The COVID-19 pandemic has dramatically shown that a localized disease can be transmitted to the broader population, nationally and worldwide. This Article analyzes how to design regulation to help control that transmission. To that end, we first observe that existing healthcare regulation focuses almost exclusively on regulating individual components of the medical and healthcare industry, while lacking a capacity to address how those components work together as a system—a system that pandemics can destabilize. Indeed, one factor that contributed to COVID-19’s spread was the inability of U.S. healthcare regulation to operate on a societal level, to protect certain components from the deficiencies of others. We contend that healthcare regulation must also include what we call “macromedical” regulation: regulation that focuses on protecting the stability of the healthcare sector as a system of interconnected parts. We find some useful analogies in the Dodd-Frank Act and other post-crisis financial regulation, particularly in macroprudential regulation designed to protect the financial system as a system.
{"title":"Macromedical Regulation","authors":"Barak D Richman, S. Schwarcz","doi":"10.2139/ssrn.3800319","DOIUrl":"https://doi.org/10.2139/ssrn.3800319","url":null,"abstract":"The COVID-19 pandemic has dramatically shown that a localized disease can be transmitted to the broader population, nationally and worldwide. This Article analyzes how to design regulation to help control that transmission. To that end, we first observe that existing healthcare regulation focuses almost exclusively on regulating individual components of the medical and healthcare industry, while lacking a capacity to address how those components work together as a system—a system that pandemics can destabilize. Indeed, one factor that contributed to COVID-19’s spread was the inability of U.S. healthcare regulation to operate on a societal level, to protect certain components from the deficiencies of others. We contend that healthcare regulation must also include what we call “macromedical” regulation: regulation that focuses on protecting the stability of the healthcare sector as a system of interconnected parts. We find some useful analogies in the Dodd-Frank Act and other post-crisis financial regulation, particularly in macroprudential regulation designed to protect the financial system as a system.","PeriodicalId":20999,"journal":{"name":"Regulation of Financial Institutions eJournal","volume":"19 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90457486","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract Acquirer advisors now often arrange syndicated loans financing merger and acquisition deals they advise on. This paper shows that such an advisor-lender dual role facilitates valuable big-ticket deals. There is a positive announcement effect for the acquirer which also shows no systematic post-deal underperformance—dispelling concerns about the advisor abetting managerial empire building. But advisor-led syndicated loans, despite being larger in size, have higher loan spreads than those led by non-advisors. Advisors apparently have an information advantage but rent extraction is unlikely. The higher charges are justifiable in view of the significantly lower post-deal creditworthiness of dual-role bidders. Advisor-lender's superior information about adverse changes in the credit risk is rationally priced into the dual-role interest rate premium.
{"title":"Winning Megadeals: The Dual Role of Acquirer Advisors in Loan-Financed Mergers and Acquisitions","authors":"Chong Chen, Xueping Wu","doi":"10.2139/ssrn.3877918","DOIUrl":"https://doi.org/10.2139/ssrn.3877918","url":null,"abstract":"Abstract Acquirer advisors now often arrange syndicated loans financing merger and acquisition deals they advise on. This paper shows that such an advisor-lender dual role facilitates valuable big-ticket deals. There is a positive announcement effect for the acquirer which also shows no systematic post-deal underperformance—dispelling concerns about the advisor abetting managerial empire building. But advisor-led syndicated loans, despite being larger in size, have higher loan spreads than those led by non-advisors. Advisors apparently have an information advantage but rent extraction is unlikely. The higher charges are justifiable in view of the significantly lower post-deal creditworthiness of dual-role bidders. Advisor-lender's superior information about adverse changes in the credit risk is rationally priced into the dual-role interest rate premium.","PeriodicalId":20999,"journal":{"name":"Regulation of Financial Institutions eJournal","volume":"98 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90624847","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Authorized participants’ (APs) arbitrage in primary markets for ETF shares plays a key role in limiting dislocation in ETF prices. This paper builds a novel dataset of detailed US bond ETF-AP relationships and shows that high AP leverage played a significant role in weakening this arbitrage during the dash-for-cash episode of March 2020. The strength of the arbitrage relationship linking price signals to primary market activity weakened by 77 percent in ETFs related to more leveraged APs versus 64 percent for ETFs linked to less leveraged APs. This effect was particularly strong among those ETFs focusing on less liquid asset classes, relying on APs engaging in high-frequency trading strategies, and unrelated to banks and bank holding companies. Policy announcements by the Federal Reserve did not have had a strong impact in restoring arbitrage strength. AP leverage constraints operated in parallel to constraints faced by lead-market makers in secondary ETF markets, which were more closely related to regulatory capital limits.
