Keynotes

Emilios Avgouleas: Monetary Policy, Financial Stability, and International co-ordination: The Missing part of Global Governance Jigsaw?

Excessive QE and historically low interest rates as well as sudden currency devaluations are widely blamed for the current woes of global markets. To shed some light on intractable problems of global monetary coordination this paper will investigate the linkages between leverage and financial stability and the global transmission mechanisms of debt fuelled systemic risks. It will also investigate why prototypical forms of monetary cooperation mostly enshrined in the Bretton Woods Treaty have not worked and consider if this trend can be reversed.

Ugo Pagano: Effective Demand and Financial Regulations

Finance transfers individuals' liquidity in the future. However the real shape that wealth may have in the future is highly uncertain. Future liquidity depends on unknown future effective demand.  Thus, financial contracts are necessarily made under a highly incomplete law where appropriate regulations are required. However, the present crisis cannot be seen only as a crisis due to loose regulations. High inequality and the nature of contemporary intellectual monopoly capitalism involve a bleak and uncertain level of future effective demand. In this framework, there are limits to what even the best financial regulations can do. If one does not tackle the fundamental causes of the present crisis, tighter financial regulations can even have undesirable effects.

Katharina Pistor: The Legal Hierarchy of Global Moneys

Financial systems are the product of legally coded private and public moneys and the regulatory scaffolding put in place from time to time to guard against its accesses. The political economy of financial regulation is thus inextricably linked to production and diffusion of moneys. Money comes in many forms: state and private, foreign and domestic, asset-backed or liquidity backstopped. Legal coding devices confer better rights on some than on other moneys. State money is the legal tender and as such trades at par on demand (Pozsar); private money can be swapped for other private moneys, but can be converted into state money at par only if held by certain entities (regulated banks) and in certain form (reserves). Some private moneys are insured, others are secured (asset backed), yet others are neither. These structures determine the hierarchy of moneys within states. Similar structures are at work in determining the hierarchy of global money. Some currencies are backed by a sovereign with the power to issue its own money and debt denominated in that currency and governed by domestic law. Other sovereigns have relinquished their own currency or issue their debt in foreign currencies and under foreign laws. In short, the legal coding of money matters domestically and globally. Law is both an expression and determinant of power. Issuing the money at the top of the global hierarchy empowers the issuer to relax or tighten the conditions for exchanging it against other moneys. Relaxing these conditions in times of crises increases demand, helping entrench the issuer's position at the apex.

Principal Speakers

Douglas W. Arner: Political Winds in Expert Advisory Bodies

(Abstract coming soon)

Daniel Awrey: The Political Economy of Dealer Intermediated Markets

The paper examines the challenges which arise in attempting to regulate markets which rely on the private incentives of dealers to generate the public good of market liquidity.

Julien Chaisse: The Political Economy of Reflective Losses— Challenges of the Transnational Shareholders' Protection

The role of "reflective losses" is of considerable importance both to national company law and to international investment law.  However, as a matter of practice and legal theory, domestic courts and international arbitration tribunals come to contrary conclusions as to whether shareholders can recover the loss of share values caused by wrongs done to the company.  International arbitration tribunals tend to allow shareholders to recover loss of share value caused by states' breach of investment treaties. Domestic courts generally bar such recovery under the "no recovery of reflective loss" principle.  This article provides an exhaustive account of investment awards since 1998 that have dealt with the issue of "reflective losses."  It argues that allowing recovery for reflective loss is a sound legal principle from the perspective of policy, law, and practicality, and that it is a key feature of international investment case law and hence should be promoted.  The approach by tribunals is not necessarily worse than the approach adopted by domestic courts.  The domestic courts' approach is based on policy considerations like prevention of double recovery, sheltering wrongdoers from multiple claims by shareholders, the rule that the company is the proper plaintiff (and thus the business decision made by the company should be respected), etc.  However, tribunals are not obliged to adopt all these policies since policies reflect how different courts prioritize various interests.  The tribunals can have different priorities and policy considerations because, by their nature, investment treaties are contracts through which states promise to favor foreign investment in exchange for more foreign investment. The arbitration tribunal is there to uphold party autonomy.  This should become the premise of reflection and solving potential practical problems caused by allowing such recovery.

Li Guo:  The Hybridization of China's Financial System and Its Regulation

Abstract of the paper: Contemporary financial systems are rule-bound systems that operate on a continuum between state and markets. They are therefore best characterized as hybrid rather than public or private. The global financial crisis has revealed this for Western market economies, where banks were bailed out and financial instruments that found no other buyers were put on the balance sheets of central banks, i.e. socialized. For China, few would doubt that the country's financial system is not purely private; neither, however, is it purely state as in a socialist mono-banking system. China faced the considerable challenge of weaning financial intermediaries off state dependence precisely at a time when global financial markets experienced their greatest boom and bust in history. This paper traces the country's development from state-controlled to hybridized finance over the past two decades and draws parallels to the US and European experiences. It finds that China and the West, which not so long ago found themselves at opposite ends of the state-market continuum in finance have both moved further to the center, affirming the hybridity theses.

Hui Robin Huang: Institutional Structure of Financial Regulation in China: Past, Present and Future

Abstract: This paper aims to critically assess the development trajectory of institutional structure of financial regulation in China. At present, China adopts a traditional sectoral system of financial regulation, which has exhibited several inadequacies in meeting the regulatory challenges in a rapidly changing market. Hence, China is currently considering ways to improve its regulatory architecture and several reform proposals have been put forward, including the single-regulator model, the Australian style twin-peaks model and the UK style twin-peaks model. This paper will evaluate these proposals in light of international experiences, taking into account the peculiar context of political economy in China. 

Lawrence Li: Evading Financial Regulation: the Reality of Holes and Faulty Foundations

(Abstract coming soon)

Bryan Mercurio: Confluence or Conflict: The effect of the IMF's Acceptance of Capital Controls on Trade and Investment Law

This paper will address one fragmentary aspect of international economic law – namely, the regulation of capital controls. More specifically, the paper will evaluate the political economy of the how and why the IMF recently embraced capital controls as a tool to be used in economic crises. While most onlookers viewed the shift as sudden, I argue that the change was slow and steady following stakeholder pressure after the Asian Financial Crisis in the late 1990s. The paper will also evaluate the IMF's new position against the commitments made by countries as part of their obligations under the trade and investment regimes. The IMF recognises but does not resolve the sizeable risk of conflict between capital controls mandated in an IMF stability/loan programme and obligations contained in trade and investment regimes – namely the World Trade Organization's General Agreement on Trade in Services (GATS), bilateral/regional trade agreements (BRTAs) and international investment agreements (IIAs). Simply stated, what the IMF now condones and may require could directly conflict with obligations under the trade/investment regime. This paper offers a preliminary assessment of some of the more likely conflicts, as well as recommendations for negotiating more harmonious agreements in the future.

