regarding the application of the U.S. regulatory regime to cross-border security-based swap (“SBS”) transactions. The proposals also address the impact of cross-border SBS transactions on the registration obligations of security-based swap dealers (“SBSDs”), major security-based swap participants (“MSBSPs”), SBS clearing agencies, SBS execution facilities and SBS swap data repositories (“SDRs”).

The proposed rules also would establish a framework of “substituted compliance” under which certain participants in the SBS market may comply with non-U.S. regulatory regimes that the SEC determines to be comparable with U.S. requirements, in lieu of the rules that would otherwise apply to these participants. The proposed rules will be open for comment for 90 days after the date of their publication in the Federal Register.

The SEC separately voted to reopen, for 60 days, the comment period for all rules relating to Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) that are not yet final. This 60-day comment period also applies to the related SEC policy statement describing the expected order for these rules to take effect.

The proposing release is more than 600 pages long and requests public comment on numerous topics. This post provides a preliminary outline of a few key aspects of the proposals. We will publish a more detailed memorandum on the proposed rules and interpretive guidance shortly.

…continue reading: SEC Publishes Proposed Rules Regarding Cross-Border Security-Based Swap Transactions

There has been an exponential growth in interest in comparative company law in recent years. For example, in the period from 2002 to 2011, no fewer than ten monographs or edited collections were published exploring this new field of enquiry. The burgeoning literature was mirrored by an increase in University Postgraduate courses or programs in comparative company law and corporate governance. Moreover, the dissolution of trade barriers and mass cross-border capital flows engendered by the forces of competition and globalization have necessitated legal practitioners to be conversant with the company laws of jurisdictions other than their own.

In Mathias Siems and David Cabrelli (eds.), Comparative Company Law: A Case Based Approach, Hart Publishing, 2013 (publisher’s website; introduction on SSRN) we have aimed to fill an important gap in this field. Existing books on comparative company law tend to focus on the institutional structure of the corporation but this approach risks overlooking specific cases and how the issues arising from disputes are resolved in different jurisdictions. For example, topics related to directors’ liability, creditor protection and shareholders’ rights may best be understood by analyzing how selected hypothetical cases would be solved in different countries.

…continue reading: Comparative Company Law: Case Based Approach

Takeovers remain the most controversial corporate governance mechanism. According to pro-takeover commentators, takeovers are generally beneficial for corporate governance. Takeovers can displace poorly performing managers and facilitate corporate restructuring. From this perspective, regulation should encourage takeovers. On the opposite side of the debate, those who oppose hostile takeovers argue that they can disrupt well-functioning companies and encourage short-termism. From this point of view, policies that hamper takeovers are favored.

In our paper The Case for an Unbiased Takeover Law (with an Application to the European Union), we reject a categorical pro- or anti-takeover position. While hostile and friendly takeovers may be efficient in the aggregate, individual takeovers and individual companies’ exposure thereto are efficient or inefficient depending on a variety of factors. These factors include the production functions of companies, the conditions in the relevant industry, the problems confronting the corporation and the best response to those problems. Because these all may differ from company to company and over time, so also may the appropriate stance to takeovers differ. Consequently, we posit that takeover regulation should sanction the efforts by individual companies to devise a takeover regime appropriate to their own, mutable circumstances. In other words, takeover regulation should be limited to a set of optional rules.

…continue reading: The Case for an Unbiased Takeover Law

Exit consents are often used as a restructuring tool by issuers of bonds. Issuers invite bondholders to exchange their existing bonds for new bonds (usually with a lower principal amount). In order to participate in the exchange, bondholders must agree to vote in favour of a resolution that amends the terms of the existing bonds so as to negatively affect (or, in Assénagon, [1] substantially destroy) their value. This is referred to as ‘covenant-stripping’. If the issuer does not achieve the majority needed to pass the resolution, the covenant-strip and the exchange do not happen. But if the resolution is passed, each participating holder’s bonds are exchanged for the new bonds, and the terms of the old bonds are amended to remove most of the protective covenants. This incentivises bondholders to participate in the exchange: accepting the new bonds (even though they will usually have a lower face amount than the existing bonds) may be preferable to being ‘left behind’ in the old bonds, which will cease to have any meaningful covenant protection.

Facts of the case

Anglo Irish Bank Corporation Limited (the “Bank”) suffered severe financial difficulties as a result of the financial crisis, and was nationalised in January 2009. As part of its restructuring, the Bank proposed an exchange offer whereby:

…continue reading: Exit Consents in Restructurings – Still a Viable Option?

It should rapidly become clear that my remarks belong only to me because I will be talking about the role of the SEC in an increasingly global financial and regulatory system from the viewpoint of a Chair on Day 18 of her tenure. Already, I find myself emphasizing to some outside the agency that the international aspect of the SEC’s role is not a distraction from our important core domestic duties. Rather, that role must be understood in order to fully appreciate the agency’s whole mission – to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation.

And it’s how we’re furthering that mission through our international efforts that I will speak about today.

…continue reading: Regulation in a Global Financial System

Is there a competition for corporate charters in Europe? Corporate and comparative scholars have been discussing the similarities between the Delaware-led competition in the United States with the slowly emerging market for corporate legal forms in the European Union.

In my recent paper, Corporate Mobility in the European Union – a Flash in the Pan? An empirical study on the success of lawmaking and regulatory competition, recently made available on SSRN, I provide new empirical evidence on the development of the market for incorporations in Europe, and on the impact of national law reforms.