{"title":"Does the Diversity and Solvency of Authorized Participants Matter for Bond ETF Arbitrage? Evidence from the Dash for Cash Episode","authors":"C. Raddatz","doi":"10.2139/ssrn.3868529","DOIUrl":"https://doi.org/10.2139/ssrn.3868529","url":null,"abstract":"Authorized participants’ (APs) arbitrage in primary markets for ETF shares plays a key role in limiting dislocation in ETF prices. This paper builds a novel dataset of detailed US bond ETF-AP relationships and shows that high AP leverage played a significant role in weakening this arbitrage during the dash-for-cash episode of March 2020. The strength of the arbitrage relationship linking price signals to primary market activity weakened by 77 percent in ETFs related to more leveraged APs versus 64 percent for ETFs linked to less leveraged APs. This effect was particularly strong among those ETFs focusing on less liquid asset classes, relying on APs engaging in high-frequency trading strategies, and unrelated to banks and bank holding companies. Policy announcements by the Federal Reserve did not have had a strong impact in restoring arbitrage strength. AP leverage constraints operated in parallel to constraints faced by lead-market makers in secondary ETF markets, which were more closely related to regulatory capital limits.","PeriodicalId":20999,"journal":{"name":"Regulation of Financial Institutions eJournal","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81918662","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study presents novel evidence that mutual fund liquidity management affects stock liquidity. Exploiting a proposal by the U.S. Securities and Exchange Commission (SEC) as an exogenous shock to mutual fund liquidity management, I find that mutual fund liquidity management improves stock liquidity of firms in mutual fund portfolios. This improvement is more pronounced when mutual funds have stronger incentives to improve portfolio liquidity and more resources to influence firms and when portfolio firms have lower stock liquidity prior to the SEC proposal. Consistent with mutual funds influencing portfolio firms to be more transparent, I further show that improving disclosure among portfolio firms is one mechanism through which stock liquidity is improved. Overall, the results indicate that liquidity management at the fund level has important implications for stock liquidity and information disclosure of portfolio firms.
{"title":"Mutual Fund Liquidity Management, Stock Liquidity, and Corporate Disclosure","authors":"Liwei Weng","doi":"10.2139/ssrn.3857426","DOIUrl":"https://doi.org/10.2139/ssrn.3857426","url":null,"abstract":"This study presents novel evidence that mutual fund liquidity management affects stock liquidity. Exploiting a proposal by the U.S. Securities and Exchange Commission (SEC) as an exogenous shock to mutual fund liquidity management, I find that mutual fund liquidity management improves stock liquidity of firms in mutual fund portfolios. This improvement is more pronounced when mutual funds have stronger incentives to improve portfolio liquidity and more resources to influence firms and when portfolio firms have lower stock liquidity prior to the SEC proposal. Consistent with mutual funds influencing portfolio firms to be more transparent, I further show that improving disclosure among portfolio firms is one mechanism through which stock liquidity is improved. Overall, the results indicate that liquidity management at the fund level has important implications for stock liquidity and information disclosure of portfolio firms.","PeriodicalId":20999,"journal":{"name":"Regulation of Financial Institutions eJournal","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86815058","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
By using institutional trading data in a sample of US IPOs, I provide evidence that IPO syndicate banks use their affiliated institutional investors to build a relationship with IPO lead underwriters and boost their underwriting business. First, I show that investment managers provide unprofitable price support in the aftermarket of IPOs in which their parent banks are non-lead syndicate members. This costly support is concentrated in cold IPOs and IPOs net sold by independent institutions. Second, I show that lead underwriters are more likely to select in the IPO syndicate the banks whose affiliated institutional investors support IPO prices. I discuss and document evidence of the incentives of underwriters and affiliated institutions that make price support emerge in equilibrium.
{"title":"Bank-Affiliated Institutional Investors and IPO Syndicates Formation","authors":"Giuseppe Pratobevera","doi":"10.2139/ssrn.3475053","DOIUrl":"https://doi.org/10.2139/ssrn.3475053","url":null,"abstract":"By using institutional trading data in a sample of US IPOs, I provide evidence that IPO syndicate banks use their affiliated institutional investors to build a relationship with IPO lead underwriters and boost their underwriting business. First, I show that investment managers provide unprofitable price support in the aftermarket of IPOs in which their parent banks are non-lead syndicate members. This costly support is concentrated in cold IPOs and IPOs net sold by independent institutions. Second, I show that lead underwriters are more likely to select in the IPO syndicate the banks whose affiliated institutional investors support IPO prices. I discuss and document evidence of the incentives of underwriters and affiliated institutions that make price support emerge in equilibrium.","PeriodicalId":20999,"journal":{"name":"Regulation of Financial Institutions eJournal","volume":"44 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-05-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79933139","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The surveillance of client transactions by financial institutions, known as transaction monitoring has become a core Financial Crime Compliance (FCC) function. Market research suggests that transaction monitoring is one of the major growth areas in the global Regulatory Technology (RegTech) market, worth USD 2.2 billion in 2020.
This research paper analyses the failings of the current transaction-monitoring model given the scale of investment, the balance between cost and benefit along with the overall effectiveness of the suspicious transaction-reporting regime. it explores industry initiatives for innovation and reform and provides a set of recommendations to both address existing pain points and to provide potential alternatives and opportunities for the future towards the prospect of systemic monitoring.
{"title":"The Future of Transaction Monitoring: Better Ways to Detect and Disrupt Financial Crime","authors":"Matthew Redhead","doi":"10.2139/ssrn.3865131","DOIUrl":"https://doi.org/10.2139/ssrn.3865131","url":null,"abstract":"The surveillance of client transactions by financial institutions, known as transaction monitoring has become a core Financial Crime Compliance (FCC) function. Market research suggests that transaction monitoring is one of the major growth areas in the global Regulatory Technology (RegTech) market, worth USD 2.2 billion in 2020.<br><br>This research paper analyses the failings of the current transaction-monitoring model given the scale of investment, the balance between cost and benefit along with the overall effectiveness of the suspicious transaction-reporting regime. it explores industry initiatives for innovation and reform and provides a set of recommendations to both address existing pain points and to provide potential alternatives and opportunities for the future towards the prospect of systemic monitoring.","PeriodicalId":20999,"journal":{"name":"Regulation of Financial Institutions eJournal","volume":"64 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-05-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80686202","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This note describes past runs on non-government money market mutual funds and official sector actions that were taken to stem the runs. In addition, it highlights other cash management vehicles that may have vulnerabilities similar to those of non-government MMMFs. Finally, it proposes that converting all non-government MMMFs into government MMMFs could substantially reduce the likelihood of future official sector support for MMMFs.
{"title":"Money Market Mutual Funds: Runs, Emergency Liquidity Facilities, and Potential Reforms","authors":"Kenechukwu Anadu, Siobhan Sanders","doi":"10.2139/ssrn.3850942","DOIUrl":"https://doi.org/10.2139/ssrn.3850942","url":null,"abstract":"This note describes past runs on non-government money market mutual funds and official sector actions that were taken to stem the runs. In addition, it highlights other cash management vehicles that may have vulnerabilities similar to those of non-government MMMFs. Finally, it proposes that converting all non-government MMMFs into government MMMFs could substantially reduce the likelihood of future official sector support for MMMFs.","PeriodicalId":20999,"journal":{"name":"Regulation of Financial Institutions eJournal","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-05-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90094513","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper develops a model to study how capital flows in the financial system affect banks’ coordination problem in the credit supply process. The economy is susceptible to self-fulfilling credit freezes: banks abstain from lending when they fear that other banks will withhold lending, and the resultant credit contraction impedes economic growth. Capital flows across banks can alleviate the problem by enabling optimistic banks to borrow from pessimistic banks and extend more credit to the real economy. However, the equilibrium interest rate reveals public information about economic fundamentals and banks’ aggregate willingness to lend, increasing the fragility of the credit market. As a result, the economy can get stuck in an equilibrium where both interbank capital flows and the real credit supply freeze and they reinforce each other through a vicious feedback loop. Regulations addressing counterparty risks can help to maintain active capital flows in the financial system and stabilize the real credit market.
{"title":"Capital Flows in the Financial System and Supply of Credit","authors":"Lin Shen","doi":"10.2139/ssrn.3847983","DOIUrl":"https://doi.org/10.2139/ssrn.3847983","url":null,"abstract":"This paper develops a model to study how capital flows in the financial system affect banks’ coordination problem in the credit supply process. The economy is susceptible to self-fulfilling credit freezes: banks abstain from lending when they fear that other banks will withhold lending, and the resultant credit contraction impedes economic growth. Capital flows across banks can alleviate the problem by enabling optimistic banks to borrow from pessimistic banks and extend more credit to the real economy. However, the equilibrium interest rate reveals public information about economic fundamentals and banks’ aggregate willingness to lend, increasing the fragility of the credit market. As a result, the economy can get stuck in an equilibrium where both interbank capital flows and the real credit supply freeze and they reinforce each other through a vicious feedback loop. Regulations addressing counterparty risks can help to maintain active capital flows in the financial system and stabilize the real credit market.","PeriodicalId":20999,"journal":{"name":"Regulation of Financial Institutions eJournal","volume":"38 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-05-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90607124","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
D. Zetzsche, Ross P. Buckley, D. Arner, Maria Lucia Passador
Cross-border payments suffer from a lack of speed and transparency and limited access, resulting in higher overall costs than domestic payments. This paper analyses how the best execution principle developed in the context of securities and derivatives could be applied to cross-border payments. Under that principle, financial institutions are legally required to provide the most advantageous order execution in terms of speed, risks and costs for their customers given the prevailing market environment. We argue that introducing best execution could alter the current set-up of cross-border payments which rests, for the most part, on a system of large, globally connected correspondent banks. The current system is best understood as one of “best friends”, in that the relationship among payment institutions determines through which institutions orders are routed. In turn, payment institutions charge their clients on a “cost plus profit” basis. Some of the payment institutions even benefit from rebates based on liquidity volume (kick-backs) and from reduced rates and soft commissions elsewhere in the payment chain. Overall, there is little incentive for payment institutions to truly put their clients first in terms of speed, costs and risks in the current “best friends” environment. Introducing “best execution” is potentially a game changer: it would require payment institutions to focus on their clients’ interests (i.e., when choosing the route the order is to take). Based on experience with the best execution principle enshrined in securities law, we would expect the large-scale introduction of digital routing systems to identify the offer that constitutes best execution. Furthermore, we expect that more links between correspondent banks, new service providers from the FinTech space, and public payment networks (including regional integration systems) would be established and would assist in identifying excess liquidity in infrequently traded currency pairs. While none of this requires distributed ledger technology, strictu sensu, one convenient way, technically, to achieve that purpose is by implementing a distributed ledger that functions, initially, as a digital liquidity marketplace (a pure information sharing device) and, which in time, could be further developed into a “best execution platform”.
{"title":"The Case for a Best Execution Principle in Cross-border Payments","authors":"D. Zetzsche, Ross P. Buckley, D. Arner, Maria Lucia Passador","doi":"10.2139/ssrn.3834335","DOIUrl":"https://doi.org/10.2139/ssrn.3834335","url":null,"abstract":"Cross-border payments suffer from a lack of speed and transparency and limited access, resulting in higher overall costs than domestic payments. This paper analyses how the best execution principle developed in the context of securities and derivatives could be applied to cross-border payments. Under that principle, financial institutions are legally required to provide the most advantageous order execution in terms of speed, risks and costs for their customers given the prevailing market environment. We argue that introducing best execution could alter the current set-up of cross-border payments which rests, for the most part, on a system of large, globally connected correspondent banks. The current system is best understood as one of “best friends”, in that the relationship among payment institutions determines through which institutions orders are routed. In turn, payment institutions charge their clients on a “cost plus profit” basis. Some of the payment institutions even benefit from rebates based on liquidity volume (kick-backs) and from reduced rates and soft commissions elsewhere in the payment chain. Overall, there is little incentive for payment institutions to truly put their clients first in terms of speed, costs and risks in the current “best friends” environment. Introducing “best execution” is potentially a game changer: it would require payment institutions to focus on their clients’ interests (i.e., when choosing the route the order is to take). Based on experience with the best execution principle enshrined in securities law, we would expect the large-scale introduction of digital routing systems to identify the offer that constitutes best execution. Furthermore, we expect that more links between correspondent banks, new service providers from the FinTech space, and public payment networks (including regional integration systems) would be established and would assist in identifying excess liquidity in infrequently traded currency pairs. While none of this requires distributed ledger technology, strictu sensu, one convenient way, technically, to achieve that purpose is by implementing a distributed ledger that functions, initially, as a digital liquidity marketplace (a pure information sharing device) and, which in time, could be further developed into a “best execution platform”.","PeriodicalId":20999,"journal":{"name":"Regulation of Financial Institutions eJournal","volume":"22 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-04-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81616626","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Cryptocurrencies are based on digitally signed updates to a ledger maintained in a decentralized manner according to consensus mechanisms in compliance with consented protocols. The ledger updates are often referred to as transactions and the participants in the consensus mechanisms can be called transaction validators. This paper analyzes whether holding transaction validators liable has a deterrent effect on non-compliant transactions and possible legal bases for enforcing such liability. It is argued that such a liability has a deterrent effect and seems indispensable in a world of mainstream cryptocurrency adoption.
{"title":"Who is Liable for Non-Compliant Cryptocurrency Transactions: Why Not Hang a Bitcoin Miner Now and Then?","authors":"P. Østbye","doi":"10.2139/ssrn.3825893","DOIUrl":"https://doi.org/10.2139/ssrn.3825893","url":null,"abstract":"Cryptocurrencies are based on digitally signed updates to a ledger maintained in a decentralized manner according to consensus mechanisms in compliance with consented protocols. The ledger updates are often referred to as transactions and the participants in the consensus mechanisms can be called transaction validators. This paper analyzes whether holding transaction validators liable has a deterrent effect on non-compliant transactions and possible legal bases for enforcing such liability. It is argued that such a liability has a deterrent effect and seems indispensable in a world of mainstream cryptocurrency adoption.","PeriodicalId":20999,"journal":{"name":"Regulation of Financial Institutions eJournal","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-04-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91060659","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
京公网安备 11010802042870号
京ICP备2023020795号-1
扫码关注我们
求助内容：
应助结果提醒方式：