By now, almost every business has an internet presence, and is likely engaged in e-commerce. What are the major risks perceived by those engaged in e-commerce and electronic payment systems? What potential risks, if they become reality, may cause substantial increases in operating costs or threaten the very survival of the enterprise? This article discusses the relevant annual report disclosures from eBay (previous parent of PayPal) and Alphabet Inc. (parent of Google), along with other eBay, PayPal, Alphabet and Google documents, as a potentially powerful teaching device. Most of the descriptive language to follow is excerpted directly from eBay’s (PayPal) and Alphabet’s (Google) regulatory filings. My additions in prior scholarly articles about these entities include weaving these disclosure materials into a logical presentation and providing supplemental sources for those who desire a deeper look (usually in my footnotes) at any particular aspect. I’ve sought to present a roadmap with these materials that shows eBay’s and Google’s struggle to optimize their business performance while navigating through a complicated maze of regulatory compliance concerns and issues involving governmental jurisdictions throughout the world. International cyber crime and risk issues follow, with an examination of anti-money laundering, counter-terrorist, and other potential illegal activity laws. The value proposition offered here is disarmingly simple -- at no out-of-pocket cost, the reader has an opportunity to invest probably just a few hours to read and reflect upon the eBay (PayPal) and Alphabet Inc. (Google) multiple-million-dollar research, investment and documentation of perceived e-commerce, cyber, IT, and electronic payment system risks. Hopefully, this will prove of value to those either interested in the rapidly changing dynamics of (1) electronic payment systems, (2) those engaged in Internet site operations, or (3) those engaged in fighting cyber crime activities.
到目前为止，几乎每个企业都有互联网存在，并且很可能从事电子商务。从事电子商贸及电子支付系统的人士认为有哪些主要风险?哪些潜在的风险，如果成为现实，可能会导致经营成本大幅增加，甚至威胁到企业的生存?本文讨论了eBay (PayPal的前母公司)和Alphabet Inc. (Google的母公司)的相关年度报告披露，以及其他eBay, PayPal, Alphabet和Google的文件，作为潜在的强大教学设备。接下来的大部分描述性语言都直接摘自eBay (PayPal)和Alphabet(谷歌)提交给监管机构的文件。我在之前关于这些实体的学术文章中添加的内容包括将这些披露材料编织成一个合乎逻辑的呈现，并为那些希望更深入了解任何特定方面的人提供补充资源(通常在我的脚注中)。我试图用这些材料展示一个路线图，展示eBay和谷歌如何努力优化他们的业务表现，同时在复杂的监管合规问题和涉及世界各地政府管辖的问题中导航。接下来是国际网络犯罪和风险问题，以及反洗钱、反恐和其他潜在非法活动法律的审查。这里提供的价值主张非常简单——读者无需支付任何费用，就有机会花几个小时阅读和反思eBay (PayPal)和Alphabet Inc. (Google)斥资数百万美元对电子商务、网络、IT和电子支付系统风险进行的研究、投资和记录。希望这将证明对那些对(1)电子支付系统快速变化的动态感兴趣的人，(2)从事互联网站点运营的人，或(3)从事打击网络犯罪活动的人有价值。
{"title":"How Law Operates in a Wired Global Society: Cyber and E-Commerce Risk","authors":"L. Trautman","doi":"10.2139/SSRN.3033776","DOIUrl":"https://doi.org/10.2139/SSRN.3033776","url":null,"abstract":"By now, almost every business has an internet presence, and is likely engaged in e-commerce. What are the major risks perceived by those engaged in e-commerce and electronic payment systems? What potential risks, if they become reality, may cause substantial increases in operating costs or threaten the very survival of the enterprise? \u0000This article discusses the relevant annual report disclosures from eBay (previous parent of PayPal) and Alphabet Inc. (parent of Google), along with other eBay, PayPal, Alphabet and Google documents, as a potentially powerful teaching device. Most of the descriptive language to follow is excerpted directly from eBay’s (PayPal) and Alphabet’s (Google) regulatory filings. My additions in prior scholarly articles about these entities include weaving these disclosure materials into a logical presentation and providing supplemental sources for those who desire a deeper look (usually in my footnotes) at any particular aspect. I’ve sought to present a roadmap with these materials that shows eBay’s and Google’s struggle to optimize their business performance while navigating through a complicated maze of regulatory compliance concerns and issues involving governmental jurisdictions throughout the world. International cyber crime and risk issues follow, with an examination of anti-money laundering, counter-terrorist, and other potential illegal activity laws. \u0000The value proposition offered here is disarmingly simple -- at no out-of-pocket cost, the reader has an opportunity to invest probably just a few hours to read and reflect upon the eBay (PayPal) and Alphabet Inc. (Google) multiple-million-dollar research, investment and documentation of perceived e-commerce, cyber, IT, and electronic payment system risks. Hopefully, this will prove of value to those either interested in the rapidly changing dynamics of (1) electronic payment systems, (2) those engaged in Internet site operations, or (3) those engaged in fighting cyber crime activities.