Mobile phones are spreading rapidly throughout developing countries. Banks and other firms are increasingly using mobile phones and other non-traditional banking infrastructure, such as phone companies and retail shops, to provide financial services to large, low-income populations in these countries. This article provides a framework for regulating such services.
{"title":"The Roadmap Approach to Regulating Digital Financial Services","authors":"J. Greenacre","doi":"10.1093/jfr/fjv008","DOIUrl":"https://doi.org/10.1093/jfr/fjv008","url":null,"abstract":"Mobile phones are spreading rapidly throughout developing countries. Banks and other firms are increasingly using mobile phones and other non-traditional banking infrastructure, such as phone companies and retail shops, to provide financial services to large, low-income populations in these countries. This article provides a framework for regulating such services.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2015-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/jfr/fjv008","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"61718650","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}
Operational risk modelling has become commonplace in large international banks and is gaining popularity in the insurance industry as well. This is partly due to financial regulation (Basel II, Solvency II). This article argues that operational risk modelling is fundamentally flawed, despite efforts to resolve the scarce data in the tail of the probability distributions. Potential solutions are special statistical techniques or shared (external) data initiatives. While capital regulation might be one perspective, internal capital modelling efforts are also flawed because of the main principles of the RAROC methodology. Rather than handling the issue of data scarcity, institutions and regulators should better focus on operational risk management and avoid large losses. Capital regulation for operational risk should be further simplified.
{"title":"Why Operational Risk Modelling Creates Inverse Incentives","authors":"R. Doff","doi":"10.1093/JFR/FJV005","DOIUrl":"https://doi.org/10.1093/JFR/FJV005","url":null,"abstract":"Operational risk modelling has become commonplace in large international banks and is gaining popularity in the insurance industry as well. This is partly due to financial regulation (Basel II, Solvency II). This article argues that operational risk modelling is fundamentally flawed, despite efforts to resolve the scarce data in the tail of the probability distributions. Potential solutions are special statistical techniques or shared (external) data initiatives. While capital regulation might be one perspective, internal capital modelling efforts are also flawed because of the main principles of the RAROC methodology. Rather than handling the issue of data scarcity, institutions and regulators should better focus on operational risk management and avoid large losses. Capital regulation for operational risk should be further simplified.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2015-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/JFR/FJV005","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"61718282","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}
On 31 July 2014, Argentina defaulted on its sovereign bonds for the second time in the 21st century. It was also its eighth default since independence1; at such frequency, this was perhaps not an especially noteworthy event. What made it so extraordinary was not that another domestic financial crisis triggered the payment default, but rather an injunction handed down by a federal district court in New York. However, despite public outrage, the wider impact of this decision is likely to be limited. That is even more so if reforms that have already started continue to be implemented. The case dates back to Christmas Eve 2001, when the interim Saa administration declared a payment suspension on foreign debt.2 The first scheduled payments affected by this decision were due in January 2002. Only weeks later, in March, the first lawsuits by American investors against the Argentine government were filed in US courts (see Figure 1). But a real rush to the courthouse took place from September 2003 onwards, when the first details of the intended debt restructuring were published. With a present value loss (‘haircut’) for investors of approximately 90 per cent, they were considerably harsher than most bond exchange offers since the 1990s, which saw average haircuts of 35 per cent.3 A debt exchange finally took place in June 2005 with a haircut of approximately 77 per cent. About 76 per cent of creditors accepted the offer, later increased to slightly more than 90 per cent after a reopening at identical terms in 2010. Afterwards, Argentina resumed payments to participating investors on the new ‘exchange’ bonds, but refused to make any payments to the ‘holdout’ creditors who kept the original bonds. Figure 1. Lawsuits filed since 2002. Cumulative nominal claims in litigation against the Republic of Argentina, Provinces of …
{"title":"Sovereign Debt Litigation in Argentina: Implications of the Pari Passu Default","authors":"Julian Schumacher","doi":"10.1093/JFR/FJU006","DOIUrl":"https://doi.org/10.1093/JFR/FJU006","url":null,"abstract":"On 31 July 2014, Argentina defaulted on its sovereign bonds for the second time in the 21st century. It was also its eighth default since independence1; at such frequency, this was perhaps not an especially noteworthy event. What made it so extraordinary was not that another domestic financial crisis triggered the payment default, but rather an injunction handed down by a federal district court in New York. However, despite public outrage, the wider impact of this decision is likely to be limited. That is even more so if reforms that have already started continue to be implemented.