Nikhilesh Sinha: Small is not always beautiful: Understanding the Microfinance Crisis in India

Katherina Pistor's (2013) pioneering work on the legal theory of finance (LTF) provides a framework for understanding financial markets as hybrid spaces, existing as it were in the interstices between state and market, public and private.  In a developing country context, legal frameworks shape the development of financial markets, but are at the same time shaped by influential players, which in turn influences the future development of financial markets. The interaction between the dynamics of financial markets and commitments enshrined in law and contracts becomes particularly visible at times of crisis, when laws are applied selectively.

While Microfinance is thought to have orginated in its contemporary form with the Grameen Bank in Bangladesh in 1976, India was not far behind. Andhra Pradesh, the fifth populous state of 75 million people became known as the 'capital' of microfinance, with an estimated third of the population having received micro-loans by 2009. While the majority of these were disburse through the state supported Self Help Group-Bank Linkage Project there was also a proliferation of private micro-finance operators, and intense rivalry between the two sets of operators. In 2010, a string of suicides attributed to coercive collection practices by private microfinance operators led to a crisis across the state, which eventually crippled the sector to the extent that it is still to recover from. The paper applies LTF to the case of the microfinance crisis in Andhra Pradesh, highlighting the ways in which the seeds of the crisis were sown at a much earlier time, with the drafting of regulations for the sector and the roles of the various actors at different points in the lead-up to the crisis and beyond.

Chang-hsien Tsai: A Legal-Theory-of-Finance Perspective on Structured-Note Controversies in Taiwan

Taiwan, whose financial market is closely linked to the international market, was seriously affected by the Global Financial Crisis ("GFC"). Among the affected retail investors, those who invested in financial products such as structured notes might have been unaware of the real risk these products posed. Investors left holding worthless products in the wake of the 2008 crash were quick to seek legal redress for their losses, but these disputes were difficult to address by properly using the civil remedies then available in Taiwan. Few of the possible causes of actions listed in the Taiwanese Civil Code ("CC") or in other special laws were well adapted to address disputes over structured notes. In theory the most applicable remedy available in the then legislation might be Article 227-2 of the CC, which governs the rule of changed circumstances, but in practice it was referred to only rarely.

Whereas the substantive version of the rule of changed circumstances, illustrated by Article 227-2 of the CC, could not work well, the procedural version of the rule of changed circumstances, as this paper argues, appears to have emerged to address the then structured-note controversies. Specifically, the change of circumstances caused by the bankruptcy of Lehman Brothers contributed to a wave of controversies in Taiwan that, as retail investors argue, the salespersons in banks did not fully disclose the risk of structured notes, such that they tried to sue banks. Meanwhile, there was no professional authority to handle this kind of financial product controversies. The provisional authority in charge at that time was the Bank Bureau under the Financial Supervisory Commission ("FSC") and other quasi-governmental organizations the FSC controlled. As an example of the procedural version of the rule of changed circumstances, this makeshift alternative-dispute-resolution ("ADR") system was created in a hassle due to courts' failure to handle such a great number of cases at the same time with insufficient professional knowledge and related resources. In order to prevent similar problems in the future, the Financial Consumer Protect Act ("FCPA") has finally been put into legislation in 2011, hence formalizing the tentative ADR scheme into the Financial Ombudsman Institution.

From the angle of a Legal Theory of Finance, the structured-note controversies mentioned above may illustrate that the procedural version of the rule of changed circumstances emerged instead even though the substantive version of the rule of changed circumstances failed to address the disputes. This might demonstrate the political economy of the FCPA legislation on the one hand. On the other hand, during the GFC, the FSC intervened and forced financial intermediaries selling structured notes to settle complaints from retail investors and share the systemic risk; in doing so the FSC have brought retail investors a step closer to the financial system's apex. In short, the Taiwanese case study displays the power relationships within the Taiwanese financial system, exemplifying how law is applied under pressure.

Lutz-Christian Wolff: The Global Financial Crisis and the End of Rule of Law

Katharina Pistor (2013) has observed that during the global financial crisis of 2008-09 law was applied in a flexible manner. Furthermore, it has been argued that this was necessary to keep developments under control. While it was also mentioned that this should have led to concerns, from the lawyers' point of view there has hardly been any broader discussion of related issues. In particular, the rule of law implications of flexible application of law have remained unaddressed. This paper aims to fill the gap. It first introduces a terminological and doctrinal framework for the assessment of flexible law and the flexible application of law. It then explores related rule of law implications. Using the findings as a benchmark it assesses the law application flexibility during the global financial crisis. Finally, it offers suggestions how law has to be designed to prevent application flexibility while at the same time allowing for the necessary responses in emergency situations.

Duoqi Xu: Tax Incentives, Tax Neutrality and Rule of Tax Law: The Case of the Shanghai International Financial Centre in a "New Normal" Context

Macroeconomics discussions about the formation and development of international financial centres often focus on four elements: the economy, tax policy, implementation of the rule of law and supervision of financial markets, with tax policy often occupying a decisive role. However, the author believes that at different stages in the formation and development of an international financial centre, the four elements play different roles. Given that growth is divided into three major stages, which include (1) formation, (2) restructuring and (3) maturity, tax incentives, tax neutrality and the rule of tax law remain key factors corresponding to said stages. Undoubtedly, clarifying the corresponding relationship has an important significance, both theoretically and practically, for tax policy options and the optimal tax system in the process of building Shanghai into an international financial centre.

Call for Papers Speakers

Winner of the CUHK Law Faculty Prize for Best Abstract: Mathilde Poulain: How to Mitigate the Risk of Intellectual Capture in Financial Supervision?