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-09-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115789489","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 essay, written for the Conference on the New Special Study of Securities Markets at Columbia Law School, identifies the key regulatory challenges posed by institutional intermediaries in America’s capital markets. We survey existing legal and economic research and suggest new areas for regulatory reform and scholarly inquiry. We cover registered investment companies (such as mutual funds), private investment funds (such as hedge funds and private equity funds), credit-rating agencies, and broker-dealers.
{"title":"New Special Study of the Securities Markets: Institutional Intermediaries","authors":"Allen Ferrell, J. Morley","doi":"10.2139/ssrn.3005542","DOIUrl":"https://doi.org/10.2139/ssrn.3005542","url":null,"abstract":"This essay, written for the Conference on the New Special Study of Securities Markets at Columbia Law School, identifies the key regulatory challenges posed by institutional intermediaries in America’s capital markets. We survey existing legal and economic research and suggest new areas for regulatory reform and scholarly inquiry. We cover registered investment companies (such as mutual funds), private investment funds (such as hedge funds and private equity funds), credit-rating agencies, and broker-dealers.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-07-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126781054","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}
We find that firms where women have more power in the top management team, measured by female executives’ plurality and pay slice, face fewer operations-related lawsuits. This effect is robust to several treatments of endogeneity and does not appear to be driven by female executives' greater willingness to settle the cases. Evidence from a simultaneous equations approach suggests that firms where women executives have more power avoid lawsuits partly by avoiding some risky but value-increasing firm policies, such as more aggressive R&D, intensive advertising, and policies inimical to other parties.
{"title":"Do Women Managers Keep Firms out of Trouble? Evidence from Corporate Litigation and Policies","authors":"B. Adhikari, Anup Agrawal, James Malm","doi":"10.2139/ssrn.2627846","DOIUrl":"https://doi.org/10.2139/ssrn.2627846","url":null,"abstract":"We find that firms where women have more power in the top management team, measured by female executives’ plurality and pay slice, face fewer operations-related lawsuits. This effect is robust to several treatments of endogeneity and does not appear to be driven by female executives' greater willingness to settle the cases. Evidence from a simultaneous equations approach suggests that firms where women executives have more power avoid lawsuits partly by avoiding some risky but value-increasing firm policies, such as more aggressive R&D, intensive advertising, and policies inimical to other parties.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"387 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-05-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121562815","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 provides evidence on the shareholder wealth effects of corporate governance deficiency notices issued by Nasdaq between 2004 and 2011. We document significant abnormal returns in response to Nasdaq corporate governance deficiency notices for the full sample, for audit committee deficiencies, and for deficiencies related to review and certification. However, we find no adverse response to noncompliance with the director independence requirement. Compared to prior cross-sectional studies, this study provides a more powerful test of how the market assesses changes in corporate governance. Our evidence on audit committee deficiencies suggests that market participants view Nasdaq listing requirements as minimum corporate governance standards and with declines in governance negatively impacting expectations of future cash flows or risk. In contrast, the market’s lack of response to noncompliance with the independent directors requirement raises the question as to value of this requirement.
