COLUMBIA LAW SCHOOL
SECURITIES REGULATION AND THE CAPITAL MARKET: DEVELOPMENT STRUCTURE AND REGULATORY POLICIES
The Development and Issues Related to the Structure and Operation of the U.S. Capital Market in the Context of a Global Securities Market, (1960-2013); The Causes and Effects of the "Financial Meltdown" (2007-2009); Assessing the Legislative and Regulatory Reforms in the U.S. and Abroad, Including Government "Bailouts" and the Key Elements and Implementation of Dodd-Frank by Financial Regulators ("Systemic Risk", the Volcker Rule) and EU Measures to Deal with Endangered Financial Institutions.
Significant Securities and Financial Services Regulatory and Enforcement Policies and Actions (2010-2013); [e.g., Insider Trading: Cady Roberts to SAC Capital and Information Trading Networks; Extraterritorial Reach of US Securities laws--
Morrison v NAB and Beyond; Duties of Brokers, Underwriters, Officers and Directors of Public Companies, Investment Advisers]
The financial crisis appeared to largely over in the fall of 2011--and some people actually believed that it was over. Others were far more skeptical, especially in Europe, and feared the second round of serious problems that has now overtaken the EU. New problems are appearing in Asia (e.g., China and Japan) and Latin America, as well. It is clearly important to continue the assessment of the regulatory "reforms" that the financial crisis produced and the related financial market developments that have recently surfaced. The loss of more than 6 billion dollars (in London trading) by an investment unit of J.P. Morgan-Chase is yet to play out. How many other financial institutions have similar problems? Serious financial problems have continued to surface in the EU. Will the Eurozone be saved? What will happen to the Volcker Rule? Will US money market funds be forced to abandon the $1.00 fixed valuation for a "floating rate"?
The U.S., UK and EU have all taken legislative and rulemaking actions to establish new and far reaching changes in the irregulatory regimes for financial service companies, hoping to prevent a recurrence of the financial meltdown of 2007-08, that resulted from regulatory and business failures and the often irresponsible structuring and sale of complex, highly leveraged and risk-laden securities, to supposedly "sophisticated investors." The Dodd-Frank rulemaking is still far from complete, and the EU is facing what the Wall Street Journal, late last year, headlined as "New Signs of a Global Slowdown." The US stock market indices are at record highs (e.g. the DJIA at 15,000+). Is a new bubble building? May, 2013--the WSJ announces that retail investors are back in the market and assuming more risk. "BitCoins," anybody? Gold dropping like lead?
What measures have the U.S., the UK, the EU and the Group of Twenty Finance Ministers and Central Bank Governors (G-20) adopted in the various sectors of the financial services industries, (e.g., commercial and investment banking, mortgage origination and securitization, investment management and private equity funds, insurance, credit rating agencies, trading in derivatives, swaps and futures, risk management and "systemic controls")?
Which regulatory steps will be effective? Which are of doubtful value? Comparison of the Dodd-Frank legislation and consequent rules, with EU actions and the FSA/Bank of England regulatory rearrangement, as well as the approaches of other EU and Asian financial center governments.
Do the broadened systemic regulatory powers being entrusted, primarily to the central banks, go too far? Or not far enough? Are the central banks the right regulators to oversee these areas? For example, will the U.S. Financial Stability Oversight Council's (FSOC) efforts in defining and containing "systemic risk" and implementing "orderly liquidations" of troubled financial firms, be effective? How will it work? Is Too Big to Fail (TBTF) manageable under the new regimes? Are the mega-banks Too Big to Save (TBTS)? What regulatory lessons have been learned from the 2007-8 financial "meltdown" and from enforcement actions (both civil and criminal) in the U.S.? (See III below.)
This course focuses on issues raised by such questions as: What is "The Market" and how does it really work? How is the market for securities trading structured in the United States? How did we get into the financial mess of 2007-9? How did Lehman, Bear Stearns, AIG, Merrill Lynch and Citi happen? What is the effect of "globalization" on our markets and on non-U.S. markets? (See e.g. Iceland, Ireland, Greece and more recently, Cyprus, Spain and Italy.) Are we headed for another financial crisis?
The financial regulatory system that failed to prevent the global financial crisis is undergoing significant change, which will affect the operations and governance of financial service companies and the international capital markets. Both the U.S. and EU are imposing new regulatory authority on the financial markets that will be vested largely in their central banks, along with existing or new bank, securities and other financial service regulators. The U.S. has enacted Dodd-Frank and left many important regulatory issues to be resolved by agency rulemaking and interpretation. That process is still underway. The Bank of England and the UK's Financial Services Authority face questions both at home and with the differing views of other EU members. The situation remains largely fluid (see current Euro/Spain problems). Are some financial conglomerates just plain "too big"? Not only "too big to fail," but too conflicted, and perhaps too dominant in their markets? Is the emerging regulatory structure adequate to prevent another crisis? We will examine the changes and discuss the ineffectiveness and the prospects of the various "roadmaps" to stabilize the markets and prevent future financial crises. Deutsche Burse failed in its effort to merge with NYSE/Euronext; NASDAQ/OMX, after U.S. antitrust authorities' rejection of its bid for the NYSE, is interested in further linkages with other trading platforms. London, Singapore, Toronto and other exchanges are seeking partners or merger opportunities. What of the ICE's (commodities exchange in Atlanta) bid to take over the NYSE? What policies should govern these developments?
