Lessons from Cukurova

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• The recent decision of the High Court of the BritishVirgin Islands in Alfa v Cukurova has caused a stir among lawyersserving the international financial markets based in London.
• Thedecision concerns the meaning of ‘appropriation’.Appropriation is a new remedy for collateral takers introducedby the Financial Collateral Arrangements (No. 2) Regulations2003, which implement the Financial Collateral Directive.
• Thedecision holds that effective appropriation requires the collateraltaker to take over from the collateral giver the ability todeal with the collateral as its own.
• In Cukurova, where anequitable mortgage was taken over directly held shares, thisrequired that the collateral taker become the registered ownerof the shares.
• The decision was appealed to the BVI Court ofAppeal in late January 2008 and may go further. In the meantime,this article provides an overview of the decision and considersits wider significance.

 

Legal clarity and regulatory discretion exploring the law and economics of insider trading in derivatives markets

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• Unspecified boundaries in the commodities, derivatives,and securities law have not only increased the discretion ofindividual regulatory authorities, but have also resulted inexpanded and often overlapping assertions of jurisdiction bythe Securities and Exchange Commission, the Commodity FuturesTrading Commission, the Federal Energy Regulatory Commission,and other authorities.
• The Securities and Exchange Commissionhas recently sought to expand its jurisdiction into the derivativesmarkets to seek registration of hedge funds and other usersof derivatives and commodity futures as investment advisors,and to seek to apply its insider trading laws broadly to thevarious assets traded by funds.
• Financial institutions, intermediaries,and end users are increasingly being asked to demonstrate theeconomic or business purpose of their financial transactionsand their trading practices to ensure their legitimacy and avoidregulatory scrutiny.
• Compliance and litigation costs have predictablyrisen in this environment, in part due to the . . . [Full Text of this Article]

 

Emissions trading in the European Union

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• The EU ETS will undergo a number of changes consequentupon the commencement of the first Kyoto Commitment Period on1 January 2008.
• This article considers the existing EU ETSframework and also the key developments that are anticipatedin the European emissions market for 2008–2012.
• A secondarymarket for trading EUAs has already developed and this market,together with the standard-form documentation used, is discussed.
• Inconclusion, the article questions the future of emissions tradingin Europe—particularly after the current Kyoto targetsexpire in 2012.

  European businesses entered a carbon-constrained economic environmenton 1 January 2005. For some, the impacts were immediate anddirect in the form of caps on their emissions. The majorityfelt it indirectly and more slowly through increased energycosts as the perceived cost of compliance was passed on by generators.The full impacts are not yet clear, but a quiet revolution is. . . [Full Text of this Article]

Deregistration issues in the US for foreign private issuers

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• While the passage of Sarbanes–Oxley in the USwas just one of the many causes for the lack of competitivenessof the US capital markets recently, it served to focus the attentionof foreign private issuers in the US on the difficulty and sometimesimpossibility of exiting the US capital markets.
• Unlike manyother jurisdictions, the process of deregistering in the USis distinct from process of delisting. The current rules forderegistration of foreign private issuers focus on the numberof US shareholders, regardless of how or where those shareholderspurchased their shares. In addition, foreign private issuers,were subject to complicated rules for counting US shareholders,and deregistration often would only suspend (not terminate)their reporting obligations.
• As a result of pressure from foreignprivate issuers, the SEC proposed new rules at the end of 2005to liberalize the existing deregistration regime for foreignprivate issuers. . . . [Full Text of this Article]

 

Complex financial histories--a problem solved?

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• Recognizing the importance of ensuring that the financialhistory presented in a prospectus appropriately reflects thesubstance of an issuer's operations, the European Commissionhas brought forward an amendment to the Prospectus Directiveimplementing Regulation (809/2004) which will take effect fromJanuary 2007. The new law defines two new terms, namely a ‘complexfinancial history’ and a ‘significant financialcommitment’, which if applicable will require an issuerto consider including additional historical financial informationto that of its own.
• Following the Committee of European SecuritiesRegulators' advice on this subject, as well as the views ofmarket participants, the new law does not prescribe the financialreporting solutions to be followed. Rather, it sets out theprinciples to be applied and then allows competent authoritiesflexibility to accommodate solutions that reflect the particularcircumstances of an issuer. Notably, the competent authoritiesare required to take into account the . . . [Full Text of this Article]

 