{"title":"Shareholder Wealth Effects of Corporate Governance Deficiencies on Nasdaq","authors":"C. Frost, Joshua C. Racca, M. Stanford","doi":"10.2139/SSRN.2515595","DOIUrl":"https://doi.org/10.2139/SSRN.2515595","url":null,"abstract":"This study provides evidence on the shareholder wealth effects of corporate governance deficiency notices issued by Nasdaq between 2004 and 2011. We document significant abnormal returns in response to Nasdaq corporate governance deficiency notices for the full sample, for audit committee deficiencies, and for deficiencies related to review and certification. However, we find no adverse response to noncompliance with the director independence requirement. Compared to prior cross-sectional studies, this study provides a more powerful test of how the market assesses changes in corporate governance. Our evidence on audit committee deficiencies suggests that market participants view Nasdaq listing requirements as minimum corporate governance standards and with declines in governance negatively impacting expectations of future cash flows or risk. In contrast, the market’s lack of response to noncompliance with the independent directors requirement raises the question as to value of this requirement.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-03-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127991556","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 adverse impact of the current securities disclosure regime on small entrepreneurial and start-up firms, as well as on innovation, job creation, and economic growth is substantial. Moreover, disclosure requirements have become so voluminous that they obfuscate rather than inform. This paper outlines a program of interim reforms to improve the existing disclosure regime. It recommends specific changes to Regulation A, crowdfunding, Regulation D, and the regulation of small public companies and of secondary markets to improve the current regulatory environment. This paper also outlines a program of fundamental reform that would dramatically simplify the existing disclosure regime to the benefit of both investors and issuers. This proposal would replace the current 14 disclosure categories with three disclosure regimes—public, quasi-public, and private—and disclosure under the first two categories would be scaled based on either public float or the number of beneficial shareholders.
{"title":"Securities Disclosure Reform","authors":"David R. Burton","doi":"10.2139/SSRN.2993436","DOIUrl":"https://doi.org/10.2139/SSRN.2993436","url":null,"abstract":"The adverse impact of the current securities disclosure regime on small entrepreneurial and start-up firms, as well as on innovation, job creation, and economic growth is substantial. Moreover, disclosure requirements have become so voluminous that they obfuscate rather than inform. This paper outlines a program of interim reforms to improve the existing disclosure regime. It recommends specific changes to Regulation A, crowdfunding, Regulation D, and the regulation of small public companies and of secondary markets to improve the current regulatory environment. This paper also outlines a program of fundamental reform that would dramatically simplify the existing disclosure regime to the benefit of both investors and issuers. This proposal would replace the current 14 disclosure categories with three disclosure regimes—public, quasi-public, and private—and disclosure under the first two categories would be scaled based on either public float or the number of beneficial shareholders.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-02-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123261757","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}
Matthew T. Billett, Ioannis V. Floros, Jon A. Garfinkel
Facilitated in 2008, “at-the-market” (ATM) equity offerings are direct share issuances to secondary market investors. Their use has grown markedly, and in 2015 the number of ATMs relative to SEOs was 40%, while total ATM proceeds relative to total SEO proceeds was nearly one-fourth. ATMs forgo underwriters and shares are “dribbled-out” over many months. Firms’ choices between SEOs (either accelerated or fully-marketed) and ATMs, support the costly certification hypothesis of Chemmanur and Fulghieri (1994). Ex-post, firms’ ATM proceeds largely associate with cash buildup. We conclude that ATMs are likely a permanent fixture in the follow-on equity issuance landscape.