\u0000\u0000The case dates back to Christmas Eve 2001, when the interim Saa administration declared a payment suspension on foreign debt.2 The first scheduled payments affected by this decision were due in January 2002. Only weeks later, in March, the first lawsuits by American investors against the Argentine government were filed in US courts (see Figure 1). But a real rush to the courthouse took place from September 2003 onwards, when the first details of the intended debt restructuring were published. With a present value loss (‘haircut’) for investors of approximately 90 per cent, they were considerably harsher than most bond exchange offers since the 1990s, which saw average haircuts of 35 per cent.3 A debt exchange finally took place in June 2005 with a haircut of approximately 77 per cent. About 76 per cent of creditors accepted the offer, later increased to slightly more than 90 per cent after a reopening at identical terms in 2010. Afterwards, Argentina resumed payments to participating investors on the new ‘exchange’ bonds, but refused to make any payments to the ‘holdout’ creditors who kept the original bonds. \u0000\u0000\u0000\u0000Figure 1. \u0000Lawsuits filed since 2002. Cumulative nominal claims in litigation against the Republic of Argentina, Provinces of …","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2015-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/JFR/FJU006","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"61717719","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 recent financial scandal of Gowex in the Spanish Alternative Investment Market (MAB) has reopened the debate about the dangers of lightly regulated markets and their optimal level of regulation. This article argues that Gowex’s collapse was not a failure of these markets but a failure of the gatekeepers in charge of overseeing Gowex’s activities. Therefore, we propose that regulators should focus on providing mechanisms to encourage gatekeepers to do their work in an effective and credible way. Namely, we propose that regulators should enhance the role and effectiveness of Nominated Advisers, since these players have been created precisely for the purpose of compensating for the lower level of information issued by companies in these markets. Likewise, when it is not currently applicable in an Alternative Investment Market, regulators should also consider the possibility of implementing some—relatively costless—corporate governance policies applied in Main Markets such as the imposition of independent directors. Thus, by mitigating perverse incentives between directors and executive officers, the board of directors would be in a better position to oversee the managers. Finally, we also argue that regulators should improve the reputation and expertise of their own financial authorities, especially in cases of relatively new Alternative Investment Markets such as the Spanish MAB. Otherwise, they will not create a safe environment for investors; the efforts to preserve the Alternative Investment Market might be useless and costly; and the most likely end for this market would be its closure, as was the case with Germany's Neuer Markt after its reputation was severely damaged as a result of various cases of fraud and corporate bankruptcies in the aftermath of the high-tech bubble.
{"title":"Alternative Investment Markets under Criticism: Reasons to be Worried? Lessons from Gowex","authors":"A. Martínez","doi":"10.1093/JFR/FJU008","DOIUrl":"https://doi.org/10.1093/JFR/FJU008","url":null,"abstract":"The recent financial scandal of Gowex in the Spanish Alternative Investment Market (MAB) has reopened the debate about the dangers of lightly regulated markets and their optimal level of regulation. This article argues that Gowex’s collapse was not a failure of these markets but a failure of the gatekeepers in charge of overseeing Gowex’s activities. Therefore, we propose that regulators should focus on providing mechanisms to encourage gatekeepers to do their work in an effective and credible way. Namely, we propose that regulators should enhance the role and effectiveness of Nominated Advisers, since these players have been created precisely for the purpose of compensating for the lower level of information issued by companies in these markets. Likewise, when it is not currently applicable in an Alternative Investment Market, regulators should also consider the possibility of implementing some—relatively costless—corporate governance policies applied in Main Markets such as the imposition of independent directors. Thus, by mitigating perverse incentives between directors and executive officers, the board of directors would be in a better position to oversee the managers. Finally, we also argue that regulators should improve the reputation and expertise of their own financial authorities, especially in cases of relatively new Alternative Investment Markets such as the Spanish MAB. Otherwise, they will not create a safe environment for investors; the efforts to preserve the Alternative Investment Market might be useless and costly; and the most likely end for this market would be its closure, as was the case with Germany's Neuer Markt after its reputation was severely damaged as a result of various cases of fraud and corporate bankruptcies in the aftermath of the high-tech bubble.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2015-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/JFR/FJU008","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"61718482","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}
Many of the world’s developed economies have introduced, or are planning to introduce, bank bail-in regimes that involve the participation of bank creditors in bearing the costs of restoring a failing bank to health. There is a long list of actual or hypothetical advantages attached to the bail-in process. Therefore, there is a need for a closer examination of the bail-in process, if it is to become a successful substitute to the unpopular bailout approach. The bail-in tool involves replacing the implicit public guarantee, on which fractional reserve banking has operated, with a system of private penalties. The bail-in approach may, indeed, be much superior to bailouts in the case of idiosyncratic failure. In other cases, the bail-in process may entail important risks. The article provides a legal and economic analysis of some of the key potential risks bail-ins may entail both in the domestic and cross-border contexts. It explains why bail-in regimes will not eradicate the need for injection of public funds where there is a threat of systemic collapse, because a number of banks have simultaneously entered into difficulties, or in the event of the failure of a large complex cross-border bank, unless the failure was clearly idiosyncratic.
