Pause and Harmonize: Issues on the Dodd-Frank Act and its Cross-Border Applications, 3 J. Marshall Global Mkt. L.J. 89 (2015)

The 2008 financial crisis was a rude awakening for global financial regulators. The lack of transparency and regulation of the derivatives market was a major contributing factor to the global economic recession. As a response, world leaders pledged to bring economic and regulatory reform to their respective nations. In order to meet these goals, the United States proposed the Dodd-Frank Act and, in 2010, the Act was signed into law by President Obama. One of the purposes of Dodd-Frank is to allow financial regulators to police all derivative contracts that may affect the United States; unfortunately, the extraterritorial reach of Dodd-Frank was not well received by many foreign regulators. The Dodd-Frank Act was passed without the United States harmonizing its new regulations with other jurisdictions, resulting in regulatory fragmentation and leading to increased compliance burdens for derivative traders. The differences among each jurisdiction’s laws and a lack of harmonization between each jurisdiction could lead to regulatory arbitrage. This Article proposes a pause to the cross-border application of the Dodd-Frank Act until harmonization has been reached

What drives deforestation in the Brazilian Amazon? Evidence from satellite and socioeconomic data

This paper analyzes the determinants of deforestation in the Brazilian Amazon. From a model of optimal use, it derives and then estimates a deforestation equation on county-level data for the period 1978 to 1988. The data include a deforestation measure from satellite images, which is a great advance in that it allows improved within-county analysis. Evidence exists that: increased road density in a county leads to more deforestation in that county and in neighboring counties; development projects were associated with deforestation in the 1970s but not in the 1980s; greater distance from markets south of the Amazon leads to less deforestation; and better soil quality leads to more deforestation. The results for government provision of credit are mixed across specifications. The population density, although the primary explanatory variable in most previous empirical work, does not have a significant effect when all the variables motivated within the model are included. However, a quadratic specification yields a more robust population result: the first few people entering an empty county have significantly more impact than the same number of people added to a densely populated county. This result suggests the importance of the spatial distribution of population.Environmental Economics&Policies,Wetlands,Climate Change,Banks&Banking Reform,Water Conservation,Environmental Economics&Policies,Climate Change,Energy and Environment,Forestry,Banks&Banking Reform

A Current Assessment of Some Extraterritorial Impacts of the Dodd-Frank Act with Special Focus on the Volcker Rule and Derivatives Regulation

As the world struggles to emerge from the Global Financial Crisis the vision of a harmonious framework of global financial regulation seems as distant as ever. Important progress made by international committees such as the Basel Committee on Banking Supervision and the Financial Stability Board notwithstanding, there seem to be increasing signs of unilateral, extraterritorial action by major jurisdictions, including the United States. This paper reviews the framework created by the US financial reforms, in particular anti money laundering provisions, the Volcker Rule and the proposed OTC derivatives margin requirements, and considers some of the dilemmas presented by modern global banking and its concomitant regulation. The conclusion is that we are likely to see more regional reforms that are not necessarily uniform, and that this might not be a bad result, given the complexity of the financial markets and the need to respond flexibly to evolving circumstances

Trade rules for uncleared markets

We analyze markets in which the price of a traded commodity is such that the supply and the demand are unequal. Under standard assumptions, the agents then have single peaked preferences on their consumption or production choices. For such markets, we propose a class of Uniform Trade rules each of which determines the volume of trade as the median of total demand, total supply, and an exogenous constant. Then these rules allocate this volume "uniformly" on either side of the market. We evaluate these "trade rules" on the basis of some standard axioms in the literature. We show that they uniquely satisfy Pareto optimality, strategy proofness, no-envy, and an informational simplicity axiom that we introduce. We also analyze the implications of anonymity, renegotiation proofness, and voluntary trade on this domain

Derivatives Clearinghouses: Clearing the Way to Failure

One of the major components of Dodd-Frank was a comprehensive regulatory framework for over-the-counter derivatives. A key feature of this framework is a requirement that many of these derivatives be cleared through central counterparty clearinghouses. Clearinghouses have long played a stabilizing force in many markets, but Dodd-Frank’s regulatory mandate may adversely affect the way they operate. Risk management by clearinghouses and market participants could suffer, and improper risks could find their way into clearinghouses. If a clearinghouse were to fail, there would be tremendous pressure for the government to bail it out in the name of financial stability. Dodd-Frank’s derivatives framework should be reconsidered before it destabilizes the financial system. A better approach would empower market participants to decide whether to use clearinghouses and would allow clearinghouses the regulatory latitude to effectively manage their risks