{"title":"At-the-Market (ATM) Offerings","authors":"Matthew T. Billett, Ioannis V. Floros, Jon A. Garfinkel","doi":"10.2139/ssrn.2178052","DOIUrl":"https://doi.org/10.2139/ssrn.2178052","url":null,"abstract":"Facilitated in 2008, “at-the-market” (ATM) equity offerings are direct share issuances to secondary market investors. Their use has grown markedly, and in 2015 the number of ATMs relative to SEOs was 40%, while total ATM proceeds relative to total SEO proceeds was nearly one-fourth. ATMs forgo underwriters and shares are “dribbled-out” over many months. Firms’ choices between SEOs (either accelerated or fully-marketed) and ATMs, support the costly certification hypothesis of Chemmanur and Fulghieri (1994). Ex-post, firms’ ATM proceeds largely associate with cash buildup. We conclude that ATMs are likely a permanent fixture in the follow-on equity issuance landscape.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"61 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-12-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122463207","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}
J. Barry, Brian J. Broughman, Eric C. Chaffee, Christopher Henkel, R. Hockett, Michael P. Malloy, Peter Marchetti, Christopher K. Odinet, Charles R. P. Pouncy, Andrew Verstein
This amicus brief, filed with the Second Circuit Court of Appeals in Gelboim v. Bank of America (LIBOR Manipulation Litigation), primarily aims to help the Court by providing relevant background information. Many of the plaintiffs in this case are bringing antitrust claims based on defendant banks' alleged collusion while selling plaintiffs over-the-counter derivatives. To evaluate these plaintiffs’ allegations, one must understand the nature of these derivative transactions, the economics of the over-the-counter derivatives market, and the specific role that the London Interbank Offer Rate (“LIBOR”) plays in that market. This brief provides that information. With this background in place, it becomes clear that these plaintiffs have properly alleged an antitrust injury. Plaintiffs allege that defendants, who controlled the over-the-counter derivatives market, conspired to manipulate LIBOR in order to increase their profits in the over-the-counter derivatives market. Plaintiffs allege that they, in their capacity as defendants’ customers in the over-the-counter derivatives market, suffered an injury as a result of defendants’ collusive LIBOR-setting behavior. Taking plaintiffs’ allegations as true, this is a classic antitrust injury.Accordingly, this court should reverse the district court’s opinion and remand for further proceedings.
{"title":"Amicus Curiae Brief in Gelboim v. Bank of America (Libor Manipulation Litigation) on Behalf of Financial Markets Law Professors in Support of Plaintiffs-Appellants","authors":"J. Barry, Brian J. Broughman, Eric C. Chaffee, Christopher Henkel, R. Hockett, Michael P. Malloy, Peter Marchetti, Christopher K. Odinet, Charles R. P. Pouncy, Andrew Verstein","doi":"10.2139/SSRN.2839130","DOIUrl":"https://doi.org/10.2139/SSRN.2839130","url":null,"abstract":"This amicus brief, filed with the Second Circuit Court of Appeals in Gelboim v. Bank of America (LIBOR Manipulation Litigation), primarily aims to help the Court by providing relevant background information. Many of the plaintiffs in this case are bringing antitrust claims based on defendant banks' alleged collusion while selling plaintiffs over-the-counter derivatives. To evaluate these plaintiffs’ allegations, one must understand the nature of these derivative transactions, the economics of the over-the-counter derivatives market, and the specific role that the London Interbank Offer Rate (“LIBOR”) plays in that market. This brief provides that information. With this background in place, it becomes clear that these plaintiffs have properly alleged an antitrust injury. Plaintiffs allege that defendants, who controlled the over-the-counter derivatives market, conspired to manipulate LIBOR in order to increase their profits in the over-the-counter derivatives market. Plaintiffs allege that they, in their capacity as defendants’ customers in the over-the-counter derivatives market, suffered an injury as a result of defendants’ collusive LIBOR-setting behavior. Taking plaintiffs’ allegations as true, this is a classic antitrust injury.Accordingly, this court should reverse the district court’s opinion and remand for further proceedings.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"206 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124935997","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 important study of the relationship between finance and economic growth has exploded over the past two decades. One of the most significant open questions is the role of the public equity market in stimulating growth and the channels it follows if it does. This paper examines that question from an economic, legal, and historical perspective, especially with regard to its regulatory and corporate governance implications. The US market is my focus. In contrast to most studies, I follow both economic history and the actual flow of funds in addition to empirics and theory to conclude that the public equity market’s contribution to US economic growth is highly limited to the small but important contemporary role it plays in providing exit opportunities for entrepreneurs and venture capitalists. Nevertheless, there is a serious question as to the real economic growth benefit of easy exit. In particular, exit by merger may well be more macro-economically efficient than exit by IPO. I further tentatively conclude that the modern behavior of the US public equity market may be damaging to the long-term sustainability of American corporate capitalism and to long-term social welfare – in particular the market’s significant role in increasing economic inequality. Thus an overall appraisal of the market’s benefits and costs in the broader context of economic growth and economic inequality is long overdue. Important questions for corporate governance, financial regulation, and the structure of market institutions are raised. Along the way, I will have reason to question the continuing viability of the Miller-Modigliani irrelevance theorem.
