ProfessorBainbridge.com

If we must replace LIBOR, what should the replacement look like?

Bloomberg reports that:

A Federal Reserve-sponsored group that has been working on an alternative is slated Aug. 1 to discuss the timing of the release of the measure. The new rate, which the New York Fed plans to begin publishing daily sometime in the first half of 2018 in cooperation with the Treasury Department's Office of Financial Research, eventually could be the benchmark for pricing some $350 trillion of U.S. derivatives, student loans, home mortgages and many other types of credit.

The meeting of the Alternative Reference Rates Committee follows comments recently by the U.K. Financial Conduct Authority that it intends to stop compelling banks to submit London interbank offered rates by the end of 2021, igniting concerns global regulators may have to speed up their implementation timelines for new alternative benchmarks. According to an interim report, ARRC said it considered and rejected plans that call for a “quicker and more disruptive transition” and recognized that its proposed recommendations “could take several years to accomplish.”

I discussed ideal characteristics of a benchmark in my article Reforming LIBOR: Wheatley versus the Alternatives (January 31, 2013), NYU Journal of Law & Business, Vol. 9, No. 2, 2013, available at SSRN: https://ssrn.com/abstract=2209970.

Some key points:

• It is speculated that, “in globally integrated capital markets,” it does not make “sense to have different benchmark borrowing rates for domestic U.S. and international dollar loans.”
• In an increasingly globalized market, control over such a systemically important benchmark by any single government likely would be a source of on-going tension and perhaps would trigger an arms race of sorts in which all of the major financial center nations seek to privilege their domestic benchmark.
• The US working group therefore should be coordinating with counterparts in other countries to develop a global benchmark.
• If a single global rate is desired, even though LIBOR is a U.S. dollar rate, it makes more sense to have the alternative continue to be produced by a London-based government agency or central bank. This is so because it is widely recognized that one of LIBOR’s major advantages was that the London time zone allowed it to straddle the Asian and U.S. markets.
• The benchmark should look to private sector lending, not government rates. The difference between interbank offering rates like LIBOR and potential government substitutes becomes particularly pronounced during periods of economic uncertainty or crisis. In such periods, there is a flight to quality by investors that drives down the rates on presumptively risk free investments like Treasury bills.Conversely, as was the case in the post-Lehman Brothers crisis, banks become less creditworthy and liquidity in the interbank lending market dries up. In such periods, accordingly, benchmarks based on government or central bank funding costs would be especially inappropriate alternatives to one based on interbank offering rates.
• The benchmark should be administered by a private sector body. The Wheatley Review, for example, expressed concern that “public ownership” would reduce the ability of LIBOR to adapt to changing needs of users.The profit motive gives a private actor an incentive to respond to changing conditions in the markets for its product. In contrast, government agencies and state-owned enterprises lack that incentive.

Can the SEC unilaterally ignore Dodd-Frank rule making requirements?

When Dodd-Frank was passed, the Democrats had control of Congress, the White House, and the SEC. Despite that preponderance, Leviathan moved ever so slowly. As a result, seven years after Dodd-Frank became law there are a slew of rule making requirements imposed by the statute that remain unfulfilled.

Now, of course, the GOP controls the White House, Congress, and the SEC. The new Wall Street cops clearly have a deregulatory focus. But can they just ignore the Dodd-Frank requirements?

Bloomberg reports that the GOP is ignoring a number of Dodd-Frank regulatory mandates. Assuming Congress doesn't try twisting the SEC's arm, could a private party sue to compel the SEC to initiate the required rule making proceedings?

As I understand that law, the general rule is that "private parties have “no right to compel the agency to hold rulemaking proceedings."  Prof'l Drivers Council v. Bureau of Motor Carrier Safety, 706 F.2d 1216, 1223 (D.C.Cir.1983). See also WWHT, Inc. v. FCC, 656 F.2d 807, 818 (D.C.Cir.1981) (“It is only in the rarest and most compelling of circumstances that this court has acted to overturn an agency judgment not to institute rulemaking.”). 

