The SEC will likely reevaluate the regulatory framework governing securities exchanges in light of new marketplace dynamics and trading practices. Under the current framework, national exchanges such as the NYSE and Nasdaq serve as special self-regulatory organizations (“SRO”) that establish and enforce rules for members, including broker-dealers. But advances in automation and electronic communication technologies have increasingly enabled broker-dealers to set up alternative trading systems (“ATS”) that compete, sometimes directly, with the national exchanges.
Supreme Court To Reconsider “Fraud-on-the-Market” Presumption in Securities Fraud Class Actions
On March 5, 2014, the U.S. Supreme Court heard oral arguments in the much anticipated case of Halliburton Co. v. Erica P. John Fund, Inc., No. 13-317. The Halliburton case presents a critical issue regarding the viability of maintaining a private securities fraud lawsuit as a class action: whether the plaintiffs are permitted to invoke the “fraud-on-the-market” presumption to establish that there are common issues of reliance sufficient to certify a class.
Delaware Supreme Court Affirms Application of Business Judgment Review to Merger with Controlling Stockholder
In Kahn v. M&F Worldwide Corp, the Delaware Supreme Court unanimously affirmed the Court of Chancery’s 2013 decision that a going-private merger with a controlling stockholder may be subject to the deferential business judgment rule, rather than an entire fairness standard of review. The Delaware Supreme Court held that business judgment review is applicable if the merger was conditioned prior to commencement of negotiations on both (1) approval by a committee of independent directors meeting certain requirements and (2) a non-waivable, informed, uncoerced majority-of-the-minority vote because “the simultaneous deployment” of these procedural protections results in the transaction “acquir[ing] the shareholder-protective characteristics of third-party, arm’s-length mergers, which are reviewed under the business judgment standard.”
Congratulations to Berkeley Law and Haas Business School Joint Venture Competition Finalists
Congratulations to Team 1 and Team 12 for placing first and second, respectively, in the Berkeley Law and Haas Business School Joint Venture Competition. This was the first year Berkeley offered this competition, and the Berkeley Law Center for Law, Business and the Economy (BCBLE) plans to continue running this competition annually.
The finalist teams were composed of the following Haas and Berkeley Law students:
Team 1: Ben Bradbury, Mary Loum, Arkadiusz Malinowski, and Kim McGinnis
Team 12: Zane Keller, Steven McCarty, and Sam Wang
SEC Rule 10b5-1: Proposed Amendments to Prevent Insider Trading
In Rule 10b5-1 of the Securities Exchange Act of 1934 (“Exchange Act”), the SEC created an affirmative defense to any charge of insider trading “designed to cover situations in which a person can demonstrate that the material nonpublic information was not a factor in the trading decision.” Established as one of the tools to promote trade, the provision created a safe harbor for insider trading when the trade was made according to a contract, instructions were given to another, or a written plan that did not allow an insider to influence or effect subsequent purchases or sales if such a plan was created before the person had inside information.
Underfunded and Overwhelmed Swaps Regulator Devising New Plan for Data Reporting
The Commodity Futures Trading Commission (CFTC) is constructing a new plan to address the unmanageable flood of poor quality trading data that hamstrings its ability to properly monitor market risk. The Commission will release a draft of its plan next week, which seeks to improve the quality of this data, said Commissioner Scott O’Malia on Thursday.
Delaware Court of Chancery Finds Financial Advisor Liable for Aiding and Abetting Fiduciary Duty Breaches
On March 7, 2014, Vice Chancellor Travis Laster of the Delaware Court of Chancery found a financial advisor liable for aiding and abetting breaches of fiduciary duties by the board of Rural/Metro Corporation in connection with the company’s 2011 sale to an affiliate of Warburg Pincus LLC.
Full-Time SEC Enforcers, Part-Time Insider Traders?
The U.S. Securities and Exchange Commission (SEC) brings hundreds of civil enforcement actions against violators of federal securities laws every year. One of the most common actions is for insider trading; the SEC brought 58 of them in FY 2012 alone, and more in the last three years than in any three-year period ever.
Malaysia Considers New Retirement Fund Structure
Reuters Arabic Service is reporting that the Malaysian government’s retirement fund, the sixth largest in the world controlling assets exceeding $160 billion, is considering establishing an independent fund to concentrate on investments in Islamic finance.
Credit Derivatives, Re-Defined
The International Swaps and Derivatives Association, Inc. (“ISDA”) will be updating its 2003 international credit derivatives definitions this September. Though the final definitions of this year’s update have yet to be published, some details have already emerged. For example, there will be a new credit event that would occur as a result of a governmental debt write-offs of a financial reference entity. The update will also include basic, commonly used terms associated with credit derivatives transactions.