{"title":"Finance and Growth: The Legal and Regulatory Implications of the Role of the Public Equity Market in the United States","authors":"Ezra Wasserman Mitchell","doi":"10.2139/ssrn.2820872","DOIUrl":"https://doi.org/10.2139/ssrn.2820872","url":null,"abstract":"The important study of the relationship between finance and economic growth has exploded over the past two decades. One of the most significant open questions is the role of the public equity market in stimulating growth and the channels it follows if it does. This paper examines that question from an economic, legal, and historical perspective, especially with regard to its regulatory and corporate governance implications. The US market is my focus.\u0000\u0000In contrast to most studies, I follow both economic history and the actual flow of funds in addition to empirics and theory to conclude that the public equity market’s contribution to US economic growth is highly limited to the small but important contemporary role it plays in providing exit opportunities for entrepreneurs and venture capitalists. Nevertheless, there is a serious question as to the real economic growth benefit of easy exit. In particular, exit by merger may well be more macro-economically efficient than exit by IPO.\u0000\u0000I further tentatively conclude that the modern behavior of the US public equity market may be damaging to the long-term sustainability of American corporate capitalism and to long-term social welfare – in particular the market’s significant role in increasing economic inequality. Thus an overall appraisal of the market’s benefits and costs in the broader context of economic growth and economic inequality is long overdue. Important questions for corporate governance, financial regulation, and the structure of market institutions are raised. Along the way, I will have reason to question the continuing viability of the Miller-Modigliani irrelevance theorem.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-08-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121177702","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 article provides an overview of recent legal developments related to spoofing in financial markets and an analysis of economic issues related to spoofing. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 defines spoofing as “bidding or offering with the intent to cancel the bid or offer before execution.” As one of three “disruptive practices” proscribed by the Act for futures markets, spoofing is distinct from, though related to, market manipulation, which is covered by other statutory and regulatory language for financial markets. Recent spoofing cases include a criminal conviction for spoofing in futures markets, several settlements, and at least two prominent ongoing actions. Turning to economic issues, this article explains the operation of the limit-order book, which is the basis for most futures and equity markets. A build-up of orders on one side of a limit-order book can induce market movements, and spoofing might work through this mechanism. However, the presence of spoofing may improve market liquidity and enable informed traders to profit from their information. An economic analysis of alleged spoofing strategies may provide evidence relevant to courts’ assessment of traders’ intentions. This analysis could include an investigation of both expected returns and risks of the trading strategies.