On the other hand, at least one court has seen fit to grant an order compelling the SEC to initiate a rule making under Dodd-Frank:

Section 1504 of Dodd-Frank amends the Securities Exchange Act of 1934 to require “publicly traded oil, gas, and mining companies,” or “resource extraction issuers,” to disclose payments made to foreign governments or the federal government for the commercial development of oil, natural gas or minerals. D. 18 at 4. Under Dodd-Frank, these disclosures must be made in annual reports to the SEC. Id. Section 1504 requires the SEC to issue a rule implementing the new disclosure requirements. Id. Specifically, Section 1504 provides that:

Not later than 270 days after the date of enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Commission shall issue final rules that require each resource extraction issuer to include in an annual report of the resource extraction issuer information relating to any payment made by the resource extraction issuer, a subsidiary of the resource extraction issuer, or an entity under the control of the resource extraction issuer to a foreign government or the Federal Government for the purpose of the commercial development of oil, natural gas, or minerals ....

*171 Id. (quoting 15 U.S.C. § 78m(q)(2)(A)) (emphasis omitted). As such, the SEC's statutory deadline for promulgating a final disclosure rule was April 17, 2011. Id. at 5.

Oxfam Am., Inc. v. United States Sec. & Exch. Comm'n, 126 F. Supp. 3d 168, 170–71 (D. Mass. 2015).

By the time the case got before the First Circuit, the SEC was in default by over a year even though it had gotten two 270 day periods to complete the rule.

The court held that because Congress had set a date-certain deadline for the issuance of the final regulation, the court had no discretion to delay the mandatory duty imposed. Accordingly, it issued an order compelling the SEC to act. See South Carolina v. United States, No. 1:16-CV-00391-JMC, 2017 WL 1053844, at *9 (D.S.C. Mar. 20, 2017) (holding that "a few courts have agreed with Forest Guardians' conclusion that when an agency action is “unlawfully withheld” under § 706(1), a reviewing court has no equitable discretion to deny an order compelling the action").

The key factor may be whether the statute in question contains both a rule making mandate AND a date-certain deadline by which the rule must be adopted. See  Cobell v. Norton, 240 F.3d 1081, 1096 (D.C. Cir. 2001) ("The D.C. Circuit, confronting a case in which an agency had unreasonably delayed an action under a statute that provided no deadline (rather than and [sic] agency that unlawfully withheld an action under a statute that imposed a deadline), explained that 'a finding that delay is unreasonable does not, alone, justify judicial intervention’”).

Keith Paul Bishop questions whether The Financial Choice Act will repeal the pay ratio rule

Here

Put this is in the BFD File: House Passes Dodd-Frank Reform Bill

I thought about doing a big thought piece on the House passage of the Dodd-Frank reform bill. But what's the point? It'll never get past the inevitable Democratic filibuster in the Senate. For that matter, the Republican moderates in the Senate might suffice to keep it from getting 50 votes, let alone 60.

PCAOB Announces New Auditing Standard Governing Unqualified Auditor Opinions

Audited financial statements long have been accompanied by a report from the independent auditor attesting that, in its opinion, the financial statements are presented fairly in all material respects.[1] On June 1, 2017, the PCAOB adopted Auditing Standard 3101, governing the information an independent auditor must include in its report:

The final standard retains the pass/fail opinion of the existing auditor's report but makes significant changes to the existing auditor's report, including the following:

