European Centre for Financial Law
Research to fuel public debate
For a proactive attitude of the standard-setting authorities on Market Abuse Regulation – Alain Pietrancosta, Director of the OEDF
Centre Conference on 29 January 2020 on the revision of the Market Abuse Regulation – Speech by Mr Alain Pietrancosta, Director of the OEDF
Position of the European Centre for Financial Law on shareholder activism – Alain Pietrancosta, Scientific Director of the OEDF
Centre Breakfast on shareholder activism on December 18, 2019 – Alain Pietrancosta, Scientific Director of the OEDF
“There is today in France a formidable compendium of knowledge and skills insufficiently exploited in the field of financial law” – Fabrice Seiman, President of the OEDF
Centre Breakfast on shareholder activism on December 18, 2019 – Speech by Mr. Fabrice Seiman, President of the OEDF
Faire s’exprimer la contestation d’une politique sociale sans porter atteinte à l’intérêt de la société et au bon fonctionnement du marché – Alain Pietrancosta, Directeur de l’OEDF
Déjeuner de l’Observatoire sur l’activisme actionnarial du 18 décembre 2019 – Allocution de Monsieur Alain Pietrancosta, Directeur de l’OEDF
Speech by Robert Ophèle, Chairman of the AMF
ECSDA, Annual Conference
20 November 2019 – Brussels
Speech by Robert Ophèle, Chairman of the AMF
The 2019 AMF Annual Conference
Thursday, November 14, 2019 – Cambon Pavilion
Speech by Robert Ophèle, Chairman of the AMF
Law & Growth Conference
Friday, October 18, 2019
With financial institutions increasingly outsourcing their activities, they face a record number of fraud and misconduct cases arising from third-party services. We survey financial institutions to better understand which governance mechanisms may improve the monitoring and management of third-party relationships. Overall, our results suggest that there are gaps in traditional governance arrangements.
We find that financial institutions rely mainly on internal monitoring to detect fraud and that whistleblowing plays an important role in mitigating misconduct risks.
Finally, we report evidence that vendor dependency and product complexity play a pronounced role in delaying termination of agreements.
The Financial Crisis of 2007-09 has shown that financial stability is the ultimate public good: all benefit from it, it is costly to maintain, and its undersupply results in catastrophe. The threat to financial stability comes along four different avenues: first, the effort by institutions within the financial stability regime to find loopholes and other sorts of regulatory arbitrage to avoid the regime’s costs; second, the effort by institutions outside of the regime to produce financial intermediation services that are the functional equivalent of within-the-regime firms; third, “innovation,” which includes the unexpected consequence of existing rules in new application; and fourth, macroeconomic forces that magnify the threat of financial instability. The forces, separately and in combination, can reshape the financial system; these forces can move a formerly stable system into one that is systemically susceptible to either an internal or external shock.
One very important lesson of the Financial Crisis is that the maintenance of financial stability is an on-going project that requires an approach of “Dynamic Precaution.” This requires an institution such as the Financial Stability Oversight Council to monitor the financial system as it evolves, to call attention to emerging risks to financial stability, and to catalyze the necessary regulatory intervention. In developing a case for Dynamic Precaution, this chapter explains first, why financial institutions need to remain as the focus of the FSOC regime even while observation and regulation aimed at activities is also important; second, how FSOC can serve Dynamic Precaution by using its designation authority to negotiate “off ramps” from enhanced oversight for firms whose instability or failure would otherwise have systemic implications; and third, if the maintenance of financial stability is the apex goal, why cost-benefit analysis can play only a limited role in financial regulation.
Transaction avoidance rules are widely considered to be an important tool for the regulation of related party transactions in insolvency. Existing ‘best practice’ guidance on the design of insolvency laws assumes that such avoidance rules are best operationalised within collective insolvency procedures. But in many jurisdictions the commencement of collective insolvency proceedings is value destructive; so much so that creditors may prefer to see firms fail outside such proceedings, even if this means foregoing opportunities to use the avoidance tools available within them. This suggests that avoidance tools may be most powerful when available outside insolvency proceedings as well as within them.
