On annuities: an overview of the issues

Longevity is increasing in the whole world, and savings for retirement are growing quickly. There is a potential demand for certainty in the income streams for pensioners since old-fashioned pay-as-you-go systems became financially stressed. A financial product, the annuity contract, offers longevity insurance but its market is not well developed, even in the small set of countries where it exists. The instrument, its market and its problems are analyzed, and a discussion is made in order to ameliorate the understanding of an apparent paradox: why an interesting instrument is not more demanded and supplied.annuity; insurance; pension

Overcoming financing constraints to corporate expansion: evidence from a company in an emerging Islamic market

The sourcing of low-cost finance to facilitate corporate expansion on competitive terms is a major challenge to firms from emerging markets. There are additional constraints in Islamic markets as financial instruments must adhere to shari’ya law. This paper examines the approach taken by the Sudan Telecommunications Company (Sudatel) to obtain cost effective equity financing using secondary listings on multiple Middle East and North Africa (MENA) stock exchanges. We compare the costs of equity for Sudatel stock on the Sudan and Abu Dhabi Exchanges, and compare these figures with those for Sudatel’s two main regional competitors. Furthermore, we highlight the risk-return trade-off faced by investors in Sudatel stock on both Exchanges, and provide evidence of the potential benefits to investors from the overseas listin

Land institutions and land markets

In agrarian societies land serves as the main means not only for generating a livelihood but often also for accumulating wealth and transferring it between generations. How land rights are assigned therefore determines households'ability to generate subsistence and income, their social and economic status (and in many cases their collective identity), their incentive to exert nonobservable effort and make investments, and often their ability to access financial markets or to make arrangements for smoothing consumption and income. With imperfections in other markets, the institutions governing the allocation of land rights and the functioning of land markets will have implications for overall efficiency as well as equity. The authors examine how property rights in land evolve from a situation of land abundance. They discuss factors affecting the costs and benefits of individual land rights and highlight the implications of tenure security for investment incentives. They also review factors affecting participation in land sales and rental markets, particularly the characteristics of the agricultural production process, labor supervision cost, credit access, the risk characteristics of an individual's asset portfolio, and the transaction costs associated with market participation. These factors will affect land sales and rental markets differently. Removing obstacles to the smooth functioning of land rental markets and taking measures to enhance potential tenants'endowments and bargaining power can significantly increase both the welfare of the poor and the overall efficiency of resource allocation. Drawing on their conceptual discussion, the authors draw policy conclusions about the transition from communal to individual and more formal land rights, steps that might be taken to improve the functioning of land sales and rental markets, and the scope for redistributive land reform.Banks&Banking Reform,Environmental Economics&Policies,Labor Policies,Municipal Housing and Land,Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Municipal Housing and Land,Economic Theory&Research,Real Estate Development

The Trouble with Investment Banking: Cluelessness, Not Greed

We assume that the set of marketable financial instruments can be divided into two distinct categories: (1) easy to price and (2) difficult to price, and then isolate two behavioral effects as most important with respect to securities trading in difficult-to-price securities; specifically, the house money effect and the earned money effect. It is shown that these behavioral effects discourage profitable investment in research effort. We then argue that the Private Securities Litigation Reform Act (PSLRA) safe harbor should not apply to investment banks that issue/underwrite difficult-to-price securities. We also advocate for the return of the private investment banking partnership as the most sensible way in which to get the relevant behavioral incentives right vis-à-vis the bank and its investor-clients, and we propose two regulatory measures designed to induce such banks to structure themselves as private partnerships when they are otherwise free to publicly incorporate. Finally, we suggest that fiduciary responsibilities owed to investors by investment advisers and broker-dealers transacting in these kinds of securities must be strengthened and weakened, respectively. Current reform proposals blur the distinction between these two financial actors. We argue that the line must be drawn as bright as possible in order to make the distinction as salient as possible to investors in whom they can repose their trust and confidence. Moreover, instead of passing legislation designed to eliminate or reduce proprietary transactions, this Article argues for just the opposite--that legislation be passed to make the incentives facing broker-dealers and registered investment advisers--and investment banks as well--look more, not less, like those of the typical hedge fund