• Critical audit matters … requires the auditor to communicate in the auditor's report any critical audit matters arising from the current period's audit of the financial statements or state that the auditor determined that there are no critical audit matters:
  • A critical audit matter is defined as a matter that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex auditor judgment.
  • In determining whether a matter involved especially challenging, subjective, or complex auditor judgment, the auditor takes into account, alone or in combination, certain factors, including, but not limited to:
    • The auditor's assessment of the risks of material misstatement, including significant risks;
    • The degree of auditor judgment related to areas in the financial statements that involved the application of significant judgment or estimation by management, including estimates with significant measurement uncertainty;
    • The nature and timing of significant unusual transactions and the extent of audit effort and judgment related to these transactions;
    • The degree of auditor subjectivity in applying audit procedures to address the matter or in evaluating the results of those procedures;
    • The nature and extent of audit effort required to address the matter, including the extent of specialized skill or knowledge needed or the nature of consultations outside the engagement team regarding the matter; and
    • The nature of audit evidence obtained regarding the matter.
  • The communication of each critical audit matter includes:
    • Identifying the critical audit matter;
    • Describing the principal considerations that led the auditor to determine that the matter is a critical audit matter;
    • Describing how the critical audit matter was addressed in the audit; and
    • Referring to the relevant financial statement accounts or disclosures.
  • The documentation of critical audit matters requires that for each matter arising from the audit of the financial statements that (a) was communicated or required to be communicated to the audit committee, and (b) relates to accounts or disclosures that are material to the financial statements, the auditor documents whether or not the matter was determined to be a critical audit matter (i.e., involved especially challenging, subjective, or complex auditor judgment) and the basis for such determination.
• Additional Improvements to the Auditor's Report—the final standard also includes a number of other improvements to the auditor's report that are primarily intended to clarify the auditor's role and responsibilities related to the audit of the financial statements, provide additional information about the auditor, and make the auditor's report easier to read:
  • Auditor tenure—a statement disclosing the year in which the auditor began serving consecutively as the company's auditor;
  • unqualifIndependence—a statement that the auditor is required to be independent;
  • Addressee—the auditor's report will be addressed to the company's shareholders and board of directors or equivalents (additional addressees are also permitted);
  • Enhancements to basic elements—certain standardized language in the auditor's report has been changed, including adding the phrase whether due to error or fraud, when describing the auditor's responsibility under PCAOB standards to obtain reasonable assurance about whether the financial statements are free of material misstatements; and
  • Standardized form of the auditor's report—the opinion will appear in the first section of the auditor's report and section titles have been added to guide the reader.[2]

 

[1] Where the auditor determines that the issuer’s financial statements are not fairly presented in accordance with GAAP, the auditor may issue a qualified opinion, an adverse opinion, or a disclaimer of opinion. Under PCAOB Auditing Standard 3105, a “qualified opinion states that, except for the effects of the matter(s) to which the qualification relates, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the entity in conformity with generally accepted accounting principles. … An adverse opinion states that the financial statements do not present fairly the financial position, results of operations, or cash flows of the entity in conformity with generally accepted accounting principles. … A disclaimer of opinion states that the auditor does not express an opinion on the financial statements.”

[2] PCAOB Release No. 2017-001 (June 1, 2017).

Why hasn't the SEC issued final rules on Dodd-Frank 954 for clawbacks of erroneously paid compensation?

Anybody know? If so, kindly drop me a line.

My friends at the Washington Legal Foundation take on the CFPB

(Gordon v. Consumer Financial Protection Bureau)
U.S. Supreme Court

Media Contact: Glenn Lammi
glammi@wlf.org | 202-588-0302

“Whether the Supreme Court opts to review Gordon v. CFPB will have major ramifications for all federal agencies, those whom they regulate, and the survival of the Constitution’s constraints on the President’s appointment power.”
—Mark Chenoweth, WLF General Counsel

WASHINGTON, DC—Washington Legal Foundation today filed a reply brief on behalf of its client, Chance Gordon, in the U.S. Supreme Court. WLF’s brief in Gordon v. Consumer Financial Protection Bureau refutes the Consumer Financial Protection Bureau’s (CFPB) much-delayed brief in opposition filed on April 24. It invites the Court to review and reverse a Ninth Circuit decision that condones a federal agency’s ratification of an unauthorized enforcement action. The Justices will now receive all of the briefs and consider the petition later this month.