Where do we go from here in terms of resolving the issues of structure and regulatory policies occasioned by the 2007-08 financial crisis, some of which persist even today?
We will examine a number of recent SEC enforcement actions (e.g., SEC v Citigroup (settlement still pending); SEC v Bank of America, SEC v Galleon Mgt. SEC v Goldman Sachs and Fabrice Tourre; also, U.S. v Rajaratnam and U.S. v Gupta (insider trading)), current guilty pleas and sentences of accused hedge fund managers. We will follow developments in SAC Capital to see how that plays out. What are the effects of these cases on market regulatory policies? What of the extra-territorial reach of U.S. securities law (.e.g., Morrison vs. National Australia Bank); the meaning of "breach of fiduciary duty" in the conduct of investment professionals and other current regulatory rulings? Is a broker who does "financial planning" a fiduciary? What duties does a broker owe to clients and how do they differ (if at all) from an investment adviser?
We will examine the development, structure, operation and regulation of the various components of the U.S. capital market and the legal and policy questions raised by the various constituencies participating in the market (e.g., broker-dealers; investment banks and bank holding companies; institutional investors, including: mutual funds, hedge funds, pension funds, banks and insurance companies; also private investors and issuers) and the regulatory regimes that have been imposed on them. We will review the evolution, growth and current structure of the securities markets themselves: the NYSE, NASDAQ, the electronic trading networks and the options and futures markets. For example, how did we get from the NYSE's "closed club" of privileged members with exclusive access to the trading floor, with fixed comission rates and specialists, to automated, electronic, more competitive and more open markets we see today? How does today's electronic instantaneous ("flash") trading capability affect the integrity of the market? What regulatory measures are appropriate?
Will the regulators ever catch up to The Street's ability to innovate itself out of the regulatory restraints designed to protect the integrity of the market and the interests of investors? Can the SEC, CFTC and other agencies fulfill their expanded regulatory assignments with the budget cuts they are now facing?
We will review the SEC's progress in fashioning market standards, its efforts to assure best execution and contain "soft dollar," "revenue sharing," "directed brokerage," the use of "special purpose entities" and other market practices. What are the appropriate goals and policies for the future, given the national and international differences over appropriate regulatory standards, including e.g. listing, accounting and disclosure standards? There has been a renewal of the call for the US to accept different foreign standards that are "substantially equivalent" to US regulatory standards. (i.e. "substituted compliance" or "reciprocal recognition". How will that work?)
The role and regulation of hedge funds and private equity under the new Dodd-Frank regime will also be given special attention.
The consolidation of financial services firms, both in the U.S. (e.g., Bank of America/Merrill Lynch, Wells Fargo/Wachovia) and in foreign markets, as well as the acquisition of U.S. public companies by non-U.S. companies, including Chinese/US shell companies, all raise significant regulatory issues. Further, such matters as the alleged effects of Sarbanes-Oxley on the competitive position of the U.S. capital market and the effects of the repeal of the Glass-Steagall Act's separation of the investment from commercial banking, first by a series of orders issued by the Federal Reserve and the Comptroller of the Currency in the mid-1980's and 90's and then finally ended by the Gramm-Leach Bliley Act, will be reviewed, as will the proposed limitations on bank investment strategies by the Volcker Rule; the emergence of financial mega-conglomerates that are "Too Big To Fail"; the role of the antitrust laws in the context of relevant securities regulations; the due diligence duties of underwriters; and the role and responsibilities of the credit rating agencies, all of which have affected and will continue to affect the markets in the U.S. and abroad.
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An understanding of these issues in the context of a global market and the financial crisis, is essential to any lawyer or financial services executive interested in the functioning of capital markets and the development of effective regulatory standards, including disclosure and accounting standards, as well as enforcement issues and the efforts to resolve existing differences in process and substantive issues between the U.S. and foreign regulators.
(Selected financial service executives, law firm partners and government officials will discuss the role, operation and regulatory policies that affect their organizations and their view of the future for the financial services industry).
There are no formal prerequisites for the seminar. However, completion of a corporations and/or a securities regulation course is recommended. Usually limited to 3L's, but exceptions may be made. JD/MBA and LLM students are welcome.