{"title":"Critical Reflections on Bank Bail-ins","authors":"E. Avgouleas, C. Goodhart","doi":"10.1093/JFR/FJU009","DOIUrl":"https://doi.org/10.1093/JFR/FJU009","url":null,"abstract":"Many of the world’s developed economies have introduced, or are planning to introduce, bank bail-in regimes that involve the participation of bank creditors in bearing the costs of restoring a failing bank to health. There is a long list of actual or hypothetical advantages attached to the bail-in process. Therefore, there is a need for a closer examination of the bail-in process, if it is to become a successful substitute to the unpopular bailout approach. The bail-in tool involves replacing the implicit public guarantee, on which fractional reserve banking has operated, with a system of private penalties. The bail-in approach may, indeed, be much superior to bailouts in the case of idiosyncratic failure. In other cases, the bail-in process may entail important risks. The article provides a legal and economic analysis of some of the key potential risks bail-ins may entail both in the domestic and cross-border contexts. It explains why bail-in regimes will not eradicate the need for injection of public funds where there is a threat of systemic collapse, because a number of banks have simultaneously entered into difficulties, or in the event of the failure of a large complex cross-border bank, unless the failure was clearly idiosyncratic.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2015-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/JFR/FJU009","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"61718561","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}
Rule 10b-5 private damages actions cannot proceed on a class basis unless the plaintiffs are entitled to the fraud-on-the-market presumption of reliance. In Halliburton II , the US Supreme Court provides defendants with an opportunity, before class certification, to rebut the fraud-on-the-market presumption through evidence that the misstatement had no effect on the issuer’s share price. It left unspecified, however, the standard by which the sufficiency of this evidence should be judged. This article explores the two most plausible approaches to setting this standard. One approach would be to impose the same statistical burden on defendants seeking to show there was no price effect as is currently imposed on plaintiffs to show that there was a price effect when the plaintiffs later need to demonstrate loss causation. The other approach would be to decide that defendants can rebut the presumption of reliance simply by persuading the court that the plaintiffs will not be able to meet their statistical burden. If the courts choose the first approach, Halliburton II is unlikely to have much effect on the cases that are brought or on their resolution by settlement or adjudication. If they choose the second approach, the decision’s effect will be more substantial. The article concludes with a brief discussion of some of the considerations that should be relevant to courts in their choice between the two approaches.