This case arises from the recess appointment of Richard Cordray as Director of CFPB in January 2012. CFPB concedes that Cordray’s appointment was invalid, which means that he lacked authority to act on behalf of the federal government for 18 months until renominated in 2013 and confirmed by the Senate that July. During that time CFPB (at Cordray’s direction) brought a civil enforcement action against a California attorney, Chance Gordon, for alleged violations of consumer protection laws. The Bureau insists that Cordray can retroactively ratify that lawsuit.

As WLF’s reply brief points out, CFPB’s position would upend the separation of powers. Under Article II of the Constitution, only Officers of the United States may bring litigation on behalf of the Executive Branch. Since Cordray’s appointment was defective, the new Bureau had no such officers and thus never received the executive authority it needed to bring this lawsuit. Moreover, the Consumer Financial Protection Act contained an express statutory prohibition against filing enforcement actions of this sort until the Senate confirmed CFPB’s Director. As the brief puts it:

CFPB is not simply attempting to ratify an exercise of power by an official whose appointment … was invalid. It is also attempting to ratify an executive action that Congress expressly provided could not be done when undertaken.

WLF’s brief also debunks the agency’s argument for Article III standing. It points out that CFPB’s reply does not challenge the Supreme Court’s recognition that a federal court does not have jurisdiction in cases where the government lacks an authorized representative. Without a valid Officer of the United States in place at CFPB at the time the suit was filed, WLF argues that CFPB had no standing to bring a civil enforcement action in federal court.

House Financial Choice Bill will change the shareholder proposal rule for the better

The House Financial Services Committee has just passed the Financial Choice Act, which reworks major parts of Dodd-Frank and other recent financial services bills and rules. One noteworthy corporate governance provision will work significant changes in the shareholder proposal rule. Specifically, Section 844 provides that:

(a) RESUBMISSION THRESHOLDS.—The Securities and Exchange Commission shall revise section 240.14a– 8(i)(12) of title 17, Code of Federal Regulations to—

(1) in paragraph (i), adjust the 3 percent threshold to 6 percent;

(2) in paragraph (ii), adjust the 6 percent threshold to 15 percent; and

(3) in paragraph (iii), adjust the 10 percent threshold to 30 percent.

Rule 14a-8 allows a shareholder proponent to resubmit a defeated proposal year after year provided it garners a rather de minimis level of support. This allows weak proposals to resurface time after time. The bill would significantly raise the vote required in order for a proposal to be resubmitted, which will weed out the weakest proposals.

(b) HOLDING REQUIREMENT.—The Securities and Exchange Commission shall revise the holding require- ment for a shareholder to be eligible to submit a share- holder proposal to an issuer in section 240.14a–8(b)(1) of title 17, Code of Federal Regulations, to—

(1) eliminate the option to satisfy the holding requirement by holding a certain dollar amount;

(2) require the shareholder to hold 1 percent of the issuer’s securities entitled to be voted on the proposal, or such greater percentage as determined by the Commission; and

(3) adjust the 1 year holding period to 3 years.

Currently investors who own just $2,000 worth of a company's stock can submit proposals, even if that represents an infinitesimally small percentage of the issuer's total market capitalization. As of today, for example, Apple has a total market capitalization of $776.6 billion. So a shareholder who owns 0.00000026% of Apple's stock can make a proposal. And the investor only needs to have held the stock for a year. The bill eliminates the $2,000 dollar threshold, so that investors will have to own at least 1% of the issuer's market capitalization in order to use the proposal, and lengthens the minimum holding period. This change will eliminate a lot of the gadflies and limit the use of proposals to investors with serious long-term skin in the game.

