Search Results

This chapter discusses Japanese securities law. Topics covered include the development of securities law in Japan; enactment of the Financial Instruments and Exchange Law (FIEL); goal, scope, and concepts of the FIEL; concepts of securities and financial instruments; collective investment schemes; financial instruments business and firms; tender offer; and market supervision.

This chapter addresses the issue of how trading systems should be classified and governed. The chapter is composed of three sections. In the first, the criteria that the Securities and Exchange Commission (SEC) has historically used to identify whether a trading system should be classified as an exchange or a broker are evaluated. In the second, various flaws with the exchange/broker distinction are identified and discussed. In the third section, various alternative approaches to regulating exchanges and trading systems, including the newest suggestions by the SEC, are analyzed. A joint approach of separating the regulation of market structure from the regulation of other areas of public concern, and of employing competition policy to regulate market structure, is recommended as the best way of classifying and regulating trading systems.

This chapter reviews the rules governing financial disclosure by corporations in the United States. It begins with an overview of state regulation (which is still in force) and then turns to federal regulation, which began in 1933. The public securities markets are described and the Securities and Exchange Commission’s (SEC) rules governing financial disclosure of public corporations are outlined. Standard setting by the American Institute of Certified Public Accountants (AICPA), the Financial Accounting Standards Board (FASB), and the Public Company Accounting Oversight Board (PCAOB), and investor protection and corporate governance are considered next. Current issues such as the scope of auditing practices, auditor independence, audit failures, principles- versus rules-based accounting standards, and convergence of U.S. and international standards are discussed.

This chapter presents a series of case studies illustrating how specific exchanges have actually been governed in particular contexts. The following institutions and contexts are described in turn: the proposed iX merger between Deutsche Börse and the London Stock Exchange (LSE), and its subsequent collapse, in 2000; the “Penny Stocks Incident” at Hong Kong Exchanges and Clearing Ltd. in 2002; the attempted takeover of the LSE by NASDAQ over the period 2006–8; Euronext's purchase of London International Financial Futures and Options Exchange in 2001; the resignation of the chairman/CEO of the New York Stock Exchange in 2003; and the purchase by the “Murakami Fund” of a major block of shares in the Osaka Securities Exchange in 2005. A few brief general lessons from each case study are also identified.

This chapter deals with relations with the outside world and their impact. It shows how the International Organization of Securities Commissions (IOSCO) occupied the centre stage in the International Accounting Standards Committee's (IASC) aims and deliberations between 1987 and 2000. A first phase in the relationship between the two organizations ended in a difficult period during the second half of 1994. The relationship was then set on a new footing in 1995, and a more promising phase began. The board's standards were registering very little impact in the developed, industrialized countries. The leaders felt it was essential that the board establish a closer relationship with securities market regulators, national standard setters, and major preparers. They also came to believe, with a nudge from the US Securities and Exchange Commission (SEC), that real progress towards international harmonization would not occur until most of the optional treatments in the board's standards were removed.

This chapter discusses the main factors that affect the governance of exchanges in American federal law and regulation. The chapter is composed of two sections. The first analyzes federal laws and regulations that affect the governance of securities exchanges. A similar analysis for futures exchanges is presented in the second section.

Most financial markets are highly competitive – there are hundreds or thousands of active traders and at any time and place prices vary only within a narrow range – the bid‐ask price spread. Regulation is usually associated with monopoly; it might seem, therefore, that regulation of financial markets is unnecessary. After an introductory section on the ethics of finance and the economic function of financial markets, the second section of this chapter explains why that conclusion is unwarranted. The third section discusses the various levels of US federal regulation (the exchanges, the regulatory commissions and the courts); the fourth looks at federal regulation of trading in corporate shares and bonds by the Securities and Exchange Commission; the fifth shows how futures markets are federally regulated in the US; and the sixth is a case study of an important regulatory failure – the silver manipulation of 1979–80 in the USA. The final section looks at regulation in the UK.