All Stick and No Carrot? Reforming Public Offerings

The SEC heavily regulates the traditional initial public offering. Those regulatory burdens fuel interest in alternative paths for private companies to go public, “regulatory arbitrage.” The SEC’s response to the emergence of alternatives, most recently SPACs and direct listings, has been to suppress them by imposing heightened liability under Section 11 of the Securities Act. The SEC’s treatment of the traditional IPO regulatory process as a one-size-fits-all regime ignores the weaknesses of this process, in particular the informational inefficiency of the book-building process. In this essay we argue that the agency’s focus in regulating issuers going public should be on promoting market pricing driven by sophisticated investors with access to credible disclosure. We propose an alternative approach that provides issuers with a clear choice in going public: 1) provide disclosures for a seasoning period prior to listing their securities for public trading, with corresponding reductions in regulatory requirements for going public (the “carrot”); or 2) impose heightened liability on company’s going public without a seasoning period, not only for registration statements, but also for the company’s periodic disclosures released during a post-offering seasoning period (the “stick”). We argue that such a regime would push issuers to maximize the joint welfare of both issuers and investors

The mechanics and regulation of variable payout annuities

This paper discusses the mechanics and regulation of participating and unit-linked variable payout annuities. These annuities offer benefits that are not fixed in either nominal or real terms but depend on the performance of the fund or funds in which the underlying reserve assets are invested, their profit sharing features, and the treatment of longevity risk. The paper focuses on the treatment of investment and longevity risks by different types of these annuities and underscores the challenge of establishing a robust and effective framework of regulation and supervision for these products. The paper also addresses the exposure of annuitants to integrity risk and places special emphasis on the need for a high level of meaningful transparency.Debt Markets,Insurance&Risk Mitigation,Investment and Investment Climate,Pensions&Retirement Systems,Non Bank Financial Institutions

The Scope and Jurisprudence of the Investment Management Regulation

This Article reviews three periods of investment company regulation by the Securities and Exchange Commission (“Commission”). It focuses on the period of 1975 to 2000 in which the Commission granted exemptions on conditions, thus deregulating and reregulating, case-by-case and finally codifying the exemptions in an exemptive rule. The Article analyzes this form of rule-making and compares it to prosecution, settlements, and initial rule-making that typifies the recent years. The Article concludes that the common law method of legislation, especially when it involves a “bargain” between the regulators and law-abiding regulated institutions who wish to innovate, is likely to lead to optimal rules, provided the conditions (re-regulation) are rigorously enforced

The Deregulation of Private Capital and the Decline of the Public Company

From its inception, the federal securities law regime created and enforced a major divide between public and private capital raising. Firms that chose to “go public” took on substantial disclosure burdens, but in exchange were given the exclusive right to raise capital from the general public. Over time, however, the disclosure quid pro quo has been subverted: Public companies are still asked to disclose, yet capital is flooding into private companies with regulators’ blessing. This Article provides a critique of the new public-private divide centered on its information effects. While regulators may have hoped for both the private and public equity markets to thrive, they may instead be hastening the latter’s decline. Public companies benefit significantly less from mandatory disclosure than they did just three decades ago, because raising large amounts of capital no longer requires going and remaining public. Meanwhile, private companies are thriving in part by free-riding on the information contained in public company stock prices and disclosure. This pattern is unlikely to be sustainable. Public companies have little incentive to subsidize their private company competitors in the race for capital--and we are already witnessing a sharp decline in initial public offerings and stock exchange listings. With fewer and fewer public companies left to produce the information on which private companies depend, the outlook is uncertain for both sides of the securities-law divide

The Failure of Private Ordering and the Financial Crisis of 2008

This Article analyzes the Financial Crisis of 2008 in the context of failures by market participants to engage in private ordering thus leading to opportunistic behavior at the expense of market stability. The Financial Crisis of 2008 offers a decidedly negative verdict on a decades-long project to deregulate financial markets and rely on private ordering mechanisms, including securitization and default swaps, to mitigate opportunistic behavior and improve market efficiency. Although the regulatory approach of the past two decades, which relied in great measure on private parties fending for themselves, helped to generate a number of innovations and positive developments in finance, it ultimately failed to bring about more resilient financial markets. The market for mortgage securitizations found itself subject to adverse selection biases leading to a lemons market for asset-backed securities. At the same time, developments in derivative markets made it possible for central actors there to engage in more risk (moral hazard) than was optimal. Ultimately, parties that should have engaged in private ordering did not. As a consequence, we are left struggling for a new regulatory path forward that recognizes that market participants are human agents subject to the frailties of cognitive limitations, euphoria and perhaps even the occasional self-delusion. What is required is a close examination of the institutional and micro incentives (including incentives of agents) in order to strike a balance between market-based regulation and a more interventionist approach to regulating markets. A more pragmatic approach to market regulation recognizes that the earlier hands-off approach to regulation resulted in over-reliance on weak heuristics and little by way of robust private ordering. A new more pragmatic vision of market regulation will likely stop short of legislating against bubbles, but could, and should, result in less systemic risk and a more sustainable growth trajectory going forward