(c) SHAREHOLDER PROPOSALS ISSUED BY PROXIES.—Section 14 of the Securities Exchange Act of 1934 (15 U.S.C. 78n) is amended by adding at the end the following:
‘‘(j) SHAREHOLDER PROPOSALS BY PROXIES NOT PERMITTED.—An issuer may not include in its proxy materials a shareholder proposal submitted by a person in such person’s capacity as a proxy, representative, agent, or person otherwise acting on behalf of a shareholder.’’.

This provision basically eliminates the ability of busybodies like the former Harvard Shareholder Rights Project from acting as the "representative" of some shareholder, whereas in fact the Project was the real party in interest and was just piggybacking on the shareholders investment because it didn't own stock in the company.

The bill's comprehensive summary explains the need for these commonsense reforms:

Section 14 and Rule 14a-8 under the Securities Exchange Act of 1934 govern the submission of shareholder proposals. The Rule allows any shareholder who holds $2,000 or 1 percent worth of a company’s stock – for a period of one year – to submit a non-binding shareholder proposal on any subject matter that they please. ...

 

Due in part to the extremely low bar for qualification to submit a proposal, as well as the SEC’s increasing tendency to err on the side of proponents in allowing these proposals access to the corporate proxy, the shareholder proposal process has become one of the favorite vehicles for special interest activists to advance their social, environmental, or political agendas. Proponents largely include activist public pension funds, social, or environmentally-focused funds, as well as so-called “gadfly” investors who own miniscule amounts of a company’s stock, often times just so they are able to submit proposals year after year. ...

To put the gadfly comment into perspective, consider this excerpt from Proxy Monitor's 2014 report on "frequent filers" of shareholder proposals:

Since 2006 (the first year in the ProxyMonitor.org database), the three most frequent sponsors of shareholder proposals at Fortune 250 companies have been corporate gadflies: John Chevedden (including, in earlier years, his family trust and now-deceased father, Ray); William Steiner (and son, Kenneth); and Evelyn Davis. Over the last nine years, Chevedden has sponsored 232 proposals, Steiner 215, and Davis 153 (Figure 1). Other frequent filers over the time span include Emil Rossi (and family), James McRitchie (and wife, Myra K. Young), John Harrington, and Gerald Armstrong. These seven people (and their family members) are the only individual investors to file more than ten shareholder proposals during the 2006–14 period.

These folks need to get a life. Find a hobby. Something besides wasting people's time with proposals that almost never come close to passing.

Back to the bill's summary:

Despite the increasing number of proposals at public companies, shareholder support for environmental, social, or political issues remains stubbornly low. According to Proxy Monitor, in the decade they have been tracking proposals at Fortune 250 companies, not a single environmental-related shareholder proposal has received the majority support of shareholders over board opposition. Proposals related to political spending disclosure have not fared much better - only one proposal in that timeframe has received majority support, and in 2016 such proposals averaged only 23% support from shareholders.

As explained by former Commissioner Gallagher:

the SEC’s shareholder proposal rule, Rule 14a-8, is being abused by special interest groups to advance idiosyncratic goals that may directly conflict with the interests of most shareholders. A proponent, often with little to no skin in the game, can force a company to include in its proxy a proposal, which can touch on any of a wide range of issues, including immaterial social and political matters. Or, the company can expend substantial corporate resources seeking exclusion of the proposal.456

In addition to low thresholds for the initial submission of a proposal, shareholders are allowed to resubmit their proposal in subsequent years, even if they receive extremely low levels of support. Current regulations allow a company to exclude a resubmitted proposal from its proxy only if it failed to receive the support of 3% of shareholders the last time it was voted on; 6% if it has been voted on twice in the last five years; and 10% if it was voted on three or more times in the last five years. Thus, in many cases shareholder proposals that have been opposed by over 90% of shareholders on multiple occasions are allowed to be resubmitted, forcing companies to spend time and money in deciding how to deal with them.