Intellectual capture is often considered as responsible for the recent failure of the financial system prudential oversight. Hence, it is a key issue that must be addressed within the broad debate on the improvement of financial supervision. Such capture is more pervasive and insidious precisely because its definition, the channels of influence through which it operates and the impact it has on the decision-making process are hard to appraise. In this paper, I first define intellectual capture and explain its normalization among regulators with three processes derived from the literature on psychology: the institutionalization, the identification and the rationalization. In addition, I highlight four channels of influence through which the financial industry influences the regulators: the revolving doors, the conflict of interests, the lobbying activities and the information asymmetry. I then provide guidelines on how to mitigate intellectual capture in financial supervision by gathering the best existing policies observed across regulatory agencies. Finally, I conclude the analysis by assessing financial regulators' current resilience to intellectual capture. Therefore, I use two tools derived from a previous work: a nomenclature and a dataset. The nomenclature enables me to compare the quality of regulator's policies and the dataset (49 independent regulatory agencies across 7 sectors and 6 countries) covers a broad range of the current governance practices. The first highlighted results are the complete lack of information transparency regarding regulators ethical rules and the complexity of the legislation to be applied. The second result is that agencies in charge of financial supervision are not granted with sufficient arrangements to mitigate the risk of intellectual capture. In the present state of affairs, the risk of capture is still high and can deeply hinder the quality of the regulation and supervision of the financial industry.

Winner of the CUHK Law Faculty Prize for Best Abstract: Ivaylo Iaydjiev: Host's Trilemma: The political economy of cross-border banking regulation in Emerging Europe

Who governs cross-border banking and with what implications for host countries? Foreign banking came to dominate the financial systems of many countries in Eastern Europe, Latin America, and Sub-Saharan Africa in the 1990s. Host regulators with foreign-dominated banking systems found themselves with a de facto lack of control over their financial systems while being at the same time largely shut out from key international decision-making forums. This presented them with a dilemma between undertaking potentially costly national policies in a global financial system or relying on cooperative solutions by forums in which they have little voice.

In order to answer the question above, this paper traces the influence of various actors in the broader regulatory process with a focus on the interaction of host states and international institutions. Drawing on the literature on international negotiations, historical institutionalism, and embedded liberalism, it presents an explanatory model of the governance regime of cross-border banking focusing on the relative importance of interests, institutions, and ideas. In particular, it seeks to examine the conditions under which host countries can have their interests meaningfully represented, allowing them to move away from the dilemma they currently face. This is particularly relevant as the regulatory reform agenda has so far been largely set by countries with limited exposure to foreign banks at home.

The empirical focus is on Emerging Europe, where cross-border banking played a key role in the credit boom and subsequent bust with the advent of the global financial crisis. In the 2004-2007 period, cooperation in the governance of cross-border banking in Europe was rare, with host countries bearing the costs of adjustment. This led to a significant buildup of vulnerabilities, which reminded many of the prelude to the Asian Financial Crisis. Yet, once the external shock of the Global Financial Crisis hit the region, there was extensive cooperation between all actors in the crisis response, largely facilitated by the Vienna Initiative. This is analytically useful as it allows for variation between countries and across time, but is also particularly revealing of who bears the ultimate responsibility for financial stability.

Duncan Alford: The Operation of Supervisory Colleges of Cross-Border Banks after the Implementation of the European Union's Banking Union

This article focuses on the operation of supervisory colleges after implementation of the first pillar of the European Union's Banking Union -- the Single Supervisory Mechanism.   The article concludes that the operation of supervisory colleges for cross-border banks, particularly those that operate in the Eurozone, should be simplified.   Furthermore, colleges may take on more of a decision-making role in the supervision of cross-border banks.

On November 4, 2014, under the Single Supervisory Mechanism, the European Central Bank ("ECB") became the prudential supervisor of the 130 largest banks in the Eurozone.   Prior to that date, all banks in the European Union were supervised by national bank supervisors.  National regulatory authorities will continue to supervise the smaller banks in the Eurozone with the oversight of the ECB.  Banks headquartered outside the Eurozone will be supervised by the national regulatory authority of the bank's home country.   

If a bank operates only in Eurozone, there will be no supervisory college because the ECB serves as its supervisor, taking over the supervisory role of the 17 Eurozone governments.  If a bank operates both in and outside the Eurozone, the ECB takes on the role of national supervisor for all Eurozone countries.  The national regulatory authorities outside the Eurozone continue to serve as members of the bank's supervisory college.  With its enhanced supervisory powers, the ECB becomes a much more influential member of a supervisory college.  

The composition of supervisory colleges for cross-border banks will change significantly.  For example, Nordea which operates in Scandinavia will have the Royal Bank of Sweden serve as its home (consolidated) supervisor with the ECB serving as a host supervisor.   For cross-border banks with operations in the Eurozone, the number of supervisory officials participating in the college meetings will be dramatically reduced.

As a result, the dynamics of discussions during supervisory college meetings will likely change.  For global banks, the ECB will have a growing influence on discussions and, within the Eurozone, a decisive role over those banks.   For meetings of supervisory colleges of global banks, the ECB becomes a more influential player, more equivalent to the U.S. regulatory agencies, such as the Office of the Comptroller of the Currency and the Federal Reserve, or the Prudential Regulatory Authority in the United Kingdom.  This article will analyze the group dynamics literature and supervisory college practice to determine whether colleges will develop a decision-making role rather than serve merely as forums for the exchange of supervisory information. 

Hilary J. Allen: Putting the 'Financial Stability' in Financial Stability Oversight Council

For all the ink that has been spilled on the topic of financial regulation since the financial crisis of 2007-2008, there has been little examination of the competing normative goals of financial regulation. Should the financial system be treated as an end in itself, such that the efficiency of that system is the primary goal? Or should financial regulation instead treat the financial system as a means to the end of broader economic growth?  This is, at heart, a political question: this Article argues that regulation that prioritizes efficiency will ultimately benefit the financial industry at the expense of broad and sustainable economic growth, whereas an end goal of financial stability will accrue to the benefit of a much more dispersed constituency (but this constituency has far fewer incentives and resources to press for ongoing financial stability regulation).  

This Article stakes out the controversial normative position that financial stability, rather than efficiency, should be the paramount focus of financial regulation. Having fixed upon this normative foundation, this Article is in a position to evaluate Dodd-Frank's creation of the Financial Stability Oversight Council ("FSOC"), a body intended to bring the United States' financial regulators together for the purpose of identifying and responding to threats to financial stability. This Article argues that there are significant flaws in the FSOC's structure and mandate that will limit its ability to withstand political pressures to abandon financial stability regulation when the economy is functioning well. Whilst the FSOC is currently the subject of legislative reform proposals, these proposals seek to hobble the FSOC's powers – this Article argues that reform should instead swing in the other direction. What is needed is an effective and independent regulator with resources and mandate that insulate it from political pressures as much as possible, and thus enable it to take a proactive, long-term and creative approach to the promotion of financial stability. This Article therefore considers the features of the financial regulatory systems in the UK and Australia that are calculated to improve ongoing commitment to financial stability, and draws from this analysis ways to restructure the United States financial regulatory architecture.