Much of the foundation of mutual funds' success was laid early on, in the 1920s and 1930s–mutual funds' use, beginning with the first fund in 1924, of redeemable shares and a simple capital structure that did not result in leverage; establishment of a federal agency, the Securities and Exchange Commission, devoted exclusively to administration of the federal securities laws; and enactment of the Revenue Act of 1936, which provided favorable conduit tax treatment for mutual funds and their shareholders.

When buying stocks, bonds, mutual funds, and other securities, individuals seeking advice typically turn to broker-dealers or investment advisers before they invest. In many cases, brokers and advisers perform similar functions but they are regulated differently under laws enacted during the Great Depression. Regulators are considering ways to harmonize the regulation of these professionals, but harmonization is fraught with difficulties. This chapter discusses the debate over harmonization and explains how the U.S. Securities and Exchange Commission, the courts, and Congress have responded. The chapter concludes with insights into considerations that will likely determine how the harmonization debate will be resolved.

Many developments in recent years have contributed to mutual funds' success, including generally rising securities markets, a growing middle class, the creation of new types of funds and new ways to distribute fund shares, and laws designed to encourage Americans to save for retirement. However, the foundation of mutual funds' success was laid early, in the 1920s and 1930s. Beginning with the creation of the first fund in 1924, mutual funds used redeemable shares and a simple capital structure that did not result in leverage. In 1934, a federal agency, the U.S. Securities and Exchange Commission, was established that was devoted exclusively to administration of the federal securities laws. In 1936, a law was enacted providing favorable tax treatment for funds and their shareholders. This chapter traces the history of mutual funds, which began in Europe.

This chapter is about the publicly held companies in the USA. Ever since independence the states have fought to limit the role of the Federal government. Wherever a company operates it may choose any state in which to incorporate, and the states compete for its business. The recent reforms led by the Sarbanes–Oxley Act (SOX) apply directly only to them and their audit firms. The chief, but not all-powerful, machine for exerting Federal pressure is the Securities and Exchange Commission (SEC) that regulates many of the processes affecting companies, shareholders, and the market, and the traffic between them. The New York Stock Exchange is the dominant institution in the stock market. Meanwhile, control of a US company can pass by replacing enough of the board through the proxy process, but the usual route is by acquiring a majority of the votes through a tender offer.

This chapter discusses the modernization of mutual fund industry regulation. The explosive growth of and dramatic changes in the mutual fund industry during the 1980s and 1990s led the Securities and Exchange Commission (SEC) and the industry to seek to modernize SEC requirements in the areas of disclosure, substantive regulation of fund activities, and fund compliance with law and regulation. Disclosure requirements relating to fund prospectuses, shareholder reports, advertisements, and newsletters were updated (although disclosure of “shelf space” went unaddressed). Similarly, a number of SEC substantive rules and industry best practices in areas such as permissible investments by money market funds, 12b -1 plans, personal investing by fund managers, and the independence and effectiveness of fund directors were improved. In the area of compliance, the SEC did not adopt the industry's recommendation to require funds to establish formal compliance systems. Moreover, the SEC transferred oversight of its own inspections of mutual funds from the division responsible for fund regulation to a separate new unit, a step which many observers believe has harmed compliance.

The record 1982–2000 bull market ended with a bubble in high-technology and telecom stocks, followed by a severe bear market and revelations of a number of major corporate and accounting scandals, resulting in enactment of the Sarbanes–Oxley Act. In 2003–2004, there were revelations of illegal market timing and late trading in mutual fund shares at some twenty fund groups—the worst scandal ever in the fund industry. The scandal resulted in over a hundred proposals for legislative and regulatory reform, and led the Securities and Exchange Commission to adopt a record number of new regulations.

Japan adopted the Securities and Exchange Law in 1948, modelled on US law. While the securities market rapidly developed at the time of high economic growth, the regulatory system lagged behind the growth of the market. In the aftermath of the ‘bubble economy’, improvement of the regulatory system was sought. Following the UK ‘Big Bang’, Japan launched its financial ‘Big Bang’ in 1996/1997. There was substantial deregulation in this area. The Securities and Exchange Law was replaced by the Financial Instruments and Exchange Law in 2006. Corporate disclosure system as well as the rules on TOB (takeover bids) have been improved.

