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culture and firm risk-taking August 29, 2012

Posted by Bradley in : risk , add a comment

Roxana Mihet has authored a recent IMF working paper with the title Effects of Culture on Firm Risk-Taking: A Cross-Country and Cross-Industry Analysis. Here’s the abstract:

This paper investigates the effects of national culture on firm risk-taking, using a comprehensive dataset covering 50,000 firms in 400 industries in 51 countries. Risk-taking is found to be higher for domestic firms in countries with low uncertainty aversion, low tolerance for hierarchical relationships, and high individualism. Domestic firms in such countries tend to take substantially more risk in industries which are more informationally opaque (e.g. finance, mining, IT). Risk-taking by foreign firms is best explained by the cultural norms of their country of origin. These cultural norms do not proxy for legal constraints, insurance safety nets, or economic development.

eu banking regulation August 28, 2012

Posted by Bradley in : consultation, transparency , add a comment

As the Commission is soon to publish proposals for a European Banking Union, I notice that more than a month after I noted that the web page for the Consultation by the High-level Expert Group on Reforming the structure of the EU banking sector did not display any comments (and wondered where there had in fact been any) there are still no comments posted to the web page, nor any publication of the results of the consultation. But there were comments, for example from the Financial Services Users Group, from Finance Watch, from the CBI, from AFME, from the Swedish Bankers Association, from the European Association of Co-operative Banks, from Deloitte, from the European Banking Federation…… AIMA says its response “is for AIMA members only” (I guess they have no interest in regulatory transparency).
On Saturday it will be three months since the consultation ended. Some of the responding organizations will have shared their comments with each other and with their members and friends. Meanwhile, citizens have to search to find what they have been saying.

reliance on edgar? August 28, 2012

Posted by Bradley in : technologies , add a comment

Why does this filing by Ryanair Holdings appear from this page to be a filing by HSBC Holdings plc?

facebook ipo – what liability for nasdaq? August 23, 2012

Posted by Bradley in : Uncategorized , add a comment

Evelyn Rusli at the NYTimes Dealbook links to Citigroup’s comment letter on Nasdaq’s proposed approach to remediate harms caused to market participants during the facebook ipo (comments were due yesterday). Citigroup argues that Nasdaq’s claim to benefit from immunity is incorrect because Nasdaq was acting in its business capacity rather than as an SRO. It also argues that Nasdaq was grossly negligent. And there are policy arguments also:

Nasdaq effectively takes the position that it should not have liability for its failings because the for-profit exchanges are too critically important to have to potentially stand up for their errors, while brokers who fail as a result of poor planning must pay for their failure. This is an unlevel playing field premised on an outdated construct of exchanges as bastions of market integrity, rather than the for-profit corporations that they are today.

SIFMA has made similar comments:

SIFMA is of the strong belief that Nasdaq did not act in an SRO capacity in carrying out the Facebook IPO. Rather, we believe Nasdaq was operating solely in its role as a for-profit market participant. In this regard, we note that Nasdaq received the Facebook listing, and its attendant listing fees, after a hard-fought competition with the New York Stock Exchange to gain Facebook’s listings business.

sec: final rules on conflict minerals and payments by resource extraction issuers August 23, 2012

Posted by Bradley in : financial regulation , add a comment

The SEC adopted two final rules yesterday, on disclosures with respect to conflict minerals (proposed in December 2010) and on disclosures of payments resource extraction issuers make to governments (also proposed in December 2010). Statements by the Commissioners raised questions about whether the SEC should be involved in requiring disclosures about either of these matters, given that the purpose of the disclosures is not primarily about informing investors but is about illuminating the actions of governments and achieving humanitarian objectives. Daniel Gallagher said (with respect to the resource extraction rules (he also critiqued the conflict minerals rules)):

As an independent agency, the SEC should have played a significant role in informing Congress about the pitfalls of mandating rulemakings that are not germane to our mission….In any event, even if I had no objection in principle to efforts to achieve social and foreign policy objectives through the disclosure requirements of the securities laws, I am not able to support this rule today, because the analysis is incomplete. The costs this rule will impose are clear enough. Its intended benefits, by contrast, are socio-political and aspirational in nature, worthy but indeterminate — although they are presumed to justify all costs. And certain key discretionary choices made by the Commission’s rule will have the effect of increasing the rule’s burdens….we have no reason to think the SEC will succeed in achieving complex social and foreign policy objectives as to which the policymaking entities that do have relevant expertise have, to date, largely failed.

With respect to the conflict minerals rules, Troy Paredes said:

We all want the violence in the DRC to end. Unfortunately, the adopting release does not offer a reasoned basis for concluding that the final rule will help bring this about, and there is cause for concern that the hardship and suffering could worsen if the outcome is a de facto embargo. Accordingly, I caution against any sense that the need for action to abate the humanitarian crisis is allayed because of the rule the Commission is adopting today.