Kartik Anand: Financial Crises, Creditor Protection, and Private Investment

We explore how limits to the enforcement of claims and access to collateral determine the extent of secured lending and, hence, equilibrium aggregate investment in the economy. Asset-backed securities are issued to investors in a primary market, who can trade them with outside investors in a secondary market to mitigate liquidity shocks. In the event of bankruptcy, investors must contend with stay-orders on their recourse rights as well as the tunneling of collateral assets. Ex ante private investment increases as the legal framework becomes more enabling. We endogenise creditor protection and determine the optimal level of legal flexibility in the model. An extension explores the consequences of forum shopping for creditor protection and investment.

Daniel D. Bradlow: The Alternative Financial Regulatory Initiatives and Their Implications for the International Financial System

The focus of financial regulation in recent years has been on the global financial regulatory reform agenda as developed and promoted by the Financial Stability Board and the international standard setting bodies. However, there have another set of initiatives aimed at reforming financial sector behaviour so that financial institutions becomes more responsible in environmental, social and human rights terms. The relevance of this latter set of initiatives has been underscored in 2015 by the international push to promote a new set of sustainable development goals, to promote more effective financing for development, and more responsive climate financing. The purpose of this paper is to discuss these alternate financial regulatory initiatives and to analyse their impact on the international financial system and their implications for the "mainstream" financial regulatory bodies. Thus the first section of the paper will describe the most significant of these alternate financial regulatory initiatives, such as the  Equator Principles, developed by the banking industry to promote responsible lending for projects, the Maya Declaration, developed by the Alliance for Financial, which helps financial policy makers in emerging market and developing countries promote financial inclusion, and the UN Principles on Responsible Investment, developed  by the United Nations Environmental Program to promote more socially and environmentally responsible investing by institutional investors. In addition, it will discuss how the UN Guiding Principles on Business and Human Rights, which are applicable to all business enterprises, apply to the financial sector.   The second section will discuss what impact these initiatives are having on the international financial system at a national, regional and global level. Finally, the paper will consider how they are affected by and may affect the financial regulatory reform agenda being pursued by the participants in the Financial Stability Board and the International Standard Setting bodies.

Giuliano G. Castellano: Shedding Light on EU Financial Regulators: A Sociological and Psychological Perspective

The paper adopts a socio-psychological perspective to approach financial regulation in the European Union. It aims at advancing the understanding of the political dimension of financial regulation by studying regulators' behavioural within the financial system. While behavioural approaches to finance have expanded the understanding of markets' dynamics, regulatory and public-choice theories appear to be largely influenced by the rationality postulate to describe the governance activity performed by public authorities. Through the lenses of social-psychology the paper fills a gap in the literature and explores how financial regulators 'think' and, in particular, how decisions are made in order to achieve key policy goals, such as financial stability and market confidence.

To this aim complex social dynamics that describe the functioning and the interactions of regulatory bodies – here intended as groups of individuals – are analysed by referencing to the fundamental forms of 'sociality', as isolated in social-psychology and constituted of: i) communal sharing, when members of the group share resources equally; ii) authority ranking, when members of the group are hierarchically organised and resources are distributed accordingly; iii) equality matching, when relations among members are governed to ensure an imbalance between individual inputs and resources allocation; iv) market pricing, when members seek a form of value maximisation.

After introducing the four psychological models, the paper maps the decision-making process characterising each of the layers of EU markets governance. All four behavioural models are present in the regulatory sphere, but it will emerge that each layer is characterised by one specific model only. Treaty institutions, such as the Council and the EU Parliament, appear to follow the 'communal sharing' and the 'equality matching' forms of sociality. While the European Commission, the European Supervisory Authorities, and the Colleges of Supervisors appear to organise their social relationship around the 'authority ranking' and 'market pricing' models.  Through these lenses regulatory behaviours, vis-à-vis sensitive policy decisions, are isolated. A fresh look over the unfolding European architectural framework for financial regulation and supervision will be then offered, with particular emphasis over the relational arrangements between Eurozone and non-Eurozone countries in regulating and supervising financial markets.

Enmanuel Cedeño-Brea: The Political Economy of Bank Ring-Fencing

Could ring-fencing bank deposits have unintended political and economic consequences? International financial regulation remains in a state of flux after the onslaught of the 2007-08 global economic and financial crisis. The regulatory agenda for revamping international financial regulation includes a set of so-called structural reforms that aim to make banks safer by either segregating certain activities across different legal entities or simply prohibiting them altogether. Many influential jurisdictions, like the United States of America, the United Kingdom, the European Union, Germany and France, have all pursued their own sets of bank structural reforms. However, the resulting rules are uncoordinated – and in some cases – are even contradictory. This paper focuses on the structural reforms that are currently being implemented in the United Kingdom. The paper argues that through the lens of contemporary Political Economy, UK style bank ring-fencing can be construed as a tool aimed at protecting British depositors – and ultimately, taxpayers – from having to foot the bill of bank failures. Notwithstanding, countries, like the UK, will still expect their national banking champions to remain competitive abroad. The interplay between domestic and cross-border goals can ultimately create tension between the UK, acting in its home country capacity, and host countries to UK banks. Host countries to British banks could have the incentive to issue counteracting regulation or even ring-fence the assets and capital of foreign banks. In times of financial distress or when bank resolution is triggered, ring-fencing could lead to coordination problems that could undermine financial stability. If all countries were to follow the UK and would ring-fence their domestic deposits this could ultimately eliminate the benefits of Single-point of Entry (SPE) resolution tactics, as each host supervisor would scramble to get a hold of local assets in order to protect depositors – and ultimately taxpayers – in their jurisdiction.

Christian Chamorro-Courtland: Can a Central Bank Bail-Out a Central Counterparty (CCP) Clearing House Which is 'Too Big to Fail'?

Central Counterparty (CCP) clearing houses should have a well-drafted set of default procedures in their clearing rules. The default procedures outline the 'waterfall' of financial resources that a CCP has at its disposal to cover any losses arising from the default of a clearing member. However, if there are insufficient financial resources, a CCP may become insolvent. The question being debated by policy-makers around the globe is whether a central bank can act as the 'lender of last resort' (LOLR) or provide 'emergency liquidity assistance' (ELA) to a systemically important CCP that has become insolvent and is considered 'too big to fail.' CCPs have rarely failed in the past: they have demonstrated that they have adequate risk management and default procedures. Nevertheless, it is argued in this article that central banks must have a 'discretionary' legal power to bail-out CCPs which are too big to fail. CCPs could become insolvent due to unforeseen circumstances, such as operational risks. This article considers the law in the US, Canada, the Euro-zone (France and Germany), Sweden, the UK, Singapore, and Hong Kong It also considers whether a CCP that clears credit default swaps (CDS) should receive emergency liquidity assistance.