Since the seminal Centros case in 1999, European entrepreneurs have been allowed to select foreign legal forms to govern their affairs. While much academic effort has been spent to evaluate the early market reactions to this case-law, effectively opening up the European market, relatively little attention has been devoted to subsequent developments. This is surprising, since the various national lawmakers’ responses to the wave of entrepreneurial migration offer a rare glimpse on the effects of regulatory competition and subsequent business’ reaction, as well as on the relevance and effects of lawmaking and regulatory responses to market pressure.

…continue reading: Corporate Mobility and Regulatory Competition in Europe

On April 15, 2013, the Board of Governors of the Federal Reserve System (Federal Reserve) and the Federal Deposit Insurance Corporation (FDIC) issued additional guidance (Guidance) with respect to the 2013 resolution plan submissions of the U.S. and foreign banking organizations that filed their initial resolution plans on July 1, 2012 (First-Round Filers).

The Guidance shows that the Federal Reserve and FDIC are intensifying their credibility review of resolution plans, requiring analysis of the most challenging issues raised by a Covered Company’s failure. Responding to the Guidance will require First-Round Filers to address head-on difficult questions raised by their original submissions. In recognition of the amount of new information required to be supplied, the Guidance extends the 2013 submission date for First-Round Filers to October 1, 2013.

Although by its terms the Guidance is limited to the plans of the First-Round Filers, it suggests that banking organizations in the second and third filing rounds may be required to undertake more searching analysis in their submissions next year.

In this post, we discuss the most significant aspects of the Guidance:

…continue reading: Guidance on Resolution Plans of U.S. and Foreign Banking Organizations

Today [May 1, 2013], the Commission considers issuing a release proposing rules and interpretive guidance applicable to certain market intermediaries, participants, clearing agencies, data repositories, and trade execution facilities that are involved in cross-border transactions of security-based swaps. The proposed release is over 1,000 pages, contains over 2,000 footnotes, and requests comments on more than 630 questions with many subparts. Although the questions posed are many, they are intended to be balanced and fair to solicit views from all sides. This is a welcome approach, because it contributes to a healthy debate and dialogue that is vital to the Commission’s processes.

Today, the Commission also votes to reopen the comment period on the various outstanding rulemaking releases and policy statement concerning security-based swaps and market participants to allow the public additional time to analyze and provide comments in light of our cross-border release.

The length of the cross-border release and the reopening of the comment periods reflect the complexity and importance of the issues involved in securities-based swap transactions. In issuing today’s proposal and asking for comments on the Commission’s proposed approach to regulating the securities-based swap market, the Commission recognizes the interactions among many important rules in this area. It is important, therefore, that our rules avoid gaps and loopholes, and that they work together to provide the needed transparency, accountability, and protection to our economy, the markets, and, most importantly, to investors.

…continue reading: Proposed Rules for Global Derivatives Market

On April 17, 2013, the Supreme Court issued its decision in Kiobel v. Royal Dutch Petroleum Co., __ U.S. __ (2013), addressing the scope of the Alien Tort Statute, 28 U.S.C. § 1350 (“ATS”). In Kiobel, the Court sharply limited the availability of U.S. courts to hear claims brought by foreign nationals against other foreign nationals for human rights violations committed outside the United States. Although the decision was unanimous, the Justices’ reasoning divided. Chief Justice Roberts, writing for the Court, concluded that the presumption against extraterritoriality applies to claims under the ATS and that nothing in the ATS itself rebuts that presumption. The Chief Justice’s opinion, joined by Justices Alito, Kennedy, Scalia, and Thomas, casts doubt on the viability of ATS claims arising from foreign acts, but leaves open the possibility that the presumption against extraterritoriality might be rebutted if claims “touch and concern the territory of the United States” with “sufficient force to displace” that presumption. A foreign defendant’s “[m]ere corporate presence” in the United States, however, does not suffice. Justice Breyer, joined by Justices Ginsburg, Sotomayor and Kagan, filed a concurrence in the judgment rejecting the application of the presumption against extraterritoriality and instead proposing that claims for violations of international law can be recognized under the ATS even for violations committed abroad either where the defendant is an American national or where the case sufficiently implicates a U.S. interest.

The Court’s analysis in Kiobel will likely have far-reaching repercussions for foreign nationals alleging that they have been the victims of human rights abuses outside the United States, for corporations potentially subject to expensive and difficult-to-predict ATS suits, and for foreign countries whose policies and actions might become the subject of ATS suits.

…continue reading: Supreme Court: Presumption Against Extraterritoriality Applies to Alien Tort Statute

Since April 2010, companies looking to list in the UK have had a wider choice for listing their shares on the main market for listed securities (the “Main Market”) of the London Stock Exchange plc (the “LSE”). The Main Market is the LSE’s principal market for listed companies from the UK and overseas. There is a choice between a “premium” and a “standard” listing on the UKLA’s Official List. Alternately, there is the option to list on the Alternative Investment Market (“AIM”), on which many smaller and growth companies are traded. [1]

On 27 March 2013, the LSE launched the new High Growth Segment (the “HGS”) of its Main Market and published the final version of the HGS Rulebook. [2] The HGS has been designed for high growth issuers that are seeking a listing on the Main Market due to their size and stage of development. There are some parallels with the US’s relaxation of certain regulatory requirements under the Jumpstart Our Business Startups (JOBS) Act to encourage “emerging growth companies” to list in the US. The HGS is intended to provide issuers with a transitional route to the UKLA’s Official List and, as such, should help issuers prepare for admission to the UK’s listed premium market over time and the obligations that accompany it. Indeed, HGS issuers must “clearly set out their intention” to eventually join the Main Market (if and when they become eligible).

…continue reading: High Growth Segment: New Route to UK’s Equity Capital Markets