Derivatives Clearinghouses: Clearing the Way to Failure

One of the major components of Dodd-Frank was a comprehensive regulatory framework for over-the-counter derivatives. A key feature of this framework is a requirement that many of these derivatives be cleared through central counterparty clearinghouses. Clearinghouses have long played a stabilizing force in many markets, but Dodd-Frank’s regulatory mandate may adversely affect the way they operate. Risk management by clearinghouses and market participants could suffer, and improper risks could find their way into clearinghouses. If a clearinghouse were to fail, there would be tremendous pressure for the government to bail it out in the name of financial stability. Dodd-Frank’s derivatives framework should be reconsidered before it destabilizes the financial system. A better approach would empower market participants to decide whether to use clearinghouses and would allow clearinghouses the regulatory latitude to effectively manage their risks

Spillover Across Remedies

Remedies influence rights, and rights apply across remedies. Combined together, these two phenomena produce the problem of spillover across remedies. The spillover problem occurs when considerations specific to one remedy affect the definition of a substantive rule that governs in other remedial settings. For example, the severe remedial consequences of suppressing incriminating evidence might generate substantive Fourth Amendment precedents that make other Fourth Amendment remedies (such as damage awards, injunctions, or ex ante denials of search warrants) more difficult to obtain. Or, the rule of lenity might yield a narrowed reading of a statutory rule in a criminal case, which then carries binding effect on subsequent attempts to secure civil relief under the same statutory provision. In these and other contexts, the cross-remedial scope of substantive rules can give rise to significant doctrinal distortions, with one remedy’s influence on a substantive norm dictating the outcome of cases that would otherwise implicate different remedial considerations. This Article documents several examples of cross-remedial spillover and considers several possible responses to it. Its central conclusion is that courts can best manage the spillover problem by varying the applicability of substantive rules across different remedial domains. Such disaggregation strategies already exist to some extent in the law, implemented most often through the use of discrete, transsubstantive exceptions to remedial requirements (consider, for instance, the qualified immunity defense to damages liability under § 1983, or the harmless error exception to the reversal remedy on direct appeals). Nonetheless, as this Article demonstrates, courts can more effectively disaggregate substantive norms — and thus more effectively mitigate spillover across remedies — by utilizing a significantly more nuanced and substance-specific set of remedial exceptions. In effect, such an approach would yield hybridized rules of right-remedy law, with precedential effects extending no further than particularized combinations of substantive and remedial domains. Although that outcome might give some readers pause, it is in fact a sensible and feasible objective for courts to pursue

Trade rules for uncleared markets

We analyze markets in which the price of a traded commodity is such that the supply and the demand are unequal. Under standard assumptions, the agents then have single peaked preferences on their consumption or production choices. For such markets, we propose a class of Uniform Trade rules each of which determines the volume of trade as the median of total demand, total supply, and an exogenous constant. Then these rules allocate this volume 'uniformly' on either side of the market. We evaluate these 'trade rules' on the basis of some standard axioms in the literature. We show that they uniquely satisfy Pareto optimality, strategy proofness, no-envy, and an informational simplicity axiom that we introduce. We also analyze the implications of anonymity, renegotiation proofness, and voluntary trade on this domain.market disequilibrium, trade rule, efficiency, strategy proofness, anonymity, no-envy, renegotiation proofness, voluntary trade

To Clear or Not to Clear: How SEC Implementation of Dodd-Frank Undermines Title VII’s Mandatory Clearing Requirement

In 2010, the United States Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act to prevent a recurrence of the 2008 financial collapse. Since its passage, the Act’s many reforms have reshaped the financial markets, but faulty executive implementation has undermined some of these components. One such issue arose in the United States Securities and Exchange Commission’s interpretation of Dodd-Frank’s Title VII central clearing mandate, which Congress included to stabilize and bring transparency to the over-the-counter derivatives market. The SEC has not yet effected mandatory clearing of security-based swaps—the financial products which Dodd-Frank subjected to the agency’s jurisdiction—but the SEC’s publicly contemplated approach omits “commission-initiated review,” a core component of Title VII’s structure. Without this type of review, many security-based swaps will remain outside the scope of mandatory central clearing, causing the SEC to fall short of its statutory mandate and Congress’ intent. This Note urges the SEC and lawmakers to take the necessary steps to address the “commission-initiated review” missing link and ensure the regulatory regime successfully includes the entire scope of financial products subject to the SEC’s jurisdiction