Shuonan Chen: The Information Gap between Institutional and Retail Investors during the IPO Process

As a leading global financial center, HK plays a vital role in setting regulatory standards for the capital markets. Since the financial crisis, policy-makers have focused on regulating financial intermediaries to ensure a balance between providing the best valuation for issuers and fair pricing for investors. However, what has often gone unnoticed is the different treatment given to institutional as opposed to retail investors. This is particularly evident in the IPO process, where institutional investors tend to be favored given their greater financial prowess and ability to undertake larger portions of the deal. Issuers and underwriters alike tend to view institutional investors to be of higher quality compared to retail investors, as institutions are often more knowledgeable and more long-term stockholders.

On the other hand, retail participation in HK IPOs have more than doubled in the past 5 years, growing from consisting of only 7% on average of all IPOs in 2010 to contributing 17% on average year-to-date. Moreover, retail participation in the aftermarket has grown consistently since 2000, currently at an all-time high. Per the latest 2013 HK Exchanges and Clearing Limited ("HKEx") Factbook, local retail investors consisted of 18% of trading in the cash market, only 2% lower than local institutional investors.

Given the increasing importance of retail investors, it is crucial to consider how they are treated in the IPO process compared to institutional investors. This paper conducts this analysis in three key stages. First, this paper finds that there is an information gap between institutional and retail investors, and analyzes the extent of this gap in each stage of the IPO process. Second, referencing principles drawn from relevant HK legislation, this paper demonstrates that this information gap is unfair regardless of its extent. Lastly, in stages of the IPO process where the extent of this unfair gap is too great, this paper makes initial recommendations—including deal-specific resources and general education provided by issuers and policy-makers, respectively—to bridge this gap.

Darwin Choi: Evaluating Regulators: The Efficacy of Discretionary Short Sale Rules

We examine the efficacy of short sale regulations in Hong Kong, where the list of shortable stocks is managed by regulators and is updated quarterly. While regulators generally cautiously restrict short selling to larger stocks, we form our predictions and examine two types of deviations: (1) misclassification, shortable stocks that should not be shortable; and (2) protection, non-shortable stocks that should be shortable.  Misclassification is not associated with systematic mispricing, but protected stocks earn significantly higher future returns than other non-shortable stocks, implying a 0.56% annual welfare loss on the Hong Kong Exchange.  We also establish that the likelihood of being protected is positively associated with Chinese institutional ownership.  Overall, our findings suggest that increased transparency about regulatory interventions should be encouraged to promote price efficiency.

Kam Hon Chu: A Bureaucratic-Entrepreneurial Theory of Deposit Insurance

There has been a global trend of instituting deposit insurance schemes since the early 1980s, despite their failure to avert banking crises and the notorious moral hazard problem. In the literature, the adoption of deposit insurance has been empirically attributed to "fads" and other determinants like external political pressure (e.g. from IMF) to emulate other countries, a country's experience with financial crisis, democratic political process, GDP per capita, inflation, etc. However, no formal economic theories of regulation have been offered as an explanation for the adoption of deposit insurance. The public interest theory of regulation appears to be an inadequate theory because it is inconsistent with certain stylized facts of deposit insurance. In the last decade or so, a few studies have applied private interest theory, interest-group or capture theory to analyze deposit insurance coverage and reform, but not its adoption. Based mainly on the ideas and studies of Niskanen, Peltzman and Kane, this paper extends the private interest argument by developing a theory to explain deposit insurance adoption. In our model, the regulator (deposit insurance provider) plays a dual role as both a bureaucrat and an entrepreneur to maximize his own self interest by building an enterprise – a deposit insurance scheme. Our theory derives the following empirically testable results: (1) when a deposit insurance scheme is initially introduced, the insurance premium is non-risk rated so as to render transfer from good banks to bad banks, (2) the larger the deposit market, the more likely it is for a deposit insurance scheme to be adopted, (3) if all or most banks are government-owned, then it is less likely for deposit insurance scheme to be adopted, and (4) it is more likely for deposit insurance schemes to be adopted when there are at least two groups of banks with distinguishable characteristics such that one group will gain from deposit insurance. In sum, this paper not only offers an economic theory to explain adoption of deposit insurance but also potentially sheds new light on other areas of financial regulation.

Monique Egli Costi: The Quest for Quality in the International Securities Regulatory Regime

The global financial crisis (GFC) has highlighted the growing challenges of economic globalisation and interconnectedness and drawn attention to the importance of an appropriate international financial regulatory regime. Playing a central role as concerns the securities regulatory regime is the International Organization of Securities Commissions (IOSCO), the leading international policy forum for securities regulators and the recognised global standard setter for securities regulation.

Since establishing IOSCO more than three decades ago, member agencies from around the world have indeed played a growing role in the development and implementation of international securities regulation through their active engagement within the organisation in what can be seen as a bottom-up approach to the development of the international regime. Since the GFC, bodies such as the G20 and the Financial Stability Board (FSB) are also contributing a top-down approach to the international financial regulatory regime. Although IOSCO was already engaged with its external stakeholders, including other international bodies, it is mainly since the GFC that the organisation is receiving explicit mandates, accompanied by tight deadlines, from bodies such as the G20 and the FSB.
Against this background, the paper will first explore the changing dynamics in the regulatory architecture since the GFC. Second, it will examine how domestic and global efforts combine and complement each other to help produce effective securities regulation at both domestic and global levels. Third, the paper will attempt to identify the required attributes for an appropriate and workable balance in combining the top-down and bottom-up approaches to international securities regulation. Fourth and in conclusion, it will consider whether effectiveness and inclusiveness in regulatory standard setting are mutually exclusive or reinforcing.

In essence, the paper will argue that to maximise the quality and thus effectiveness of the international securities regime, inclusive and democratic institutions are necessary. However, a workable balance to achieve various, and possibly conflicting, objectives also requires an international consensus on the ultimate aim of the international regime. Using an examination of practice and scholarly literature, the paper should contribute to a better understanding of the challenges faced in the development of the international securities regulatory regime.

