Paul Ali

The Legal Characterization of Weather Derivatives

This article provides an explanation of the legal status of weather derivatives. The article examines the structure of payment obligations under a temperature derivative, the most common type of weather derivative, and the legal requirements for insurance products. The legal consensus to date has been that weather derivatives are not insurance products and that the providers of weather derivatives are not subject to regulation as insurers. That proposition was recently called into question by the U.S. National Association of Insurance Commissioners in a controversial paper released in late 2003 where it was stated that weather derivatives were, in fact, insurance products. This article argues that weather derivatives are only superficially similar to insurance products but cannot, on a strict legal analysis, be considered insurance products.

Behavioural Law and Economics: Regulatory Reform of Consumer Credit and Consumer Financial Services

This paper examines the influence of behavioural research on economic policy-making, as it relates to the regulation of consumer credit and consumer financial services. Using the examples of credit cards in the USA and Australia, and retirement savings infrastructure in the USA, New Zealand and Australia, we investigate the impact of ‘nudging’ on regulation in these areas, and the degree to which such policies are capable of substantive change without the support of mandatory measures and other forms of targeted regulation. The authors conclude that nudging, alone, is not sufficient to achieve effective regulatory reform, and that other policies recommended by behavioural economics, such as mandatory measures and other forms of targeted regulation, are also required to achieve durable change in consumer behaviour. In light of this conclusion, the authors suggest that ‘nudging’ is best viewed as a regulatory supplement, or one of a range of regulatory tools, and that more attention should be focused on the full range of behavioural law and economics regulatory reform recommendations, especially in the areas covered by this paper.

Insider trading : global developments and analysis

Introduction, P.U. Ali and G.N. Gregoriou PART ONE - THE TAXONOMY OF INSIDER TRADING Market Inefficiencies and Inequities of Insider Trading - An Economic Analysis, C. Read Securities Fraud and its Enforcement: The Case of Martha Stewart, G.S. Moohr An Economic and Ethical Look at Insider Trading, R. W. McGee Martha Stewart: Insider Trader? J.M. Heminway Insider Trading Regulation in Transition Economies, R.W. McGee Credit Derivatives and Inside Information, P.U. Ali PART TWO - REGULATING INSIDER TRADING A. Illegal Insider Trading Inside Information and the European Market Abuse Directive (2003/6), B. Clarke Insider Trading in Australia, A.-A. Dervenis The Evolution of Insider Trading Regulations in Japan, S. Osaki Insider Trading in China, Z. Liu and M. Wang Hedge Fund Fraud, G. N. Gregoriou and W. Kelting Extraterritorial Reach of the Insider Trading Regimes in Australia and the United States, Y.B. Chaung An Investigation of the Whistle-Blower-Insider Trading Connection: Evaluation and Recommendations, E.J. Lusk and M. Halperin B. Legal Insider Trading A Middle Ground Position in the Insider Trading Debate: Deregulate the Sell Side, T.A. Lambert Positive and Negative Information - Insider Trading Rethought, K. R. Grechenig PART THREE - ECONOMIC CONSEQUENCES OF INSIDER TRADING The Economic and Financial Features of Insider Trading, F.-E. Racicot and R. Theoret Insider Trading, New Releases and Ownership Concentration, J. Fidrmuc, M. Goergen, and L. Renneboog The Incentives to Acquire Information, P. Gregoire Insider Trading in Emerging Stock Markets: The Case of Brazil, O. R. de Medeiros Legal Insider Trading and Stock Market Reaction: Evidence from the Netherlands, N. Aktas, E. de Bodt, I. Riachi and J. de Smedt

No Thought for Tomorrow: Young Australian Adults' Knowledge, Behaviour and Attitudes About Superannuation

While Australias superannuation scheme is a fundamental part of supporting and sustaining Australias increasingly aging and retiring population, young Australians demonstrate consistently poor knowledge of, and behaviour and attitudes towards, superannuation. This study is the first large-scale study of superannuation knowledge, behaviour and attitudes among a representative sample of the general young adult population in Australia. The picture that emerges is generally worse than other studies to date. Young people generally lack a basic understanding of how superannuation operates, do not engage much with their superannuation funds and have poor or uncertain expectations about their prospects for retirement and superannuations place within an overall retirement plan. The article presents the results and analysis from our survey and considers what those findings suggest about improvements in the provision of information and advice about superannuation.