Best execution and competition between trading venues MiFID's likely impact

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• Directive 2004/39/EC of the European Parliament andof the Council on markets in financial instruments (‘MiFID’)enhances investor protection in Europe by harmonizing the rulesof conduct applicable to investment services providers, includingbest execution requirements.
• Under MiFID, Member States mustallow internalization of orders and, therefore, eliminate the‘concentration’ provisions requiring transactionsin equity securities to be executed by intermediaries on a regulatedmarket. This article argues that MiFID's best execution provisionsmay represent a compromise between those Member States that,on one hand, having concentration rules in place, intended toprotect the incumbent exchanges from the consequences of theirrepeal and those, on the other, that intended to fully exploitthe opportunities of financial liberalization in Europe.
• Afterexamining MiFID's broad definition of best execution, the articleconsiders several provisions that limit the Directive's flexibility.These provisions tend to favour incumbent exchanges, which offerthe best . . . [Full Text of this Article]

 

Construction of contracts and the role of 'entire agreement' clauses

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• The construction of commercial contracts has seena shift from a strict to a liberal philosophy of constructionand this has had an impact on commercial agreements and actors.
• Thereis an ongoing debate concerning the widening background or matrixevidence to include prior negotiations, reflecting the desireof parties to insulate commercial agreements from collateralterm arguments or other recourse to wider materials.
• This hasin part led to the emergence of ‘entire agreement’and ‘non-reliance’ clauses.
• This article considersthe construction of such clauses and whether such clauses takeeffect through construction or estoppel reasoning. It also looksat the merits of estoppel by representation and ‘estoppelby contract’, the impact of Unfair Contract Terms Act1977 and Misrepresentation Act 1967, and the effect of waiverof clause.

  The law of contract is fundamental to all markets, and participantsin wholesale markets are wedded to the . . . [Full Text of this Article]

Disclosure practices under the EU Prospectus Directive and the role of CESR

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• In February 2005, CESR issued its Recommendationsfor the consistent implementation of the Prospectus Regulation.
• SinceJuly 2006, CESR has begun to develop a line of clarificationson disclosure practices under the Prospectus Directive and theProspectus Regulation in the form of common positions basedon Frequently Asked Questions (FAQs).
• This article first analysesthe question to which extent CESR's Recommendations and commonpositions have binding effect, in the sense that individualnational securities regulators are under some form of obligationto apply these.
• Subsequently, the article discusses a selectionof CESR's common positions on FAQs which are of material importancefor day-to-day disclosure practice.

 

Private equity: the UK regulatory response

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• Rapid growth in private equity in recent years hasgenerated a public debate over the possibility of regulation.The Financial Services Authority (FSA), British Venture CapitalAssociation (BVCA), Treasury and the Treasury Select Committeehave all been active on this front in recent months.
• This briefingnote provides an overview of the current state of play in theUK, taking account of the final guidelines published by SirDavid Walker and the changes to capital gains tax that havebeen announced by the Treasury.
• The BVCA guidelines will bringwithin its enhanced disclosure regime around 65 portfolio companiesand will operate on a ‘comply or explain’ basis.
• TheFSA has indicated that it will focus on the risks of marketabuse and conflicts of interest arising from private equitytransactions, but it does not envisage a discrete regulatoryregime for the sector.

 

Foreign trading screens in the United States

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• Remote trading screens allow investors to trade onexchanges located in other jurisdictions. The Securities andExchange Commission (‘SEC’) has generally prohibitedthe placement of foreign trading screens in the United Statesunless the associated exchange complies with US regulatory requirements.While the SEC defends its position as an essential investorprotection, European officials complain that SEC requirementsconstitute an unfair barrier to trade.
• This article arguesthat technological advances have largely mooted this contro-versy.Current requirements do not protect US investors as much asthe SEC claims nor do they inhibit competition as much as theSEC's critics assert.
• To the extent that alternative tradingmechanisms already give US investors de facto access to unregulatedforeign exchanges, the SEC may well choose to revisit its positionon foreign trading screens, particularly as US and Europeanfinancial markets become more integrated and disclosure requirementson both sides of . . . [Full Text of this Article]

 

The pan-European retail market are we there yet?

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• When the EU Prospectus Directive was introduced inlate 2003, there was great optimism that it would finally leadto the long awaited pan-EEA retail capital market.
• This articleasks whether the Directive has achieved this result and looks,in particular, at the disclosure regime relating to the admissionof debt securities to EEA-regulated markets and the public offeringof such securities in the EEA.
• A number of impediments to thecross-border retail market, that are completely separate fromdisclosure, are examined.
• In conclusion, the article discusseswhether, in fact, expectations for the Prospectus Directivein this area were set too high and could never be met and looksat what more needs to be done in order to achieve the goal ofa single retail debt market in the EEA.