Archive for the ‘ Transnational Cooperation ’ Category

Conference Announcement: Beyond Crises-Driven Regulation – Initiatives for Sustainable Financial Regulation

University of St. Thomas, Minnesota School of Law
University of St. Thomas Law Journal Spring Symposium: Beyond Crisis-Driven Regulation - Initiatives for Sustainable Financial Regulation

University of St. Thomas Law Journal Spring Symposium

Friday, April 11, 2014, Minneapolis, MN

co-sponsored by the Holloran Center for Ethical Leadership in the Professions

7 hours CLE pending approval – REGISTER NOW


Steven L. Schwarcz, keynote
Duke University School of Law

Roberta Romano
Yale Law School

Erik F. Gerding

University of Colorado
Law School

Kimberly D. Krawiec

Duke University
School of Law

Patricia A. McCoy

School of Law

Richard W. Painter

University of Minnesota
Law School

Douglas M. Branson

University of Pittsburgh
School of Law

M. Todd Henderson

University of Chicago
Law School

Claire A. Hill

University of Minnesota
Law School

Paul Vaaler

University of Minnesota
Carlson School of Management

Kristin N. Johnson

Seton Hall Law

Jennifer S. Taub

Vermont Law School


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Wulf Kaal
Associate ProfessorUniversity of St. Thomas School of Law
1000 LaSalle Avenue
Minneapolis, MN 55403

The Return of CDOs – Do We Need Dynamic Elements in Financial Regulation?

Despite the role of collateralized debt obligations (CDOs) in the financial crisis of 2007-08, CDOs and other high risk investment products may soon be available again and are likely to proliferate.  The WSJ reports that  J.P. Morgan Chase and Morgan Stanley bankers are assembling synthetic CDOs to satisfy demand for structured products by investors who seek high returns amid low interest rates. This development is not a surprise.  Wall Street will continue to create new, increasingly complex, and riskier financial instruments to capitalize on market demand for such products.

Stable and presumptively optimal rules cannot keep pace with market developments and financial innovation. The economic conditions and the corresponding requirements for optimal and stable rules are constantly evolving, suggesting that a different set of rules could be optimal.  Despite the risk of future crises, anticipation of future developments and preemption of future crises do not play a significant role in the regulatory framework and academic literature.

Dynamic elements in financial regulation as a supplemental optimization process for rulemaking could help facilitate rulemaking when it is most needed – ex-ante before crises – to curtail the effects of crises and suboptimal regulatory outcomes – ex-post after crises.

The concept of dynamic financial regulation describes the study of financial regulatory phenomena in relation to preceding and succeeding events.  Rulemaking is no longer a mere reactive process based only on preceding events and driven by the collective action problem of rulemaking. Rather, rulemaking in a dynamic framework increasingly utilizes institution specific and decentralized information reflecting preceding events and attempting to anticipate succeeding future contingencies.

Rulemaking with dynamic elements increases the adaptive capabilities of financial regulation through the increasing use of institution specific information. This may include information on the functioning of financial institutions and financial products. Information pertaining to how financial institutions, or decision makers in financial institutions, actually act and how they are expected to react to unforeseen contingencies can help incorporate dynamic elements into financial regulation.

Dynamic elements in financial regulation could help support regulators in their efforts to continually adapt to new market environments, financial innovation, and to the given regulatory environment. Dynamic elements in financial regulation may also support regulators in anticipating changes and adapt stable rules accordingly.

To improve quality and sustainability of legal rules, dynamic regulation may facilitate experimentation with different combinations of stable and dynamic elements in rulemaking. Experimentation with different combinations of regulatory approaches can be effective when several different approaches can be tried simultaneously. A mixture of market solutions, private ordering, and mandatory rules could help increase adaptive capabilities of rulemaking.  These dynamic changes in rulemaking could help create a governance mechanism that is constantly adapting to the given market environment, financial innovation, and the given regulatory environment.

Dynamic regulation is not just a theoretical concept. Several governance mechanisms with dynamic elements combined with existing stable and presumptively optimal rules could become part of a dynamic optimization and supplementation process for rulemaking.  Institution specific rules could be facilitated through the increasing use of institution specific information and private ordering. Contingent Capital Securities, Corporate Integrity Agreements, and Deferred Prosecution Agreements are among the governance mechanisms that can provide institutions specific information for financial rulemaking.

The return of the CDO market and the proliferation of high risk structured products could justify considering dynamic elements in financial regulation.

For more details see:

Evolution of Law: Dynamic Regulation in a New Institutional Economics Framework – Festschrift in Honor of Christian Kirchner

Dynamic Regulation of the Financial Services Industry – Wake Forest Law Review 

January 6, 2013: Paper Presentation at Annual Meeting of the Association of American Law Schools

Link to the paper: Forum Competition and Choice of Law Competition.

Forum Competition and Choice of Law Competition in Securities Law after Morrison v. National Australia Bank

Wulf A. Kaal

University of St. Thomas, Minnesota – School of Law

Richard W. Painter

University of Minnesota Law School


Minnesota Law Review, Vol. 97, 2012
U of St. Thomas Legal Studies Research Paper No. 12-12
Minnesota Legal Studies Research Paper No. 12-16

In Morrison v. National Australia Bank, the U.S. Supreme Court in 2010 held that U.S. securities laws apply only to securities transactions within the United States.

The transactional test in Morrison could be relatively short lived because it is rooted in geography. For cases involving private securities transactions in which geographic determinants of a transaction and thus applicable law are unclear, this article suggests redirecting the inquiry away from the geographic location of securities transactions towards the parties’ choice of law. In the long run, allowing parties to choose the law pertaining to private transactions could be more effective than relying on geography that is both indeterminate and easy to manipulate. Jurisdictions could then compete to induce transacting parties to bring private transactions within their jurisdictional reach by designing substantive law and procedures that parties choose ex-ante (“Choice of Law Competition”).

Recent cases expanding the jurisdictional reach of Dutch courts suggest that the Netherlands or another EU member state could engage in a different type of jurisdictional competition. Jurisdictions performing this role adjust their procedural rules to set up a forum within their borders for litigation that appeals to plaintiffs and their lawyers (“Forum Competition”). The U.S. engaged in some Forum Competition for extraterritorial securities litigation prior to Morrison, and the Dodd-Frank Act of 2010 empowers the SEC to continue to bring suits in the United States over securities transactions outside the United States. For many issuers and investors who do not choose the forum ex-ante, Forum Competition can be suboptimal. Depending on future developments, the acceptable outer bounds of Forum Competition between the United States and Europe may need to be defined by treaty or multilateral agreement.

Number of Pages in PDF File: 74

Keywords: securities, securities law, securities regulation, securities and jurisdiction, securities and choice of law

Accepted Paper Series

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