High-Frequency Trading and Its Regulation in the Australian Equity Markets

This chapter examines the key regulatory issues associated with high frequency trading (HFT) in the Australian equity markets. HFT has significant benefits but is not, however, free from perceived drawbacks. One matter, in particular, predatory trading and other conduct that may undermine market integrity, has recently attracted regulatory scrutiny in Australia. This chapter discusses the regulatory response.

Funds of Hedge Funds and the Principles of Fiduciary Investing Following the Global Financial Crisis

Funds of hedge funds (FoHFs) are an increasingly common way for institutional investors as well as high-net-worth individuals to access the hedge fund sector. Unsurprisingly, there have been renewed calls in the wake of the global financial crisis to subject the hedge fund sector to greater regulatory scrutiny, but this has not undermined the role played by FoHFs in intermediating between investors and hedge funds. A FoHF is, in essence, a ‘feeder’ structure that aggregates the contributions of the investors in the FoHF and allocates that capital across a broad pool of hedge funds. In this manner, an investor can efficiently obtain exposure to a diversified portfolio of hedge fund managers and hedge fund investment styles. This chapter examines the impact of the global financial crisis on the fiduciary principles that apply to many of these investors (such as pension funds, family offices, and endowments) when selecting FoHFs and also on the actual design of FoHFs.

Sourcing Securities for Short Sales: The Proper Legal Characterization of Securities Loans

Publisher Summary This chapter considers the operation of securities loans as well as a recent decision of the Australian court that has tried to address the question of the proper legal characterization of securities loans. A securities loan, basically, involves the transfer of securities (shares or bonds) from a “lender” to a “borrower” in exchange for the borrower paying a fee to the lender. Securities loans effectively separate the legal incidents of ownership of securities from the economic incidents of ownership. The initial transfer of securities that takes place under a securities loan vests clear title to the securities in the borrower and that title carries with it enjoyment of the economic incidents that ordinarily flow from title, but the borrower is obligated, under the terms of the loan, to pay to the lender amounts equivalent to any distributions received by the borrower during the term of the loan in respect of the securities. While the court in that particular case clearly decided that transfers of securities under a securities loan were absolute transfers or sales and did not constitute an in-substance secured loan, the authority of that case is weakened by the courts seeming indifference to two related factors. The two related factors include substantive differences between, as opposed to different legal forms of, sales of securities and mortgages of securities; and the use, in that case, of securities loans by the various participants as margin loans. Thus the legal nature of securities loans cannot therefore be said to have been completely settled by that case.Publisher Summary This chapter considers the operation of securities loans as well as a recent decision of the Australian court that has tried to address the question of the proper legal characterization of securities loans. A securities loan, basically, involves the transfer of securities (shares or bonds) from a “lender” to a “borrower” in exchange for the borrower paying a fee to the lender. Securities loans effectively separate the legal incidents of ownership of securities from the economic incidents of ownership. The initial transfer of securities that takes place under a securities loan vests clear title to the securities in the borrower and that title carries with it enjoyment of the economic incidents that ordinarily flow from title, but the borrower is obligated, under the terms of the loan, to pay to the lender amounts equivalent to any distributions received by the borrower during the term of the loan in respect of the securities. While the court in that particular case clearly decided that transfers of securities under a securities loan were absolute transfers or sales and did not constitute an in-substance secured loan, the authority of that case is weakened by the courts seeming indifference to two related factors. The two related factors include substantive differences between, as opposed to different legal forms of, sales of securities and mortgages of securities; and the use, in that case, of securities loans by the various participants as margin loans. Thus the legal nature of securities loans cannot therefore be said to have been completely settled by that case.