{"title":"Halliburton II: What It’s All About","authors":"M. Fox","doi":"10.1093/jfr/fju004","DOIUrl":"https://doi.org/10.1093/jfr/fju004","url":null,"abstract":"Rule 10b-5 private damages actions cannot proceed on a class basis unless the plaintiffs are entitled to the fraud-on-the-market presumption of reliance. In Halliburton II , the US Supreme Court provides defendants with an opportunity, before class certification, to rebut the fraud-on-the-market presumption through evidence that the misstatement had no effect on the issuer’s share price. It left unspecified, however, the standard by which the sufficiency of this evidence should be judged.\u0000\u0000This article explores the two most plausible approaches to setting this standard. One approach would be to impose the same statistical burden on defendants seeking to show there was no price effect as is currently imposed on plaintiffs to show that there was a price effect when the plaintiffs later need to demonstrate loss causation. The other approach would be to decide that defendants can rebut the presumption of reliance simply by persuading the court that the plaintiffs will not be able to meet their statistical burden. If the courts choose the first approach, Halliburton II is unlikely to have much effect on the cases that are brought or on their resolution by settlement or adjudication. If they choose the second approach, the decision’s effect will be more substantial. The article concludes with a brief discussion of some of the considerations that should be relevant to courts in their choice between the two approaches.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2015-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/jfr/fju004","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"61718042","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}
Chinese and Emirati purchases of US companies have collapsed because of suspicions that their Sovereign Wealth Fund (SWF) status is a disguise for political ambitions. SWFs have grown in size and number, drawing the attention of many government officials because of their non-transparent nature and expansionary investment policies. Their government-controlled status and non-transparent nature have raised fears among governments of political rather than economic investment motivations. SWFs may use their economic influence to obtain critical information, transfer jobs abroad, or compromise the operation of strategically important companies. Such concerns have led to proposals for national measures to regulate investments of foreign SWFs with a view to controlling their economic and security impact. This article questions whether the existence of SWFs justifies the adoption a particular set of national or international foreign investment regulations. It offers an assessment of competing models from the viewpoint of theory, costs, and implementation. It also examines the alternative model of international self-regulation.
{"title":"Regulating Sovereign Wealth Funds to Avoid Investment Protectionism","authors":"G. Kratsas, J. Truby","doi":"10.1093/JFR/FJU002","DOIUrl":"https://doi.org/10.1093/JFR/FJU002","url":null,"abstract":"Chinese and Emirati purchases of US companies have collapsed because of suspicions that their Sovereign Wealth Fund (SWF) status is a disguise for political ambitions. SWFs have grown in size and number, drawing the attention of many government officials because of their non-transparent nature and expansionary investment policies. Their government-controlled status and non-transparent nature have raised fears among governments of political rather than economic investment motivations. SWFs may use their economic influence to obtain critical information, transfer jobs abroad, or compromise the operation of strategically important companies. Such concerns have led to proposals for national measures to regulate investments of foreign SWFs with a view to controlling their economic and security impact. This article questions whether the existence of SWFs justifies the adoption a particular set of national or international foreign investment regulations. It offers an assessment of competing models from the viewpoint of theory, costs, and implementation. It also examines the alternative model of international self-regulation.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2015-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/JFR/FJU002","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"61717860","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}
Franklin Allen, E. Carletti, Itay Goldstein, Agnese Leonello
The massive use of public funds in the financial sector and the large costs for taxpayers are often used to justify the idea that public intervention should be limited. This conclusion is based on the idea that government guarantees always induce financial institutions to take excessive risk. In this article, we challenge this conventional view and argue that it relies on some specific assumptions made in the existing literature on government guarantees and on a number of modelling choices. We review the theory of government guarantees by highlighting and discussing the role that these underlying assumptions play in the assessment of the desirability and effectiveness of government guarantees and propose a new framework for thinking about them.
{"title":"Moral Hazard and Government Guarantees in the Banking Industry","authors":"Franklin Allen, E. Carletti, Itay Goldstein, Agnese Leonello","doi":"10.1093/JFR/FJU003","DOIUrl":"https://doi.org/10.1093/JFR/FJU003","url":null,"abstract":"The massive use of public funds in the financial sector and the large costs for taxpayers are often used to justify the idea that public intervention should be limited. This conclusion is based on the idea that government guarantees always induce financial institutions to take excessive risk. In this article, we challenge this conventional view and argue that it relies on some specific assumptions made in the existing literature on government guarantees and on a number of modelling choices. We review the theory of government guarantees by highlighting and discussing the role that these underlying assumptions play in the assessment of the desirability and effectiveness of government guarantees and propose a new framework for thinking about them.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2015-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/JFR/FJU003","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"61717928","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}
Judge Jed Rakoff has famously written opinions that contain very strong dicta describing his views. In the contexts in which he is writing, law ‘on the books' has not sufficed and probably could not suffice: society has been harmed, and the actors harming it cannot be sufficiently constrained. Judge Rakoff's dicta may help expand law's penumbra to encompass what ‘law on the books' cannot.