Jakob Engel: Hedgers, speculators and the politics of commodity derivatives: Comparing legislative and regulatory processes and outcomes in the EU and US

Both physical and financial commodity markets remain in the midst of substantial upheaval following the end of the super-cycle as well as recent financial regulatory reforms in the EU and US. These reforms have their origin in the 'triple crisis' of 2007-09, when a sudden spike in the price of grains coincided with a boom in other commodities (particularly oil), and the most severe crisis of the global financial system in decades.  In the US, the Dodd-Frank Wall Street Reform and Consumer Protection Act has required "strong measures to limit speculation in agricultural commodities", calling upon the Commodity Futures Trading Commission to introduce position limits. Central to EU regulations has been the revision of the 2007 Markets in Financial Instruments Directive (MiFID), which also includes provisions for position limits on commodity derivatives, and greater transparency, particularly in the OTC market. This paper examines the political and economic implications of the recent re-regulation of commodity derivatives markets in the US and EU for the financial and regulatory geography of commodity markets and – more broadly – those involved in the commodity trading industry. A central dimension of this has been the highly problematic and slow process of implementation, involving successful court challenges in the US, and extensive lobbying of relevant implementation authorities in the EU. Drawing on interviews with central actors and an extensive review of consultation records, this paper has two overarching aims: i) to account for variation in the implementation of regulations across geographic jurisdictions; and ii) to determine how select actors engaged in the trade of commodities in both physical and financial markets have attempted to influence these regulations across a multi-stage process. A particular interest will be the role of the newly created EU oversight body (ESMA) in relation to its approximate parallel institution, the CFTC.

Yingying Hu: Taxation Policies to Support the Shanghai International Financial Center

Taxation policy is not a determinant factor of building a successful international financial center ("IFC"). However, it is extremely relevant to an IFC's establishment in many aspects. On one hand, taxation could be considered as interference by the government to distort the free financial market. On the other hand, taxation could also be an efficient means to curb speculative financial transactions and raise the state revenue.

The building of a Shanghai IFC provides an opportunity for China to participate in the dynamic relationship among tax policy, economic development and financial freedom. However, there is no particular successful way for China to survive this battle, because China's socialism political system and the government-­‐leading financial liberalization make its taxation polices unique in the financial market.

Several questions can be addressed here. First, whether a tax system that heavily relies on the consumption taxes and weak protection of taxpayers' right will affect China's financial market liberalization? Second, without much proceeding experience in dealing with the capital gain or income tax in the financial market, whether China should bring attention to it? Third, to what extent China's legislations and taxation administrations should draw a line between a productive and speculative financial transaction? This paper is trying to answer these questions by making comprehensive empirical studies and literature reviews on the tax policy, economic development, and financial liberty.

From a tax standpoint, this article primarily proposed some criteria in terms of taxation policies to support the Shanghai IFC. The first criterion is consistency and transparency, which could be two fundamental elements to increase the incredibility of Shanghai IFC. The second criterion is efficiency. Given the limited collectability of Chinese tax administration, levying the consumption tax might be more efficient than income tax, and therefore the consumption tax should remain its crucial role in the financial market. The last criterion is the ability to distinguish productive and speculative financial transactions. By putting additional taxes on the speculative transactions, the government will be able to encourage transactions that may benefit the society, and reduce activities which may jeopardize the market.

Thomas Lambert: Lobbying on Regulatory Enforcement Actions: Evidence from Banking

There is growing concern, but still little systematic evidence, about the incidence and drivers of lobbying efforts made by the U.S. banking industry. This paper analyzes the relationship between bank lobbying and supervisory decisions of regulators, and documents its moral hazard implications. From a large sample of commercial and savings banks, I find that lobbying banks are less likely to be subject to a severe enforcement action, suggesting that banks engage in lobbying to gain preferential treatment. These findings are robust to controlling for supervisory ratings and account for endogeneity concerns by employing instrumental variables strategies. I also show a decrease in performance and an increase in default and credit risk at lobbying banks. Overall, these results appear rather inconsistent with an information-based explanation of bank lobbying, but consistent with the theory of regulatory capture.

Mrinal Mishra: Does A Debt Relief Lead To Increased Precautionary Savings? Evidence From A Policy Experiment

Using official national level survey data and employing robust regression discontinuity, we investigate the impact of a large debt waiver program in India on the savings and consumption of the beneficiaries. By extending the Banerjee and Duflo (2014) model, we show that increased moral hazard caused by a debt relief is likely to rupture the informal bailout mechanism developed by the loan officers and hence increase credit constraints. Rationally anticipating a decline in income, households resort to precautionary savings by increasing investment in jewellery. There is little impact on consumption. The canonical Permanent Income (PI) hypothesis (Modigliani and Brumberg (1954); Friedman (1957); Shapiro (2005); Agarwal and Qian (2014)) posits that any increase in unanticipated actual income or expected income, which is not transitory in nature, is likely to increase consumption. An unanticipated large-scale debt relief significantly enhances a beneficiary household's permanent income and hence is expected to boost consumption.

We study the impact of the Indian Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS) of 2008 on the savings and consumption behaviour of the beneficiary households. The extent of relief depended on the size of the landholding of a farmer. 36.92 million farmers availed the benefit of waiver. In total 30.4%1 of the households that depended on agriculture benefited from the program. The exchequer had to ultimately shell out USD 14.4 billion for this program.

We use the method developed by Calonico, Cattaneo, and Titiunik (2014) in our regression discontinuity design. We use the method designed by Lee and Lemieux (2010) in order to take into account the impact of district level factors other than the running variable i.e land. In short we run the specification designed by Calonico, Cattaneo, and Titiunik (2014) after using the residuals from a regression of consumption on covariates excluding the running variable. We call this residualized and robust regression discontinuity design.

We show that a debt relief leads to a one time jump in investment in precautionary savings, reflecting an anticipation of either decrease in earnings or increased volatility in earnings

Maziar Peihani: The Basel Committee on Banking Supervision and the Challenges for the Legitimacy of the Global Financial Governance

This paper focuses on the Basel Committee on Banking Supervision (BCBS), a transitional regulatory network that is widely perceived to be central to the system of global financial governance. The BCBS was established in 1974 as an informal group of central bankers and bank supervisors with the mandate to formulate supervisory standards and guidelines. Although the Committee does not have any formal supranational authority, it is the de facto global banking regulator and its recommendations have been widely implemented by member and non-member states.

Much of the academic literature on the BCBS has been concerned with the Committee's technical performance, namely its success in delivering public goods such as better regulatory standards. This paper will introduce a different conceptual framework for evaluating the BCBS's governance. By drawing upon normative criteria such as participation, transparency, and legality, this paper will argue that the current governance of BCBS is subject to significant deficits. These include inadequate disclosure on the BCBS's deliberations, underrepresentation of those constituencies without business interest or insufficient financial resources in BCBS consultations, and the absence of meaningful oversight of the BCBS's policies. As it will be described, addressing these shortcomings would not only enhance the Committee's legitimacy and accountability, but also improve the Committee's technical performance. When a wider spectrum of voices and arguments are incorporated into the decision making process and policy makers are held accountable to their constituencies, better policy outcomes are also more likely.