Sourcing Securities for Short Sales

Publisher Summary This chapter considers the operation of securities loans as well as a recent decision of the Australian court that has tried to address the question of the proper legal characterization of securities loans. A securities loan, basically, involves the transfer of securities (shares or bonds) from a “lender” to a “borrower” in exchange for the borrower paying a fee to the lender. Securities loans effectively separate the legal incidents of ownership of securities from the economic incidents of ownership. The initial transfer of securities that takes place under a securities loan vests clear title to the securities in the borrower and that title carries with it enjoyment of the economic incidents that ordinarily flow from title, but the borrower is obligated, under the terms of the loan, to pay to the lender amounts equivalent to any distributions received by the borrower during the term of the loan in respect of the securities. While the court in that particular case clearly decided that transfers of securities under a securities loan were absolute transfers or sales and did not constitute an in-substance secured loan, the authority of that case is weakened by the courts seeming indifference to two related factors. The two related factors include substantive differences between, as opposed to different legal forms of, sales of securities and mortgages of securities; and the use, in that case, of securities loans by the various participants as margin loans. Thus the legal nature of securities loans cannot therefore be said to have been completely settled by that case.Publisher Summary This chapter considers the operation of securities loans as well as a recent decision of the Australian court that has tried to address the question of the proper legal characterization of securities loans. A securities loan, basically, involves the transfer of securities (shares or bonds) from a “lender” to a “borrower” in exchange for the borrower paying a fee to the lender. Securities loans effectively separate the legal incidents of ownership of securities from the economic incidents of ownership. The initial transfer of securities that takes place under a securities loan vests clear title to the securities in the borrower and that title carries with it enjoyment of the economic incidents that ordinarily flow from title, but the borrower is obligated, under the terms of the loan, to pay to the lender amounts equivalent to any distributions received by the borrower during the term of the loan in respect of the securities. While the court in that particular case clearly decided that transfers of securities under a securities loan were absolute transfers or sales and did not constitute an in-substance secured loan, the authority of that case is weakened by the courts seeming indifference to two related factors. The two related factors include substantive differences between, as opposed to different legal forms of, sales of securities and mortgages of securities; and the use, in that case, of securities loans by the various participants as margin loans. Thus the legal nature of securities loans cannot therefore be said to have been completely settled by that case.

Shari'ah Compliant Structured Finance - Characteristics, Analogies and Legal Risks in Common Law Jurisdictions

Islamic finance, in the manner in which it is executed today, represents the use of conventional financial instruments to raise funds in a manner consistent with the precepts of Islamic law or Shari’ah. Of those precepts, perhaps the most important, from a financing perspective, is the prohibition of unlawful profits as exemplified by interest (‘riba’) and gains from speculation or trading in risk (‘gharar’). This prohibition means that fund-raising transactions whose legal ‘form’ – and that term is used here deliberately – is that of a loan or other interest-based instrument have no place within the Islamic finance universe.

Investing in Credit Derivatives

The on-going turmoil in the United States sub-prime mortgage market – and, more recently, the sub-prime mortgage-related losses being reported by some of the world’s largest banks – have brought into sharp focus the risks of investing in credit derivatives, even where the credit derivatives are not linked predominantly to subprime mortgages but, instead, cover apparently diversified pools of mortgages and other bank loans (Economist 2007). The obvious credit risk associated with subprime mortgages and the losses that have eventuated when, as expected, many of these mortgages defaulted or could not be re-financed have, however, taken many investors by surprise. Yet this element of surprise is perhaps explicable when one takes into account the complex and often opaque nature of the arrangements by which the credit risk of sub-prime mortgages has often been passed on to investors. This chapter provides an overview of credit derivatives, a rapidly growing derivative product. This chapter has the following objectives: