Pub Date : 2019-05-21DOI: 10.1093/oso/9780190879631.003.0016
Alan N. Rechtschaffen
This chapter begins with a discussion of the suitability doctrine. The duty owed by broker-dealers is one of suitability when doing business with the general public; this was added to the Exchange Act with the adoption of the Securities Act of 1993. The duty owed by broker-dealers is not a fiduciary duty: it is the duty to make recommendations that are suitable to their client based on their personal situation. The suitability doctrine requires that the broker must have a reasonable basis for believing the recommendation to have been suitable for the customer, in light of the customer's financial condition and understanding of the investment and its risks. The Government Securities Act of 1993, which amended the Exchange Act, is the impetus for the suitability rule. The remainder of the chapter deals with suitability as it relates to futures and options.
{"title":"Suitability","authors":"Alan N. Rechtschaffen","doi":"10.1093/oso/9780190879631.003.0016","DOIUrl":"https://doi.org/10.1093/oso/9780190879631.003.0016","url":null,"abstract":"This chapter begins with a discussion of the suitability doctrine. The duty owed by broker-dealers is one of suitability when doing business with the general public; this was added to the Exchange Act with the adoption of the Securities Act of 1993. The duty owed by broker-dealers is not a fiduciary duty: it is the duty to make recommendations that are suitable to their client based on their personal situation. The suitability doctrine requires that the broker must have a reasonable basis for believing the recommendation to have been suitable for the customer, in light of the customer's financial condition and understanding of the investment and its risks. The Government Securities Act of 1993, which amended the Exchange Act, is the impetus for the suitability rule. The remainder of the chapter deals with suitability as it relates to futures and options.","PeriodicalId":416217,"journal":{"name":"Capital Markets, Derivatives, and the Law","volume":"64 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130017080","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}
Pub Date : 2019-05-21DOI: 10.1093/OSO/9780190879631.003.0003
A. Rechtschaffen
This chapter continues the discussion of the previous chapter on the Dodd-Frank Act. In the years since its passage, the legislation has had dramatic effects on the operation and stability of the financial markets, and will continue to play a vital role in the capital markets. In addition to establishing new capital and leverage requirements for banks, bank holding companies, and systemically significant nonbanks, Dodd-Frank also mandates that these requirements be “countercyclical, so that the amount of capital required to be maintained by a company increases in times of economic expansion and decreases in times of economic contraction.” The remainder of the chapter covers the Volcker Rule; living wills, credit exposure reports, and concentration limits; and other prudential standards.
{"title":"Dodd-Frank and the Regulation of Depository Institutions Capital Requirements","authors":"A. Rechtschaffen","doi":"10.1093/OSO/9780190879631.003.0003","DOIUrl":"https://doi.org/10.1093/OSO/9780190879631.003.0003","url":null,"abstract":"This chapter continues the discussion of the previous chapter on the Dodd-Frank Act. In the years since its passage, the legislation has had dramatic effects on the operation and stability of the financial markets, and will continue to play a vital role in the capital markets. In addition to establishing new capital and leverage requirements for banks, bank holding companies, and systemically significant nonbanks, Dodd-Frank also mandates that these requirements be “countercyclical, so that the amount of capital required to be maintained by a company increases in times of economic expansion and decreases in times of economic contraction.” The remainder of the chapter covers the Volcker Rule; living wills, credit exposure reports, and concentration limits; and other prudential standards.","PeriodicalId":416217,"journal":{"name":"Capital Markets, Derivatives, and the Law","volume":"103 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126375223","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}
Pub Date : 2019-05-21DOI: 10.1093/OSO/9780190879631.003.0006
A. Rechtschaffen
Under Dodd-Frank’s Title X, the Consumer Financial Protection Act of 2010 (CFPA), Congress established an independent Bureau of Consumer Financial Protection in the Federal Reserve System (originally branded the “CFPB” or “Consumer Financial Protection Bureau” and subsequently dubbed the “BCFP” or “Bureau of Consumer Financial Protection” in accord with its legislated name. The BCFP is tasked with protecting consumer interests in financial markets. Specifically, the Bureau aims to ensure that all customers have access to markets for consumer financial products and services in a fair, transparent, and competitive way. The CFPA authorizes the Bureau to uniformly regulate, supervise, and enforce the provisions of consumer financial products or services under federal consumer financial law. This chapter discusses the structure of the CFPA, roles and function of the BCFP, significant changes in financial consumer protection by the BCFP, judicial review of BCFP’s power, and the BCFP under President Trump's administration.