Too Big to Fail — U.S. Banks’ Regulatory Alchemy: Converting an Obscure Agency Footnote into an “At Will” Nullification of Dodd-Frank’s Regulation of the Multi-Trillion Dollar Financial Swaps Market

The multi-trillion-dollar market for, what was at that time wholly unregulated, over-the-counter derivatives (“swaps”) is widely viewed as a principal cause of the 2008 worldwide financial meltdown. The Dodd-Frank Act, signed into law on July 21, 2010, was expressly considered by Congress to be a remedy for this troublesome deregulatory problem. The legislation required the swaps market to comply with a host of business conduct and anti-competitive protections, including that the swaps market be fully transparent to U.S. financial regulators, collateralized, and capitalized. The statute also expressly provides that it would cover foreign subsidiaries of big U.S. financial institutions if their swaps trading could adversely impact the U.S. economy or represent the use of extraterritorial trades as an attempt to “evade” Dodd-Frank. In July 2013, the CFTC promulgated an 80-page, triple-columned, and single-spaced “guidance” implementing Dodd-Frank’s extraterritorial reach, i.e., that manner in which Dodd-Frank would apply to swaps transactions executed outside the United States. The key point of that guidance was that swaps trading within the “guaranteed” foreign subsidiaries of U.S. bank holding company swaps dealers were subject to all of Dodd-Frank’s swaps regulations wherever in the world those subsidiaries’ swaps were executed. At that time, the standardized industry swaps agreement contemplated that, inter alia, U.S. bank holding company swaps dealers’ foreign subsidiaries would be “guaranteed” by their corporate parent, as was true since 1992. In August 2013, without notifying the CFTC, the principal U.S. bank holding company swaps dealer trade association privately circulated to its members standard contractual language that would, for the first time, “deguarantee” their foreign subsidiaries. By relying only on the obscure footnote 563 of the CFTC guidance’s 662 footnotes, the trade association assured its swaps dealer members that the newly deguaranteed foreign subsidiaries could (if they so chose) no longer be subject to Dodd-Frank. As a result, it has been reported (and it also has been understood by many experts within the swaps industry) that a substantial portion of the U.S. swaps market has shifted from the large U.S. bank holding companies swaps dealers and their U.S. affiliates to their newly deguaranteed “foreign” subsidiaries, with the attendant claim by these huge big U.S. bank swaps dealers that Dodd-Frank swaps regulation would not apply to these transactions. The CFTC also soon discovered that these huge U.S. bank holding company swaps dealers were “arranging, negotiating, and executing” (“ANE”) these swaps in the United States with U.S. bank personnel and, only after execution in the U.S., were these swaps formally “assigned” to the U.S. banks’ newly “deguaranteed” foreign subsidiaries with the accompanying claim that these swaps, even though executed in the U.S., were not covered by Dodd-Frank. In October 2016, the CFTC proposed a rule that would have closed the “deguarantee” and “ANE” loopholes completely. However, because it usually takes at least a year to finalize a “proposed” rule, this proposed rule closing the loopholes in question was not finalized prior to the inauguration of President Trump. All indications are that it will never be finalized during a Trump Administration. Thus, in the shadow of the recent tenth anniversary of the Lehman failure, there is an understanding among many market regulators and swaps trading experts that large portions of the swaps market have moved from U.S. bank holding company swaps dealers and their U.S. affiliates to their newly deguaranteed foreign affiliates where Dodd- Frank swaps regulation is not being followed. However, what has not moved abroad is the very real obligation of the lender of last resort to rescue these U.S. swaps dealer bank holding companies if they fail because of poorly regulated swaps in their deguaranteed foreign subsidiaries, i.e., the U.S. taxpayer. While relief is unlikely to be forthcoming from the Trump Administration or the Republican-controlled Senate, some other means will have to be found to avert another multi-trillion-dollar bank bailout and/or a financial calamity caused by poorly regulated swaps on the books of big U.S. banks. This paper notes that the relevant statutory framework affords state attorneys general and state financial regulators the right to bring so-called “parens patriae” actions in federal district court to enforce, inter alia, Dodd- Frank on behalf of a state’s citizens. That kind of litigation to enforce the statute’s extraterritorial provisions is now badly needed