Ruth Plato-Shinar: The Role of Political Economy in Designing Banking Regulation - The Israeli Banking Fees Reform as a Test Case

The Israeli banking system is very concentrated and is characterized by a low level of  competitiveness. As a result, for years, the fees for banking services were extremely high, with great similarity for amounts charged, amongst the various banks. The Supervisor of  Banks, captured by the banks and influenced by their strong lobby power, preferred not to intervene.

The beginnings of the change arose from a group of Parliamentary consumer-activist members, who succeeded to establish a Parliamentary Inquiry Committee on Banking Fees. This Committee ascertained that for years, the banks had unfairly used their power to increase their profits, mostly at the expense of the retail sector, that is perceived as weaker both economically and in their bargaining power. In 2007, following the Committee's report, supervision was established over the banking fees, conferring power upon the Governor of the Bank of Israel to oversee the fees charged to the retail sector.

The Governor published a closed list of fees that the banks are entitled to collect, however he allowed the banks discretion with respect to the amount of the fees. Since no meaningful improvement was seen, consumer organizations argued that the Governor was not active enough in his role, and was still succumbing to the industry's power. The turning point was, apparently, due to the huge social protests in the summer of 2011. Public criticism and aggressive media coverage, forced the Bank of Israel to change its attitude and to adopt a more active intervention in favour of consumers. Today, eight years after the banking fee reform took place, surveys of the Bank of Israel show a real improvement in the situation of retail customers: an average reduction of the banking fees, and a diversity of prices between the banks.

Before the reform took place, the banks had warned that such an intervention would risk their profitability and would have a negative influence on the market. However, although the reform decreased the banks' earnings, they still exist, thrive, passed the financial crisis
relatively unscathed, and continue to make enormous profit. The Israeli experience shows that in certain situations, a strong public protest can override industry capture.

Dini Sejko: The Santiago Principles and the International Forum of Sovereign Wealth Funds -Reshaping International Economic Governance through Atypical Rulemaking  

This paper provides a comprehensive analysis of the evolution of the Santiago Principles (the Principles) from best practices to quasi-legal instruments, focusing on the role of the International Forum of Sovereign Wealth Funds (IFSWF). More precisely, this paper demonstrates that the changes of the internal structure of the IFSWF and the increasing role that it has assumed in enhancing the effectiveness of the Principles are transforming it from a informal and voluntary group into a new international financial authority for sovereign wealth funds (SWFs) that interprets the Principles, oversees their implementation, and provides guidance to states to incorporate them when establishing new SWFs.

The Principles were released in October 2008 by the International Working Group of Sovereign Wealth Funds (IWG-SWF) to address political, economic and legal concerns caused by the expansion of SWFs' investments and to support free flows of capital. The IMF, interacting with the G20, led a sui generis and ad hoc process that involved the representatives of the SWFs, the WTO, the OECD and other stakeholders in the discussions of the IWG-SWF. Subsequently, the IFSWF was established, as an informal and voluntary group, under the aegis of the IMF to pursue the goals set by the Principles. In seven years the IFSWF has evolved into an independent body with a broader participation of SWFs, an internal structure and strategic goals to reach by 2018.

This paper firstly examines the ad hoc, multilevel negotiation process and the adopted Principles. Secondly, it critically assesses the implementation of the Principles by the SWFs and the role of the IFSWF as a new international financial authority. Thirdly, this paper focuses on the incorporation of the Principles in recent negotiations of free trade agreements and their impact on international rulemaking. Fourthly, it draws key lessons from the review mechanisms of existing international bodies in order to improve the Principles' implementation process and develop a proactive role for the IFSWF in order to address other challenges of SWFs' investments improving the international regulatory framework. Finally this paper will help to clarify the role of the IFSWF in international economic governance.

Jin Sheng: Chinese A-share Bailout and the Role of Over-regulation and Under-regulation of China's Securities Watchdog on a Policy-driven Market

The recent stock market crash makes people rethink the regulatory role of China's securities watchdog. In order to avoid systemic financial crises, Chinese government took various measures to rescue its stock market. On June 27, ten government agencies, aside from the securities regulator, joined the rescue. It turns out that China paid heavy costs in this bailout and lost up to CNY 22 trillion of stock market value.

Utilizing cost-benefit analysis, game theory and case study, this paper will explore the role of China's securities watchdog. Like many transition economies that share such characteristics as low-efficiency courts, serious insider control, underdeveloped self-regulatory systems and difficulties in updating their legal systems to modern norms for supporting financial and economic development, the state played a dominant role in regulating the stock market. That is, using the planned economy approach to regulate the primary market (for example, the selection and approval system of listed companies) has resulted in an imbalance in the supply and demand of new stocks on the primary market; While the inadequate surveillance of the secondary market produces loose ends of market manipulation, insider trading and false statements.

In 2009, the China Securities Regulatory Commission (CSRC) started the ongoing IPO issuance reform and the objective of its reform is to eventually transit to a registration system. It has made progress in gradually deregulating China's securities industry. This paper first analyzes institutional settings of China's IPO approval system and the government's hand in IPO approval, new stock issuance pricing, P/E ratio, placement, issuance rhythm, as well as the trading of issued stocks. Further, it analyzes barriers in transition to a registration system and CSRC's certain attempts for balancing its regulatory role between over-regulating the primary market and under-regulation the secondary market. It concludes that the CSRC should play a prudent role in exercising its functions for the purpose of reaching a checks-and-balances mechanism.

Ad van Riet: The Growing Preferential Treatment of Government Debt in European Financial Law

Following the global financial crisis of 2008 European authorities have set out to strengthen financial governance in order to create a more stable and resilient financial system. As discussed in this paper, many of the reforms as proposed or laid down in EU financial law over the period 2008-2014 also appear to significantly extend over time the preferential regulatory treatment of public sector debt relative to financial instruments issued by the private sector. Only after 2018 the scope of this preferential regulatory access of governments to financial markets and institutions is set to decline slightly. The growing reach of these government funding privileges in EU financial law signals a reversal of the trend observed since the 1980s of sovereigns limiting their quasi-fiscal interventions in the financial system. This notable change in the political economy of European finance may be interpreted as a revival of financial repression with the intention to ease fiscal stress, as a return to traditional close relationships between governments and the financial sector that support mutual interests, or as a way to increase implicit taxation of the private sector and recoup public revenues lost during the crisis. An increasing weight of sovereign debt on financial sector balance sheets facilitates public debt management, but could crowd out private borrowing and poses risks to financial stability in times of fiscal stress.