This chapter focuses on the Securities and Exchange Commission’s numerous failures to engage in meaningful regulation and enforcement and recommends a fundamental solution that should substantially ameliorate the current unpalatable situation. As compared to yesteryear, the SEC no longer is viewed as a champion of investor protection. In its analysis, the chapter provides many examples, including: the Commission’s failure to adopt a current reporting system mandating disclosure (absent the existence of meritorious business justification) of all material information; its regulatory activism to insulate from private liability exposure certain misconduct engaged in by companies and their insiders; its levying of large money penalties against major enterprises without pursuing their officers and directors; and its refusal to implement statutory directives, including its failure to use the control person provision against corporate insiders. The solution to this unacceptable situation is to reconstitute the composition of SEC Commissioners. As elaborated upon in the chapter, this objective would be achieved by increasing the size of the Commission and requiring that the composition of the SEC Commissioners (including the SEC Chair) would be far more diverse than is current practice.

As earlier chapters have made clear, mutual funds not only are subject to Securities and Exchange Commission regulation under the federal securities laws but also they must meet requirements imposed by other bodies of law. The vast changes in the mutual fund industry that occurred during the bull market of 1982–2000 led the industry to seek changes in state securities laws, federal tax law, and federal pension law. Against all odds, the industry obtained federal legislation ending the state regulation of mutual funds. The industry was also successful in obtaining some degree of modernization of provisions of the Internal Revenue Code dealing with mutual funds. However, federal pension law and regulation were not updated to take account of the major shift from defined benefit plans to 401(k) and other types of defined contribution plans.

An examination of tender offers, exchange offers, exit consents and applicable typical contractual, provisions of US securities laws (including the Securities Exchange Act of 1934, Securities Act of 1933 and the Trust Indenture Act) and English law including under bonds and loans. The chapter includes an outline of a typical tender or exchange offer, consent solicitations and cash repurchases, incentives and disincentives to encourage agreement to the transaction, using schemes and restructuring plans to effect the foregoing, US Securities laws and exceptions to be employed with using a scheme or restructuring plan, exit consents under US and UK law, treatment of voting disenfranchisement, typical amendment and waiver provisions, tensions between funded and unfunded lenders when considering amendments and waivers and other techniques that the majority can use to bind the minority under a credit document. The chapter also analyses how to structure transactions to fall within applicable exceptions under US Securities laws.

This chapter explains how legislative changes to, and the broader commentary on, US derivatives regulation illustrate the value of parsing the overlap/distinct and centralization/decentralization dimensions in assessing the tradeoffs of regulatory allocations. The Securities and Exchange Commission and the Commodity Futures Trading Commission have been tasked with decentralized authority over securities and futures, respectively. Over time, their jurisdictions have increasingly overlapped as the futures and securities markets converged. Reorganization proposals and legislation to correct perceived problems with the overlapping, decentralized regulatory regime (such as Title VII of the Dodd-Frank Act) have usually failed to parse the various tradeoffs between overlap and distinct or between centralized and decentralized authority. By limiting their analysis, policymakers and observers of derivatives regulation may have misdiagnosed problems with the existing allocation or missed potential opportunities to craft different regulatory configurations that might have better accommodated policy tradeoffs or been more politically viable.

This chapter examines the regulatory agencies that administer and enforce securities laws on public offerings. Securities markets were, at the beginning, self-regulating with little or no state intervention. With time, regulation by stock exchanges grew stronger and state intervention through controller of capital issues and registrar of companies emerged. This regime witnessed a paradigmatic shift with the enactment of the Securities and Exchange Board of India Act, 1992. Today, the regulatory agencies that primarily administer and enforce securities laws on public offerings are the Securities and Exchange Board of India and stock exchanges. Registrar of companies, though strictly not a regulatory agency, also exercises some powers and functions. For completeness, the chapter also examines the regulatory role of Reserve Bank of India in a public offering programme.