The increasing use of the shareholder proposal system to embarrass companies or to advance idiosyncratic agendas – while the vast majority of shareholders vote in opposition to them – shows that this system is broken and in need of reform. The resounding message from a majority of shareholders is that they care about the companies they invest in generating a decent return, and have no interest in becoming involved in the pet issues of others. Despite the fact that the majority of shareholders oppose the activist shareholder proposals, because of the current regulatory regime, public companies must dedicate time, and money to defend against them. We want our companies to better use their resources to grow, and create more jobs – not fight politically motivated activist shareholders.

As I have repeatedly explained over the years, for example, shareholder proposals to require corporations to disclose political contributions are not about improving corporate governance but are aimed exclusively at defunding conservatives for the benefit of the Democrats.

Let's hope this provision passes. But we need not depend just on the Congress doing the right thing (I remain doubtful that this bill will survive a Democratic filibuster in the Senate). In my view, having adopted Rule 14a-8 and often amended it over the years, as well as frequently changing its interpretations of the rule, the SEC has all the authority it needs to do this by amending the rule.

House Dodd-Frank "Repeal" Bill Leaves Several Key Corporate Governance Provisions Intact

The Dodd-Frank Act had six major provisions that affected Main Street corporate governance, all of which I have derided as "quack" corporate governance:

1. Section 951’s so-called “say on pay” mandate, requiring periodic shareholder advisory votes on executive compensation.
2. Section 952’s mandate that the compensation committees of reporting companies must be fully independent and that those committees be given certain specified oversight responsibilities.
3. Section 953’s direction that the SEC require companies to provide additional disclosures with respect to executive compensation.
4. Section 954’s expansion of SOX’s rules regarding clawbacks of executive compensation
5. Section 971’s affirmation that the SEC has authority to promulgate a so-called “shareholder access” rule pursuant to which shareholders would be allowed to use the company’s proxy statement to nominate candidates to the board of directors.
6. Section 972’s requirement that companies disclose whether the same person holds both the CEO and Chairman of the Board positions and why they either do or do not do so.

The House Financial Services Committee has just passed the Financial Choice Act. It's not as big a statute as Dodd-Frank (few are), but it's still pretty huge. I've read the summaries and done searches in the text, however, and have determined that while the bill repeals several of of Dodd-Frank's corporate governance provisions outright, it also leaves several intact and makes just tweaks of varying degrees to others:

1. I can't find any reference to section 951's say on pay provision. My colleague Steve Bank points out that section 843 of the Act eliminates shareholder voting on golden parachutes and changes the frequency of shareholder votes "by striking ‘'Not less frequently than once every 3 years’ and inserting ‘Each year in which there has been a material change to the compensation of executives of an issuer from the previous year.'"
2. Ditto section 952's compensation committee rules.
3. Section 953 had two key provisions:
   1. Subsection (a) requiring improved disclosures of pay versus performance. This subsection appears to have survived intact.
   2. Subsection (b) required disclosure of the ratio of the CEO's pay to that of the median paid employee. This provision is repealed. See Financial Choice Act section 857(a)(24) at p. 474, line 19 of the Act.
4. Section 954's clawback provisions left intact were limited to executives "had control or authority over the financial reporting that resulted in the accounting restatement. See  Financial Choice Act section 849 at p. 468, lines 1-7 of the Act. (Thanks again to my friend Steve Bank) for spotting that error)
5. Section 971 is repealed. See Financial Choice Act section 857(a)(30) at p. 474, line 25 of the Act.
6. Section 972 is repealed. See Financial Choice Act section 857(a)(31) at p. 475, line 1 of the Act.

 

Change Coming for SEC’s Controversial Conflict Minerals Rule

Is the title of my latest post for the Washington Legal Foundation's Legal Pulse blog.

In sum, it looks like change is coming to the conflict-minerals disclosure regime. Whether it will happen through Congress repealing § 1502 as part of sweeping Dodd-Frank review, significantly revised by SEC, or put on a two-year hold by the White House is not certain. The odds of at least one of those events happening soon, however, seems high.

 

Fire Richard Cordray

Wall Street Journal editorial today explains why and how it can happen.

Trump will have ample cause to fire Richard Cordray, the rogue financial regulator. https://t.co/9ynSd5AZcK

— WSJ Editorial Page (@WSJopinion) January 10, 2017

Manhattan Institute Recommendations for PEOTUS Trump: The Shareholder Activism Part

The Manhattan Institute is putting out some great ideas for the incoming Donald Trump administration, which include a discussion of interest to the readers of the blog:

I STONGLY support both of these recommendations.

Can somebody explain how Donald Trump and Jeb Hensarling Plan to Get Dodd-Frank Repeal Through the Senate?

I don't think they can use reconciliation and I doubt they can get 60 votes, so what's the plan? Agency rulemaking?

Note that I assume Mitch McConnell will not let GOP nuke legislative filibuster.

Bootleggers instead of quacks? The case of hedge fund regulation

There's a really quite interesting and provocative analysis of hedge fund regulation posted at the CLS blog by Jeremy Kidd of Mercer University’s Walter F. George School of Law:

In 1999, Bruce Yandle, emeritus dean and professor of economics at Clemson University, proposed a public-choice economics version of the old saying, “politics makes strange bedfellows.”[2] It was called the Bootleggers and Baptists Theory. He argued that lasting regulations require the cooperation of two groups: the so-called Baptists, who provide vocal, morality-based policy arguments in favor of the regulations, and the bootleggers, who provide the money necessary to enact and defend the regulations. The name comes from the coalition that supported bans on the sale of alcohol on Sunday—Baptists because they believed it immoral to drink on the Sabbath, bootleggers because the bans limited competition and increased their profits—but the principle applies to a broad range of regulatory issues. In fact, once one grasps the principles of the theory, it becomes difficult to ignore evidence of bootleggers everywhere.

The formula is simple: government regulation that achieves its stated goals poorly, if at all, combined with benefits for competitors of the regulated entity. A good example could be the regulation of hedge funds under Dodd-Frank,

In the wake of the financial meltdown of 2008 to 2009, there was no shortage of Baptists arguing that something had to be done to minimize systemic risk, largely by reforming the market structures that were believed to have contributed to a dangerous accumulation of risk. ...

Who are the bootleggers ...? Two possibilities seem plausible. One is large, traditional financial institutions. The investment vehicles provided by traditional firms are rough substitutes for the services of hedge funds. They are likely to be less risky but also offer lower returns. If regulations lower hedge fund returns, traditional investments with their lower risk become attractive again. The other, related possibility is larger hedge funds that wish to limit competition from smaller rivals.  

I am really looking forward to reading the underlying paper. On a quick glance, it seems like a potentially powerful extension and interstitial enhancement of Roberta Romano's analysis of SIX as quack corporate governance and my analysis of Dodd-Frank as the same. Indeed, I view it as highly complementary by providing an alternative explanation for why the rules Dodd-Frank developed were so badly designed and providing an elaboration on my argument that Dodd-Frank was motivated by interest groups with something other than the public interest in mind. RECOMMENDED

If Dodd-Frank is repealed, will shareholders use 14a-8 proposal rule to replace key parts?

Bloomberg BNA Corporate Counsel Weekly reports that:

Shareholders might also put pressure on companies to keep the votes even if Dodd-Frank is repealed. Proxy advisory firms could propose that clients vote against directors at companies without say-on-pay, according to Jon Lukomnik, executive director of the Investor Responsibility Research Center Institute in New York.

“A company that withdraws it is going to make itself a target,” Lukomnik said. “That doesn't mean some won't withdraw it.” He said he expects many companies would keep an annual say-on-pay vote.

I suspect there may be an effort by institutional investors to keep governance provisions like say on pay via the proposal process, just as they used the proposal process to put through shareholder nomination powers via bylaw amendments.