Luis Aguilar took a very different view. For example (with respect to conflict minerals):

Today’s rulemaking is the culmination of a careful and comprehensive process and a clear Congressional directive. The Commission has faithfully administered its judgment and expertise, as the independent agency tasked by Congress to implement Section 13(p). The rule under consideration today is in the interest of investors and the public interest.

Looks like the set-up for the lawsuits.

fsa replacing mis-selling with no-selling August 22, 2012

Posted by Bradley in : consumers, financial regulation , add a comment

In a consultation paper published today (comments requested by November 14) the FSA states:

We have found that the majority of retail promotions and sales of unregulated collective investment schemes (UCIS) that we have reviewed fail to meet our requirements, exposing ordinary investors to significant potential for detriment. This demands action. We are proposing to intervene in the market by changing our rules to ban the promotion of UCIS and close substitutes to ordinary retail investors in the UK.

Many sellers of these funds are not ensuring suitability and do not understand the relevant rules, so the FSA proposes to ban sales of unregulated collective investment schemes and “close substitutes” (including traded life policy investments) to “ordinary retail investors” (sales will be possible to sophisticated investors) (including investment through Individual Savings Accounts, self-invested personal pension schemes, platform services etc) reflecting a change in approach to stop problems arising rather than dealing with problems after they have arisen (and this includes restricting possibilities for regulatory arbitrage). The FSA says:

We are making the judgement that the benefits of improving customer outcomes for most retail investors outweigh the costs to the minority for whom they may be suitable.

Retail investors who genuinely seek out the investments will be able to buy them – the FSA’s concern is with respect to problematic financial promotion.
Under the heading “Who Should Read this Consultation Paper?” the CP says it will be of interest to consumers and consumer organisations. In terms of its subject matter, that is clearly accurate, but the document is not drafted to be accessible to those who are not used to navigating the complexities of the FSA’s rules.

remembering andrew August 21, 2012

Posted by Bradley in : events , add a comment

20 years ago this week. What a welcome to South Florida!

financial opacity August 21, 2012

Posted by Bradley in : consumers , add a comment

Which? says that free banking (in the UK) is a myth, noting that even bank customers in credit are charged for withdrawing money abroad, and argues for more transparency (inviting support for its campaign to ensure the UK’s new regulator is a watchdog rather than a lapdog). The Sargeant interim report on simpler financial products published at the beginning of the month suggested part of an answer, proposing that the first three simple financial products to be approved should include an Easy Access Savings Account and a 30 Day Notice Savings Account. Note no simple current account is proposed – this is about addressing the savings gap:

There has arguably never been a more important time to help people take charge of their finances and manage their money better. With the volatile nature of the global economy, the sharp drop in UK household incomes for 2010-20112 and uncertain employment patterns, having financial provision and protection for today’s needs and the unexpected, is even more of a necessity.
1.3 At the same time there is a change in the nature of the relationship between the individual and the traditional functions of the welfare state. As the Government continues its reforms to promote work and personal responsibility, it is inevitable that more responsibility will be required of the individual to provide a financial safety net for themselves and their family.

But Which? suggests that it’s not that simple for people to make decisions about choosing and managing current accounts, so why not a simple current account?

EuroFinuse, in comments to ESMA about technical advice about possible delegated acts under the prospectus directive, raises some more general questions about inadequacies of summary prospectuses for debt securities and about deficiencies in disclosure with respect to the Bankia IPO in 2011. It’s not clear what EuroFinuse expects ESMA to do with these broad comments made in the context of a focused technical consultation.

libor – treasury committee preliminary report August 18, 2012

Posted by Bradley in : financial regulation , add a comment

Is here. The report notes a “naivety” on the part of the Bank of England and a “dysfunctional relationship between the Bank of England and the FSA… to the detriment of the public interest” and adds to recent debates about whether the UK is behind the US in dealing with issues of financial regulation (an issue also raised by the Standard Chartered Affair):

The Committee is concerned that the FSA was two years behind the US regulatory authorities in initiating its formal LIBOR investigations and that this delay has contributed to the perceived weakness of London in regulating financial markets.

And the committee suggests it may have been misled:

It remains possible that the entire Tucker-Diamond dialogue may have been a smokescreen put up to distract our attention and that of outside commentators from the most serious issues underlying this scandal.

(Update: Here is the link to the volume reporting the oral evidence).

back to libor August 13, 2012

Posted by Bradley in : financial regulation , add a comment

Last week I was here:

Now, back in Miami to the Wheatley Review of Libor Initial Discussion Paper, published on Friday, with responses requested by September 7.