BUSINESS & CORPORATIONS
RETHINKING COMMERCIAL LAW’S UNCERTAIN BOUNDARIES
Steven L. Schwarcz
Although it is an essential part of business law, commercial law has uncertain boundaries. That uncertainty creates significant legal ambiguities and inconsistencies, confusing lawyers and courts and causing misinterpretations that disrupt commerce and reduce efficiency. This Article hypothesizes and tests possible explanations for the uncertainty, including that commercial law’s development has been path dependent, ad hoc, and lacking well-defined normative purposes. The Article then analyzes what those boundaries should be, arguing that commercial law should cover all business-related transfers of property, subject to exceptions needed to reduce transaction costs and otherwise increase economic efficiency. The Article also compares its proposed boundaries to the scope of commercial law under the Uniform Commercial Code, both to test whether those boundaries are tethered to reality and to examine whether the scope of the UCC itself should be modified.
SECURITIES & FINANCIAL REGULATION
ZOMBIE STOCKS
Young Jae Choi, Joseph Engelberg, Frank Partnoy, Adam V. Reed & Matthew C. Ringgenberg
This Article examines a previously unstudied aspect of short selling: the risk that the shares a short seller has borrowed will be delisted and deregistered. We label such shares “zombie stocks” or “zombies,” because they appear to be “dead,” but nevertheless create financial horror for short sellers, exposing them to signifi- cant risks and costs even when the short seller has speculated correctly against a company’s shares. The central problem occurs when short sellers are unable to purchase shares to satisfy their borrowing obligations and instead become stuck paying equity loan fees and posting collateral, potentially indefinitely.
CORPORATE LAW & GOVERNANCE • ENVIRONMENTAL, SOCIAL, & GOVERNANCE
E O.G.: UNMASKING WHY GOVERNANCE IS THE MOST IMPORTANT COMPONENT OF ESG
Lisa M. Fairfax
Environmental, Social, and Governance (“ESG”) is now dominating the corporate landscape. ESG encompasses a broad array of “Environmental” issues such as climate change, “Social” issues ranging from workplace safety and child labor practices to diversity, equity, and inclusion (“DEI”) initiatives, and “Governance” matters related to shareholder voting rights and board composition.ESG has impacted the behavior of actors across the corporate ecosystem. Shareholders, asset managers, and financial institutions are increasingly demanding that corporations provide more ESG disclosure and make more concrete ESG commitments. Boards have become increasingly focused on ESG oversight, and have increasingly prioritized selecting new directors who have ESG expertise. Corporations have ramped up their ESG engagement, contributing to the steady rise in voluntary ESG disclosure and new ESG commitments, policies, and practices.
SECURITIES & FINANCIAL REGULATION
MANIPULATING CITADEL: PROFITING AT THE EXPENSE OF RETAIL STOCK TRADERS’ MARKET MAKERS
Merritt B. Fox, Lawrence R. Glosten & Sue S. Guan
This Article considers whether securities market strategies designed to profit at the expense of so-called “internalizers” should properly be considered illegal manipulation. An internalizer acquires from a brokerage firm the right to be the market maker for the broker’s full order flow from its retail customers, promising in return to execute each order at a price slightly better than the best price available on any exchange (“price improvement”) as well as to pay the broker a fee for each executed order (“payment for order flow”). Almost all retail trading—about 29% of the country’s total share volume—is executed in this fashion, amounting in 2021 to about $41 trillion in transactions, a figure almost twice the nation’s GDP that year.
SECURITIES & FINANCIAL REGULATION
HIGH-END SECURITIES REGULATION: REFLECTIONS ON THE SEC’S 2022-23 PRIVATE FUNDS RULEMAKING
William W. Clayton
For most of its history, the SEC has taken a hands-off approach to private markets. Instead of direct regulation, the SEC has relied primarily on investor access restrictions to create high-end contracting environments where investors (in theory) have the resources needed to fend for themselves. But in early 2022, this hands-off philosophy was turned on its head. In response to booming growth and concerns about harms to public pension plans and other institutional inves- tors, the SEC proposed a sweeping set of regulatory interventions in the private fund industry, a vast and important part of the private market ecosystem with over $25 trillion in assets under management. At the conclusion of a long and con- tentious comment period, the agency released a set of final rules requiring fund managers to provide detailed, standardized quarterly disclosures to investors and regulating preferential treatment, among other things.