Rolf H. Weber: Role of Law in Constituting Financial Markets

Legal theory considers law as a structural system. The "system" is composed of an organized or connected group of objects (terms, units, or categories) forming a complex unity (f.e. four-function paradigm AGIL of Parsons). The legal system is embedded in other socially relevant systems; non-legal "rules" provide for informal standards and constraints on human behavior. In financial markets, the variety of actors (f.e. in FinTech) makes the system particularly complex.

Law can be described as information issued by the regulator and addressed to a specific, concerned part of the society. In financial markets legal norms partly have direct effects on the industry and partly indirect influences on the customers (f.e. protection measures). The structural system of the law can be differentiated into the substance of law, the change of law, and the enforcement of law.

The substance of law is condensed in legal rules containing information that have a coercive or guiding effect on the concerned actors. Fundamental norms stating substantial values and policies are enshrined in multilateral agreements (but with limited scope in financial markets) and in national constitutions/laws/ordinances. Additionally, other sources are also (highly) relevant such as guidelines of international organizations, generally accepted customary principles, and self-regulation. In financial markets the need of overcoming the hard law/soft law dichotomy is of major importance.

A legal system must provide for mechanisms allowing a change of the law according to social needs and circumstances. Notwithstanding the fact that legal predictability requires a stable structure, the adaptability of legal rules, resilient to change, keeps the law intact in case of social change. But before adapting existing laws, financial markets' regulators should consider the fact that adaptation is economically not without cost and will have a social impact since laws are not created in a vacuum.

Legal rules are only effective if mandatory provisions can actually be enforced. Insofar, mechanisms of coercive tools must be complimented by "soft" indirect enforcement measures that tend to produce compliance.

The paper will analyze the described tensions by a theoretical framework based on practical examples.

Aike Würdemann: Development banks under the SSM: political voluntarism by the ECB?

Since November 4, 2014, the European Central Bank (ECB) supervises 120 "significant credit institutions" in the Euro-zone under the Single Supervisory Mechanism (SSM). The SSM aims at the stability of the European financial system and the identification and prevention of systematic risks that have inter alia caused the Euro crisis since 2010. Whether the ECB classifies a credit institution as "significant" depends on the total value of its assets which must exceed 30 bn EUR, Art. 6 IV of the SSM regulation. However, the L-Bank, a regional development bank owned by a German federal state (value of assets: 70,2 bn EUR), has brought an action against its classification as "significant" before the General Court in Luxembourg. It argues that the classification was inappropriate.

The paper examines if the classification through the rigid 30 bn-EUR-condition is an appropriate method of financial regulation in the case of state-owned development banks. The sole criterion of state-ownership may not serve as a factor to exempt development banks from the SSM as also state-owned European banks were strongly hit by the Euro crisis. However, specific circumstances like the subsidiary role of development banks (in relation to commercial banks) may be taken into consideration and may justify classifying them as "less significant". Their specific task is the low-risk and long-term financing of public infrastructure projects or investments of small and middle-sized enterprises. The paper lays thus down the assumption that the supervision of development banks may not further the aims of the SSM. Development banks may not cause systematic risks.

However, by classifying regional development banks as "significant", the ECB seems to aim at taking the highest possible number of credit institutions under its supervision and thereby fostering the establishment of a European banking union. The effectiveness of the SSM itself is then at risk. In the field of banking supervision, the ECB is not a political actor resorting to voluntarism, but an independent regulatory authority. The ECB has to balance to what extent a supranational supervision of a specific institution is proportional and effective to prevent systematic risks.

Horace Yeung: Regulatory Cooperation between Leading Financial Centres – the Case of Overseas Listed Chinese Companies

Time Magazine coined the term "Nylonkong" to describe the extent to which New York, London and Hong Kong are linked by a shared economic culture, and how they have created a financial network that has come to be both an example and an explanation of globalisation. Indeed, according to the Global Financial Centres Index, New York, London, Hong Kong have been consistently regarded as the top financial centres. These prestigious financial centres have attracted a number of Chinese companies which are seeking liquidity and at the same time international exposure. As of July 2015, Hong Kong was the major overseas equity market for China-incorporated companies. According to the China Securities Regulatory Commission (CSRC), 190 Chinese companies were listed overseas. Almost all of them were listed in Hong Kong. A handful was listed in New York and London. However, the actual number should be more than 190 as certain Chinese companies have bypassed the approval of the CSRC via the use of an overseas shelf company.

This paper seeks to explore how the regulatory cooperation of securities commissions through bilateral and multilateral agreements can be a solution to the cross-border enforcement problem. One notable example is, the regulators in Hong Kong and China have indeed worked very closely together in preparation for the listing of Tsingtao Brewery, the first ever Chinese company listed abroad. A notable product of this joint effort is a comprehensive regulatory framework for the Chinese companies listed on the Hong Kong Stock Exchange. However, with more and more Chinese companies listed on other prestigious exchanges, concerns start to surface regarding how to effectively regulate cross-listed Chinese companies. In the face of scandals emerging from these companies (e.g. Alibaba's counterfeit problem), the paper aims to discuss how New York and London can potentially learn from the China-Hong Kong regulatory model. Furthermore, the paper seeks to explore how the regulators in China, Hong Kong, UK and US can potentially work together on the basis of various bilateral and multilateral agreements to foster better regulatory cooperation in regulating overseas listed Chinese companies.

Ariel Zhou: Government ownership and exposure to political uncertainty: Evidence from corruptive cases in China

During 2012-2014, nearly 400Chinese officials are "investigated" by the Party for reasons like corruption, including35 central officials and senior provincial officials. We use these exogenous events to study how government ownership affects firms' exposure to political uncertainty. It is found that during such events, private firms experienced negative abnormal stock returns, State-Owned-Enterprises (SOEs) enjoyed positive abnormal returns, and these patterns are followed by drifts. In addition, these events are associated with increased (decreased) current ratio and decreased (increased) financial costs of SOEs (private firms). We propose that SOEs can hedge against political uncertainty, because the government is consistently supportive to SOEs, and higher possibility of policy changes indicates additional favorable policies for them. This insight is new to literature. On the contrary, private firms are exposed to political uncertainty, which is consistent with findings in developed economies.