Many jurisdictions do have some such form of avoidance action, often described as the ‘actio Pauliana outside bankruptcy’, on their statute books. But these forms of action have been neglected in the literature on the control of related party transactions in insolvency, and, perhaps as a consequence, have not benefited from international initiatives to improve the operation of domestic insolvency rules in cross-border cases in the same way that transaction avoidance actions brought in connection with collective insolvency proceedings have benefited. The chapter begins by evaluating the case for approaching transaction avoidance within insolvency proceedings, before turning to consider aspects of the design of the ‘actio Pauliana outside bankruptcy’, including measures to improve its efficacy in cross-border cases.
Stock-market-driven short-termism is crippling the American economy, according to legal, judicial, and media analyses. Firms forgo the R&D they need, cut capital spending, and buy back their own stock so feverishly that they starve themselves of cash. The stock market is the primary cause: directors and executives cannot manage for the long-term when their shareholders furiously trade their company’s stock, they cannot make long-term investments when stockholders demand to see profits on this quarter’s financial statements, they cannot even strategize about the long-term when shareholder activists demand immediate results, and they cannot keep the cash to invest in their future when stock market pressure drains away that cash in stock buybacks. This doomsday version of the stock-market-driven short-termism argument entails economy-wide predictions that have not been wellexamined for their severity and accuracy. If the scenario is correct and strong, we should first see sharp increases in stock trading in recent decades and more frequent activist interventions, and these increases should be accompanied by (1) sharply declining investment spending in the United States, where large firms depend on stock markets and where activists are important, as compared to advanced economies that do not depend as much on stock markets, (2) buybacks bleeding cash out from the corporate sector, (3) economy-wide R&D spending declining from what it should be, and (4) a stock market unwilling to support innovative, long-term, technological firms. These are the central channels from stock market-driven shorttermism to overall economic degradation. They justify corporate law policies that seek to prevent these outcomes. But these predicted economy-wide outcomes are either undemonstrated, implausible, or untrue. Corporate R&D is not declining, corporate cash is not bleeding out, and the world’s developed nations with neither American-style quarterly oriented stock markets nor aggressive activist investors are investing no more in capital equipment than the United States. The five largest American firms by stock market capitalization are tech-oriented, R&D intensive, longer-term operations. The economy-wide picture is more one of capital markets moving capital from larger, older firms to younger ones; of a post-industrial economy doing more R&D than ever; and of an economy whose investment intensity depends on overall economic activity, not stock market trading nor hedge fund activism.
True, the economy-wide data could hide stock-market hits that hold back R&D from increasing more and that weaken American capital spending more than is fitting for a post-industrial economy. But if so, these have not been shown and several seem implausible. Hence, the calamitous form of the stock-market-driven short-termist argument needs to be reconsidered, recalibrated, and, quite plausibly, rejected.
Then, last, comes the broadest question: why has a view that lacks strong economywide evidentiary support become the rare corporate governance issues that attracts attention from the media, political players, policymakers, and the public — and that is widely accepted as true? I suggest why in this paper’s final part.
Cybersecurity has become a significant concern in corporate and commercial settings, and for good reason: a threatened or realized cybersecurity breach can materially affect firm value for capital investors. This paper explores whether market arbitrageurs appear systematically to exploit advance knowledge of such vulnerabilities. We make use of a novel data set tracking cybersecurity breach announcements among public companies to study trading patterns in the derivatives market preceding the announcement of a breach. Using a matched sample of unaffected control firms, we find significant trading abnormalities for hacked targets, measured in terms of both open interest and volume. Our results are robust to several alternative matching techniques, as well as to both cross-sectional and longitudinal identification strategies. All told, our findings appear strongly consistent with the proposition that arbitrageurs can and do obtain early notice of impending breach disclosures, and that they are able to profit from such information. Normatively, we argue that the efficiency implications of cybersecurity trading are distinct—and generally more concerning—than those posed by garden-variety information trading within securities markets. Notwithstanding these idiosyncratic concerns, however, both securities fraud and computer fraud in their current form appear poorly adapted to address such concerns, and both would require nontrivial re-imagining to meet the challenge (even approximately).