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It’s been eight weeks since the WHO declared the coronavirus outbreak a pandemic, and the NBA cancelled games. As of this writing, the NY Post reports: Total cases globally = 3,662,691; Deaths = 257,239.

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As I write about derivatives, I’m always excited to see new articles in this area such as Professor Sue Guan’s Benchmark Competition (here; forthcoming, Maryland Law Review).  And I was also delighted to learn that we’d overlapped at Wharton (Guan earning a B.S. in 2009 and, me, a PhD in 2010).  I’ve had a chance to read about Guan’s intriguing article on Columbia Law School’s Blue Sky Blog (here) and look forward to reading the article soon.  Here’s the abstract:

Over-the-counter (OTC) markets—those for currencies, derivatives, swaps, bonds, commodities—make up an immense and critical component of global financial markets. Certain benchmarks, such as the London Interbank Offered Rate (LIBOR), are hardwired throughout these markets and play crucial roles in pricing and valuation. For example, interest payments on instruments ranging from student loans and mortgages to synthetic derivatives are tied to the value of LIBOR. In 2016, estimates of notional exposure to U.S. dollar LIBOR totaled about $200 trillion—ten times U.S. GDP that year. Correspondingly, minuscule variations in a benchmark’s value will impact vast numbers of assets and transactions for hundreds of millions of people.

These benchmarks have become so ubiquitous for an important reason: they have…

Much of the SEC’s disclosure regime is predicated on the idea of market efficiency: it’s not necessary that companies constantly repeat publicly available information, because that information is already known to, and absorbed by, market participants.  The problem is, even the SEC is never quite sure how far to run with this. 

Case in point: the SEC’s proposal to eliminate Item 303(a)(5), which requires that registrants provide a tabular disclosure of contractual obligations.  As the SEC explains, “We do not believe that eliminating the requirement would result in a loss of material information to investors given the overlap with information required in the financial statements and our proposed expansion of the capital resources requirement, discussed above in Section II.C.2.   As many commenters pointed out, much of the information presented in response to this requirement overlaps with U.S. GAAP and is therefore included in the notes to the financial statements…”

 Both the SEC’s Investor-As-Owner subcommittee, and the Council of Institutional Investors, have objected to the proposal.  For example, the Investor-As-Owner Subcommittee says:

Investors and analysts, however, have informed the subcommittee that the information in the current tabular format is useful and material.  While much of the information can be

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A few securities industry groups hired Gibson Dunn to petition the SEC to abandon its share-class disclosure initiative.  The petition argues that the initiative should have been rolled out as a rule proposal through the notice and comment process instead of simply being announced by the Commission.

The share-class disclosure initiative explained that the SEC had “filed numerous actions in which an investment adviser failed to [disclose] its selection of mutual fund share classes that paid the adviser . . . [12b-1 fee] when a lower-cost share class for the same fund was available to clients.”   The SEC asked advisers to plainly disclose when they put client assets in higher-fee share classes when lower-fee share classes were available.

Let’s pause for a second here.  All the SEC has asked for is disclosure.  It has not asked firms to stop this practice.  It just wants fiduciaries to disclose when they do it.  

Many dually-registered investment advisers have operated this way for years, collecting enormous fees from investors who likely do not understand the conflict.  Nicole Boyson has a fascinating paper on how large, dual-registered investment advisers routinely operate with staggering conflicts.  We talked about an earlier draft of the paper…

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It’s been seven weeks since the WHO declared the coronavirus outbreak a pandemic, and the NBA cancelled games. As of this writing, the NY Post reports: Total cases globally = 3,116,398; Deaths = 217,153.

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All right, it’s probably a little premature to call it an “age of direct listings”; we’ve had Spotify and Slack and I guess some company called Watford Holdings and Airbnb was reportedly considering one, and in the Before Times a lot of VCs were making noises about preferring direct listings to traditional IPOs, but in the immediate future I don’t expect to see a lot of new firms going public either way (notwithstanding the occasional ambitious SPAC), so these issues may turn out to be nothing more than a curiosity. 

BUT!  In the meantime!  We have Pirani v. Slack Technologies, 2020 WL 1929241 (N.D. Cal. Apr. 21, 2020), in which a district court refused to dismiss Section 11 claims brought by investors who purchased Slack shares after the company listed directly on the NYSE. And, it turns out, direct listings raise a lot of unsettled questions under Section 11.

 Slack, like a lot of companies these days, never formally sold its stock to the public; instead, it distributed stock in exempt transactions, subject to various securities law rules that permit these kinds of distributions but generally require the investors to hold their stock for some period…

In recent years, investment funds have shifted more assets to private market securities.  This can make it much more difficult to figure out how much a particular investment is worth.  The SEC has proposed a new rule for valuing these sorts of investments.  Comments on it will be due on July 21, 2020.

Investment Companies have to tell investors how much their stake in the fund is worth.  Investments in public companies are  often easy to value.  The investment fund simply takes the market price of the security and uses that figure for valuation.  It can become more complicated if you take into account fundamental value, the size of the position, or the ability to sell it all at a particular price. For securities without readily available market prices, the Investment Company Act  calls for “using the fair value of that security, as determined in good faith by the fund’s board.”  

Yet how should an investment company board go about valuing its assets?  The new rule would put a framework in place for that process to create more consistency.

The proposal made me think of an article by Utah’s Jeff Schwartz.  He looked at how one mutual fund valued…

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It’s been six weeks since the WHO declared the coronavirus outbreak a pandemic, and the NBA cancelled games. As of this writing, the NY Post reports: Total cases globally = 2,561,044; Deaths = 176,984.

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In these unprecedented times, the Federal Reserve is opening unprecedented facilities, including its new Municipal Liquidity Facility.  Professor Robert C. Hockett at Cornell Law School has posted a great 3-page paper on this for everyone (like myself) who is interested in quickly learning more about this new Fed program.  Check it out here; Abstract is below.

On April 9th the Fed announced it would be opening an unprecedented new Municipal Liquidity Facility (‘MLF’) for States and their Subdivisions now struggling to address the nation’s COVID-19 pandemic. This is effectively ‘Community QE’ in all but name. Because Community QE will constitute a literal lifeline to States and their Subdivisions, and will in light of its novelty be as unfamiliar as it is essential, this Memorandum briefly summarizes what the new Facility enables now and will likely enable in future. On this basis it then recommends a three-phase ‘Game Plan’ for States and their Subdivisions to put into operation immediately – that is, April 13th.

This week, I’m just plugging my new essay, forthcoming in the Wisconsin Law Review.  It was written for the New Realism in Business Law and Economics symposium, hosted by the University of Minnesota Law School, and here is the abstract:

Beyond Internal and External: A Taxonomy of Mechanisms for Regulating Corporate Conduct

Corporate discourse often distinguishes between internal and external regulation of corporate behavior. The former refers to internal decisionmaking processes within corporations and the relationships between investors and corporate managers, and the latter refers to the substantive mandates and prohibitions that dictate how corporations must behave with respect to the rest of society. At the same time, most commenters would likely agree that these categories are too simplistic; relationships between investors and managers are often regulated with a view toward benefitting other stakeholders.

This Article, written for the New Realism in Business Law and Economics symposium, will seek to develop a taxonomy of tactics available to, and used by, regulators to influence corporate conduct, without regard to their nominal categorization of “external” or “internal” (or “corporate” and “non-corporate”) in order to shed light on how those categories both obscure and misdescribe the existing regulatory framework. By reframing the

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