{"title":"Judge Jed Rakoff and Law’s Penumbra","authors":"C. Hill","doi":"10.1093/JFR/FJU005","DOIUrl":"https://doi.org/10.1093/JFR/FJU005","url":null,"abstract":"Judge Jed Rakoff has famously written opinions that contain very strong dicta describing his views. In the contexts in which he is writing, law ‘on the books' has not sufficed and probably could not suffice: society has been harmed, and the actors harming it cannot be sufficiently constrained. Judge Rakoff's dicta may help expand law's penumbra to encompass what ‘law on the books' cannot.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2015-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/JFR/FJU005","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"61718140","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 decision of the European Court of Human Rights (ECtHR) in Grande Stevens et al v Italy has already become an oft-mentioned touchstone on the implications of human rights protection in financial markets law.1 The Court’s ruling sets out some important principles in two fundamental areas: first, it clarifies to what extent administrative procedures are bound by the fair trial provisions of the European Convention on Human Rights (ECHR) (Article 6) when sanctions are applied that—albeit administrative in form—are criminal in substance. Secondly, the decision imposes some limits on the joint application of criminal and (formally) administrative sanctions in light of the double jeopardy clause set forth in Article 4, Protocol 7, ECHR. Grande Stevens concerned an alleged lack of disclosure relating to an equity swap on shares issued by Fiat Spa, the Italian carmaker listed on the Milan Stock Exchange. In 2002, Fiat was in financial distress and received a convertible loan from a bank syndicate. The loan covenants provided that if Fiat did not repay its debt at maturity (September 2005), it would have to instead deliver shares for an equivalent amount. As the repayment deadline approached, it became clear that a share issue would have been more convenient than total repayment. However, conversion of the outstanding debt would have diluted the Agnelli family's controlling stake—held through the listed company Ifil Spa—from 30.06 to 22 percent of the outstanding voting capital, while the bank syndicate would have ended up with a global participation of up to 28 per cent. In April 2005, Exor Group Spa entered an equity swap contract on 90 million Fiat shares with Merrill Lynch. Both Exor and Ifil were controlled by Giovanni Agnelli Sapa. Under the contract, Exor took the equity leg and had the right to receive cash flows if the price of …
{"title":"Public Enforcement of Market Abuse Bans. The ECtHR Grande Stevens Decision","authors":"Matteo Gargantini","doi":"10.1093/JFR/FJU007","DOIUrl":"https://doi.org/10.1093/JFR/FJU007","url":null,"abstract":"The decision of the European Court of Human Rights (ECtHR) in Grande Stevens et al v Italy has already become an oft-mentioned touchstone on the implications of human rights protection in financial markets law.1 The Court’s ruling sets out some important principles in two fundamental areas: first, it clarifies to what extent administrative procedures are bound by the fair trial provisions of the European Convention on Human Rights (ECHR) (Article 6) when sanctions are applied that—albeit administrative in form—are criminal in substance. Secondly, the decision imposes some limits on the joint application of criminal and (formally) administrative sanctions in light of the double jeopardy clause set forth in Article 4, Protocol 7, ECHR.\u0000\u0000Grande Stevens concerned an alleged lack of disclosure relating to an equity swap on shares issued by Fiat Spa, the Italian carmaker listed on the Milan Stock Exchange. In 2002, Fiat was in financial distress and received a convertible loan from a bank syndicate. The loan covenants provided that if Fiat did not repay its debt at maturity (September 2005), it would have to instead deliver shares for an equivalent amount. As the repayment deadline approached, it became clear that a share issue would have been more convenient than total repayment. However, conversion of the outstanding debt would have diluted the Agnelli family's controlling stake—held through the listed company Ifil Spa—from 30.06 to 22 percent of the outstanding voting capital, while the bank syndicate would have ended up with a global participation of up to 28 per cent.\u0000\u0000In April 2005, Exor Group Spa entered an equity swap contract on 90 million Fiat shares with Merrill Lynch. Both Exor and Ifil were controlled by Giovanni Agnelli Sapa. Under the contract, Exor took the equity leg and had the right to receive cash flows if the price of …","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2015-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/JFR/FJU007","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"61717881","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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