{"title":"Spoofing, Market Manipulation, and the Limit-Order Book","authors":"J. D. Montgomery","doi":"10.2139/SSRN.2780579","DOIUrl":"https://doi.org/10.2139/SSRN.2780579","url":null,"abstract":"This article provides an overview of recent legal developments related to spoofing in financial markets and an analysis of economic issues related to spoofing. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 defines spoofing as “bidding or offering with the intent to cancel the bid or offer before execution.” As one of three “disruptive practices” proscribed by the Act for futures markets, spoofing is distinct from, though related to, market manipulation, which is covered by other statutory and regulatory language for financial markets. Recent spoofing cases include a criminal conviction for spoofing in futures markets, several settlements, and at least two prominent ongoing actions. Turning to economic issues, this article explains the operation of the limit-order book, which is the basis for most futures and equity markets. A build-up of orders on one side of a limit-order book can induce market movements, and spoofing might work through this mechanism. However, the presence of spoofing may improve market liquidity and enable informed traders to profit from their information. An economic analysis of alleged spoofing strategies may provide evidence relevant to courts’ assessment of traders’ intentions. This analysis could include an investigation of both expected returns and risks of the trading strategies.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-05-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133922491","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 article examines the extent to which economic incentives may have improved for appraisal arbitrageurs in recent years, which could help explain the observed increase in appraisal activity. We investigate three specific issues. First, we review the economic implications of allowing petitioners to seek appraisal on shares acquired after the record date. We conclude that appraisal arbitrageurs realize an economic benefit from their ability to delay investment for two reasons: (1) it enables arbitrageurs to use better information about the value of the target that may emerge after the record date to assess the potential payoff of bringing an appraisal claim; and (2) it helps minimize arbitrageurs’ exposure to the risk of deal failure. Second, based on a review of the recent Delaware opinions in appraisal matters, as well as fairness opinions issued by targets’ financial advisors, we document that the Delaware Chancery Court seems to prefer a lower equity risk premium than bankers. Such a systematic difference in valuation input choices also works in favor of appraisal arbitrageurs. Finally, we benchmark the Delaware statutory interest rates and find that the statutory rate more than compensates appraisal petitioners for the time value of money or for any bond-like claim that they may have on either the target or the surviving entity. Our findings suggest that, from a policy perspective, it may be useful to limit petitioners’ ability to seek appraisal to shares acquired before the record date. We also posit that, absent any finding of a flawed sales process, the actual transaction price may serve as a useful benchmark for fair value. We conjecture that, while the statutory interest rate may not be the main factor driving appraisal arbitrage, it does help improve the economics for arbitrageurs. Thus, the proposal by the Council of the Delaware Bar Association’s Corporation Law Section to limit the amount of interest paid by appraisal respondents – by allowing them to pay appraisal claimants a sum of money at the beginning of the appraisal action – seems like a practical way to address concerns regarding the statutory rate. However, paying appraisal claimants a portion of the target’s fair value up front is akin to funding claimants’ appraisal actions, which may end up encouraging appraisal arbitrage.
{"title":"Appraisal Arbitrage – Is There a Delaware Advantage?","authors":"G. Jetley, Xinyu Ji","doi":"10.2139/ssrn.2616887","DOIUrl":"https://doi.org/10.2139/ssrn.2616887","url":null,"abstract":"The article examines the extent to which economic incentives may have improved for appraisal arbitrageurs in recent years, which could help explain the observed increase in appraisal activity. We investigate three specific issues. First, we review the economic implications of allowing petitioners to seek appraisal on shares acquired after the record date. We conclude that appraisal arbitrageurs realize an economic benefit from their ability to delay investment for two reasons: (1) it enables arbitrageurs to use better information about the value of the target that may emerge after the record date to assess the potential payoff of bringing an appraisal claim; and (2) it helps minimize arbitrageurs’ exposure to the risk of deal failure. Second, based on a review of the recent Delaware opinions in appraisal matters, as well as fairness opinions issued by targets’ financial advisors, we document that the Delaware Chancery Court seems to prefer a lower equity risk premium than bankers. Such a systematic difference in valuation input choices also works in favor of appraisal arbitrageurs. Finally, we benchmark the Delaware statutory interest rates and find that the statutory rate more than compensates appraisal petitioners for the time value of money or for any bond-like claim that they may have on either the target or the surviving entity. Our findings suggest that, from a policy perspective, it may be useful to limit petitioners’ ability to seek appraisal to shares acquired before the record date. We also posit that, absent any finding of a flawed sales process, the actual transaction price may serve as a useful benchmark for fair value. We conjecture that, while the statutory interest rate may not be the main factor driving appraisal arbitrage, it does help improve the economics for arbitrageurs. Thus, the proposal by the Council of the Delaware Bar Association’s Corporation Law Section to limit the amount of interest paid by appraisal respondents – by allowing them to pay appraisal claimants a sum of money at the beginning of the appraisal action – seems like a practical way to address concerns regarding the statutory rate. However, paying appraisal claimants a portion of the target’s fair value up front is akin to funding claimants’ appraisal actions, which may end up encouraging appraisal arbitrage.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"261 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115976226","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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