Regulation of prediction markets under the Financial Markets Conduct Act 2013

<p>The Financial Markets Conduct Act 2013 (FMC Act) represents the most substantial overhaul of New Zealand’s securities law in recent history. The regulation of derivatives in particular featured high on the agenda as an area in need of reform and, as a result, the FMC Act is much clearer than the Securities Markets Act 1988 with respect to typical derivative agreements. The focus of this paper, however, is on the atypical: the use of derivatives in prediction markets. With a study of New Zealand-based prediction market iPredict, this paper examines whether iPredict will be regulated under the FMC Act and, if so, how it will be regulated. The conclusion reached is that iPredict can operate under the FMC Act only if the Financial Markets Authority (FMA) declares that its contracts are derivatives and grants substantial exemptions from regulatory compliance. This paper then makes recommendations for a more coherent approach to the regulation of prediction markets under the FMC Act.</p>

Regulation of prediction markets under the Financial Markets Conduct Act 2013

<p>The Financial Markets Conduct Act 2013 (FMC Act) represents the most substantial overhaul of New Zealand’s securities law in recent history. The regulation of derivatives in particular featured high on the agenda as an area in need of reform and, as a result, the FMC Act is much clearer than the Securities Markets Act 1988 with respect to typical derivative agreements. The focus of this paper, however, is on the atypical: the use of derivatives in prediction markets. With a study of New Zealand-based prediction market iPredict, this paper examines whether iPredict will be regulated under the FMC Act and, if so, how it will be regulated. The conclusion reached is that iPredict can operate under the FMC Act only if the Financial Markets Authority (FMA) declares that its contracts are derivatives and grants substantial exemptions from regulatory compliance. This paper then makes recommendations for a more coherent approach to the regulation of prediction markets under the FMC Act.</p>

Rethinking Securities Law—Laying the Groundwork

This chapter explains the need for the “rethinking” of the federal securities laws, with particular emphasis on the Securities Act of 1933 and the Securities Exchange Act of 1934. Recognizing the historical preeminence of the U.S. securities law framework, the chapter first highlights key attributes that facilitate the effectuation of this achievement. Thereafter, the chapter addresses problematic characteristics of U.S. securities regulation. As set forth therein, the framework of securities regulation that exists today in the United States is comprised of piecemeal federal legislation, judicial decisions, SEC action, state securities (blue sky) activity, and self-regulatory organization oversight. As a consequence, the presence of consistent and logical regulation all too often is absent. With frequency, in both transactional and litigation settings, mandates apply that are erratic and antithetical to sound public policy. Setting the stage, in a preliminary manner, the chapter identifies several of the key problematic areas, succinctly explains their deficiencies, and suggests corrective measures that should be implemented.

Insider Trading

This chapter addresses regulation of insider trading in the United States. Uncertainties and inconsistencies prevail in this setting resulting in disparate treatment for similarly situated actors. Other developed countries, while applying many principles of U.S. securities law to their securities markets, have rejected the U.S. approach in the insider trading context. To redress this situation, Congress should enact comprehensive legislation that meaningfully addresses the contours of the insider trading prohibition. Among other mandates, this legislation would: require corporate insiders to provide advance notice of their contemplated transactions in the subject company’s equity securities; bar corporate insiders and other access persons from trading in the subject company’s securities during the interval between the occurrence of a reportable event and the making of a SEC filing (such as a Form 8-K); close loopholes that currently exist with respect to the propriety of insider trading plans; and adopt a comprehensive access approach governing the legality of trading and tipping on the basis of material nonpublic information.

Rethinking Securities Law

Rethinking Securities Law focuses on a very important and timely subject that merits comprehensive analysis: “rethinking” the securities laws, with particular emphasis on the Securities Act of 1933 and the Securities Exchange Act of 1934. The system of securities regulation that prevails today in the United States is one that has been formed through piecemeal federal legislation, Securities and Exchange Commission (SEC) invocation of its administrative authority, and self-regulatory organization episodic action. As a consequence, the presence of consistent and logical regulation all too often is lacking. In both transactional and litigation settings, with frequency, mandates apply that are erratic and antithetical to sound public policy. Over four decades ago, the American Law Institute (ALI) adopted the ALI Federal Securities Code. The Code has not been enacted by Congress and its prospects are dim. Since that time, no treatise, monograph, or other source has comprehensively focused on this meritorious subject. The objective of this book is to identify the deficiencies that exist under the current regimen, address their failings, provide recommendations for rectifying these deficiencies, and set forth a thorough analysis for remediation in order to prescribe a consistent and sound securities law framework. By undertaking this challenge, the book provides an original and valuable resource for effectuating necessary law reform that should prove beneficial to the integrity of the U.S. capital markets, effective and fair government and private enforcement, and the enhancement of investor protection.

Sowing the Seeds of a Future Crisis: The SEC and the Emergence of the Nationally Recognized Statistical Rating Organization (NRSRO) Category, 1971–1975

Since 2008, academics and policymakers have frequently debated why bond rating agencies such as Moody's, S&P, and Fitch enjoy considerable power and influence. The 2008 financial crisis focused our attention on the bond rating agencies that had previously categorized mortgage-backed securities as investment grade. Scholars have attributed the power enjoyed by the rating agencies to regulations that confer a privileged status on those agencies that are designated as nationally recognized statistical rating organizations (NRSROs) by the U.S. Securities and Exchange Commission (SEC). While these authors mention in passing that the relevant regulation went into effect in 1975, none has conducted archival research to examine why this regulation was introduced at that time. This article is the first historical investigation of the creation of this crucial regulation, which entrenched the concept of the NRSRO in federal securities law. It shows that the SEC mandated the use of NRSRO-created ratings even though SEC officials vigorously debated whether it was wise for the commission to endorse ratings produced by agencies that operate on the basis of the controversial issuer-pay model. This article contributes to our understanding of the SEC's role in the development of the distinctive features of American capitalism.

Japanese Law

This book analyses the current state of Japanese law after a series of reforms since 1990. In that year, the US–Japan Structural Impediments Initiatives Talk necessitating fundamental changes to the conventional system in Japan was completed. At the same time, the ‘bubble economy’ came to an end and Japan embarked on a long path to economic recovery. As a result, the Japanese legal system has undergone significant changes. Depending on the area of law, not all the reforms were successful, but it is beyond doubt that major changes took place across the board. The core of the book is commercial and business-related laws such as corporate law, securities law, contract law, and competition law. There was a fundamental change in corporate law over past three decades, not the least because of the new Company Law of 2004. The entire system of corporate governance now is very different from the previous insider-dominated system. Major changes took place in securities law after the Japanese ‘Big Bang’. Competition law in Japan, which had once been regarded as ‘dormant’, is now in full operation. The book also considers contract law, which, as part of the Civil Code, has undergone a major change in 2020. In order to understand commercial and business law, accurate understanding of the dispute settlement mechanism and the procedure is needed and this is duly covered. The book addresses these issues by studying the case law as well as legislative history and business practice.