{"title":"Bureau of Consumer Financial Protection","authors":"A. Rechtschaffen","doi":"10.1093/OSO/9780190879631.003.0006","DOIUrl":"https://doi.org/10.1093/OSO/9780190879631.003.0006","url":null,"abstract":"Under Dodd-Frank’s Title X, the Consumer Financial Protection Act of 2010 (CFPA), Congress established an independent Bureau of Consumer Financial Protection in the Federal Reserve System (originally branded the “CFPB” or “Consumer Financial Protection Bureau” and subsequently dubbed the “BCFP” or “Bureau of Consumer Financial Protection” in accord with its legislated name. The BCFP is tasked with protecting consumer interests in financial markets. Specifically, the Bureau aims to ensure that all customers have access to markets for consumer financial products and services in a fair, transparent, and competitive way. The CFPA authorizes the Bureau to uniformly regulate, supervise, and enforce the provisions of consumer financial products or services under federal consumer financial law. This chapter discusses the structure of the CFPA, roles and function of the BCFP, significant changes in financial consumer protection by the BCFP, judicial review of BCFP’s power, and the BCFP under President Trump's administration.","PeriodicalId":416217,"journal":{"name":"Capital Markets, Derivatives, and the Law","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123686733","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}
Pub Date : 2019-05-21DOI: 10.1093/oso/9780190879631.003.0008
A. Rechtschaffen
This chapter begins with a discussion of the use of interest rates in asset valuation. During the Great Recession, the Federal Reserve has navigated U.S. interest rates lower by first reducing the target for the federal funds rate to zero, and then engaging in a process of quantitative easing by purchasing longer-term securities. The effect of the Federal Reserve's actions has been to lower interest rates that affect valuation models across all assets and investments. The chapter then discusses interest rate yield curve, covering the types of yield curves, why the yield curve may be flat or inverted, the increase in market demand for long-term securities, and long-term yield affected by Federal Reserve monetary policy.
{"title":"Asset Valuation","authors":"A. Rechtschaffen","doi":"10.1093/oso/9780190879631.003.0008","DOIUrl":"https://doi.org/10.1093/oso/9780190879631.003.0008","url":null,"abstract":"This chapter begins with a discussion of the use of interest rates in asset valuation. During the Great Recession, the Federal Reserve has navigated U.S. interest rates lower by first reducing the target for the federal funds rate to zero, and then engaging in a process of quantitative easing by purchasing longer-term securities. The effect of the Federal Reserve's actions has been to lower interest rates that affect valuation models across all assets and investments. The chapter then discusses interest rate yield curve, covering the types of yield curves, why the yield curve may be flat or inverted, the increase in market demand for long-term securities, and long-term yield affected by Federal Reserve monetary policy.","PeriodicalId":416217,"journal":{"name":"Capital Markets, Derivatives, and the Law","volume":"47 1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115707087","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}
Pub Date : 2019-05-21DOI: 10.1093/oso/9780190879631.003.0011
Alan N. Rechtschaffen
Derivatives provide a means for shifting risk from one party to a counterparty that is more willing or better able to assume that risk. The counterparty's motivation for assuming that risk might be to manage its own risk or to enhance yield (make money). Derivatives transactions may be based on the value of foreign currency, U.S. Treasury bonds, stock indexes, or interest rates. There are four types of derivatives contracts: forwards, futures, swaps, and options. This chapter discusses the following: counterparty credit risk, over-the-counter versus exchange-traded derivatives, shifting risk, types of derivatives, reduction of counterparty risk, suitability as hedging instruments, distinction between forwards and futures, foreign exchange forwards and futures, options, characteristics of swaps, and credit derivatives.
{"title":"Derivatives","authors":"Alan N. Rechtschaffen","doi":"10.1093/oso/9780190879631.003.0011","DOIUrl":"https://doi.org/10.1093/oso/9780190879631.003.0011","url":null,"abstract":"Derivatives provide a means for shifting risk from one party to a counterparty that is more willing or better able to assume that risk. The counterparty's motivation for assuming that risk might be to manage its own risk or to enhance yield (make money). Derivatives transactions may be based on the value of foreign currency, U.S. Treasury bonds, stock indexes, or interest rates. There are four types of derivatives contracts: forwards, futures, swaps, and options. This chapter discusses the following: counterparty credit risk, over-the-counter versus exchange-traded derivatives, shifting risk, types of derivatives, reduction of counterparty risk, suitability as hedging instruments, distinction between forwards and futures, foreign exchange forwards and futures, options, characteristics of swaps, and credit derivatives.","PeriodicalId":416217,"journal":{"name":"Capital Markets, Derivatives, and the Law","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116746046","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}
Pub Date : 2019-05-21DOI: 10.1093/oso/9780190879631.003.0010
A. Rechtschaffen
Debt instruments obligate an issuer to make interest payments and repay principal to the buyer according to the terms of an agreement between the lender and the borrower. The yield, or market price of these debt securities is related to the yield on U.S. Treasury securities. Treasuries remain the benchmark for risk-free credit investing, and other yields are related to the risk-free return Treasuries offer. Also known as bonds, debt instruments are attractive to investors because they can provide a reliable stream of cash flows in the form of interest payments and also might provide for the repayment of principal upon maturity. This chapter discusses the features of bonds, types of bonds, bond-rating agencies, special types of debt instruments, and the Securities Act.
{"title":"Debt Securities","authors":"A. Rechtschaffen","doi":"10.1093/oso/9780190879631.003.0010","DOIUrl":"https://doi.org/10.1093/oso/9780190879631.003.0010","url":null,"abstract":"Debt instruments obligate an issuer to make interest payments and repay principal to the buyer according to the terms of an agreement between the lender and the borrower. The yield, or market price of these debt securities is related to the yield on U.S. Treasury securities. Treasuries remain the benchmark for risk-free credit investing, and other yields are related to the risk-free return Treasuries offer. Also known as bonds, debt instruments are attractive to investors because they can provide a reliable stream of cash flows in the form of interest payments and also might provide for the repayment of principal upon maturity. This chapter discusses the features of bonds, types of bonds, bond-rating agencies, special types of debt instruments, and the Securities Act.","PeriodicalId":416217,"journal":{"name":"Capital Markets, Derivatives, and the Law","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115134956","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}
Pub Date : 2019-05-21DOI: 10.1093/OSO/9780190879631.003.0002
A. Rechtschaffen
This chapter begins with a discussion of the buildup to the crisis and the background of the Dodd-Frank Act. On July 21, 2010, President Obama signed the Wall Street Reform and Consumer Protection Act (WSRCPA), widely known as the “Dodd-Frank Act,” a massive piece of financial legislation encompassing a wide range of reforms intended to stabilize financial markets through enhanced oversight, reduction of risk, and improved consumer protection. Its 2,200 pages direct enactment of over 200 new or expanded regulations by federal agencies. The remainder of the chapter covers the Federal Reserve's provision of liquidity and stabilization of financial markets, and regulatory reaction at the height of the financial crisis (Emergency Economic Stabilization Act (EESA) and American Recovery and Reinvestment Act (ARRA)).
{"title":"The Liquidity Crisis and Government Reaction","authors":"A. Rechtschaffen","doi":"10.1093/OSO/9780190879631.003.0002","DOIUrl":"https://doi.org/10.1093/OSO/9780190879631.003.0002","url":null,"abstract":"This chapter begins with a discussion of the buildup to the crisis and the background of the Dodd-Frank Act. On July 21, 2010, President Obama signed the Wall Street Reform and Consumer Protection Act (WSRCPA), widely known as the “Dodd-Frank Act,” a massive piece of financial legislation encompassing a wide range of reforms intended to stabilize financial markets through enhanced oversight, reduction of risk, and improved consumer protection. Its 2,200 pages direct enactment of over 200 new or expanded regulations by federal agencies. The remainder of the chapter covers the Federal Reserve's provision of liquidity and stabilization of financial markets, and regulatory reaction at the height of the financial crisis (Emergency Economic Stabilization Act (EESA) and American Recovery and Reinvestment Act (ARRA)).","PeriodicalId":416217,"journal":{"name":"Capital Markets, Derivatives, and the Law","volume":"93 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134485277","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}
An option is a derivative that derives its value from another underlying asset, instrument, or index. Options “transfer the right but not the obligation to buy or sell the underlying asset, instrument or index on or before the option's exercise date at a specified price (the strike price).” A contract that gives a purchaser such a right is inherently an option even if it called something else. Options can trade over the counter or on an exchange. Regulatory jurisdiction will be defined by the underlying asset negotiated under the terms of the option, by the location where the options are traded, and by the counterparties to an option transaction. This chapter discusses the characteristics of options, how options work, the Black-Scholes model and option pricing, delta hedging, and option strategies.
{"title":"Options","authors":"Alan N. Rechtschaffen","doi":"10.1515/9781547400096","DOIUrl":"https://doi.org/10.1515/9781547400096","url":null,"abstract":"An option is a derivative that derives its value from another underlying asset, instrument, or index. Options “transfer the right but not the obligation to buy or sell the underlying asset, instrument or index on or before the option's exercise date at a specified price (the strike price).” A contract that gives a purchaser such a right is inherently an option even if it called something else. Options can trade over the counter or on an exchange. Regulatory jurisdiction will be defined by the underlying asset negotiated under the terms of the option, by the location where the options are traded, and by the counterparties to an option transaction. This chapter discusses the characteristics of options, how options work, the Black-Scholes model and option pricing, delta hedging, and option strategies.","PeriodicalId":416217,"journal":{"name":"Capital Markets, Derivatives, and the Law","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126551619","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}
Pub Date : 2014-06-06DOI: 10.1093/acprof:oso/9780199971541.003.0011
A. Rechtschaffen
Former Federal Reserve Chairman Ben S. Bernanke classified derivatives as a “vulnerability” of the financial system that led to the financial crisis. He explained that derivatives concentrated risk within particular financial institutions and markets without sufficient regulatory oversight. The Wall Street Reform and Consumer Protection Act—Dodd-Frank—constituted a seismic shift in the regulation of financial institutions and markets in a massive effort to address regulatory shortcomings in derivatives markets. This chapter discusses the Dodd-Frank regulatory regime. Topics covered include the Dodd-Frank and derivatives trading; jurisdiction and registration; clearing, exchange, capital and margin, and reporting requirements; analysis of the provisions of Dodd-Frank on derivatives trading; rationale behind the exemptions and exclusions; the Lincoln Rule; Futures Commission Merchants; and criticisms of Dodd-Frank's derivatives trading provisions.
{"title":"Regulation of Swaps","authors":"A. Rechtschaffen","doi":"10.1093/acprof:oso/9780199971541.003.0011","DOIUrl":"https://doi.org/10.1093/acprof:oso/9780199971541.003.0011","url":null,"abstract":"Former Federal Reserve Chairman Ben S. Bernanke classified derivatives as a “vulnerability” of the financial system that led to the financial crisis. He explained that derivatives concentrated risk within particular financial institutions and markets without sufficient regulatory oversight. The Wall Street Reform and Consumer Protection Act—Dodd-Frank—constituted a seismic shift in the regulation of financial institutions and markets in a massive effort to address regulatory shortcomings in derivatives markets. This chapter discusses the Dodd-Frank regulatory regime. Topics covered include the Dodd-Frank and derivatives trading; jurisdiction and registration; clearing, exchange, capital and margin, and reporting requirements; analysis of the provisions of Dodd-Frank on derivatives trading; rationale behind the exemptions and exclusions; the Lincoln Rule; Futures Commission Merchants; and criticisms of Dodd-Frank's derivatives trading provisions.","PeriodicalId":416217,"journal":{"name":"Capital Markets, Derivatives, and the Law","volume":"66 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-06-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123382663","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}
Pub Date : 2014-06-06DOI: 10.1093/acprof:oso/9780199971541.003.0004
A. Rechtschaffen
This chapter begins with a discussion of the Federal Reserve and the Federal Reserve Banking System. The Federal Reserve System was created by Congress under the Federal Reserve Act “to provide for the establishment of federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States and for other purposes.” The Federal Reserve System comprises a central Board of Governors appointed by the president of the United States and confirmed by the Senate, and 12 regional Reserve banks. Monetary policy is set by the Federal Open Market Committee (FOMC). The remainder of the chapter covers monetary policy, quantitative easing, balance sheet normalization and the FOMC minutes.
{"title":"Understanding Interest Rates and the Economy","authors":"A. Rechtschaffen","doi":"10.1093/acprof:oso/9780199971541.003.0004","DOIUrl":"https://doi.org/10.1093/acprof:oso/9780199971541.003.0004","url":null,"abstract":"This chapter begins with a discussion of the Federal Reserve and the Federal Reserve Banking System. The Federal Reserve System was created by Congress under the Federal Reserve Act “to provide for the establishment of federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States and for other purposes.” The Federal Reserve System comprises a central Board of Governors appointed by the president of the United States and confirmed by the Senate, and 12 regional Reserve banks. Monetary policy is set by the Federal Open Market Committee (FOMC). The remainder of the chapter covers monetary policy, quantitative easing, balance sheet normalization and the FOMC minutes.","PeriodicalId":416217,"journal":{"name":"Capital Markets, Derivatives, and the Law","volume":"70 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-06-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126163761","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}
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