Research
CSFME Research
The Center’s work is directed toward activities which contribute directly to the efficiency of capital markets. Among these, Corporate Governance, Securities Lending, and Counterparty Risk Management have been the focus of intensive examination and analysis.
Research Highlights
Empty Voting
A paper in the Spring 2013 issue of The Journal of Financial Research by Shane M. Moser, Bonnie F. Van Ness, and Robert A. Van Ness of The University of Mississippi investigates the securities lending market around proxy record dates for evidence of proxy abuse. The paper concludes that the data shows no evidence of abusive short lending around proxy record dates. CSFME provided data for this study as well as comments and feedback on the paper. (full paper)
In 2006, academic researchers claimed to have found evidence of vote buying in the U.S. securities lending markets. Their studies claimed that spikes in equities were prima facie evidence of borrower manipulation of corporate governance. That research was cited in a widely-reported 2006 law review paper (Professors Hu and Black of the University of Texas Law School) equating securities lending with derivative abuses. Extensive CSFME research, later affirmed by two prominent academic teams, found several reasons to question the validity of the earlier academic findings. (full paper)
Lender-Directed Voting
Academic claims that empty voting was rampant in U.S. securities lending markets were rebutted by the Center’s 2009 report. However, no similar research has yet been conducted for non-U.S. markets. In recognition of this, the European Securities Markets Association (ESMA) issued a Request for Information in September 2011 about lending practices in EU markets. In response, the Center announced a live pilot of Lender Directed Voting for the 2012 proxy season. (full article)
Liability Dynamics
After the collapse of Bear Stearns and Lehman Brothers, investors were shocked to learn that even senior executives often fail to appreciate how vulnerable their firms are when denied access to short-term funding markets. Similar funding denials preceded the de facto collapses, shotgun mergers, or bailouts of other large investment banks, as well as AIG, Citigroup, Fannie Mae, and Freddie Mac. (full article)
CSFME Library
CSFME’s library houses reports, studies, and other documents created by CSFME and other financial industry experts and academics. This collection provides market participants with easy access to the resources they need to understand the most current issues affecting market efficiency.
CSFME letter to the New York Stock Exchange detailing the benefits and legal considerations of Lender-Directed Voting. Borrowed proxy abuse study results presented at the 2012 IMN Beneficial Owners’ Securities Lending Conference. The results indicate that previous findings of borrowed proxy abuse are unsubstantiated after testing with larger data sets. Lender-Directed Voting (LDV) presentation at the 2012 IMN Beneficial Owners Securities Lending Conference. The presentation highlights the benefits, operations, and current status of LDV, concluding that a live pilot is on-going. This September 17, 2010 paper on the Basel III requirements on capital, liquidity and leverage (as amended after the 26 July communiqué and ratified on September 12, 2010) analyzes implications, issues and interconnections between them and discuss some of new trends in best practice of banks’ risk management and capital optimization that are likely to emerge as a result. This July 2010 Federal Reserve Bank of New York monograph documents the origins, evolution, and economic role of the shadow banking system. The report is intended to aid regulators and policy-makers to reform, regulate and supervise the process of securitized credit intermediation in a market-based financial system. In his statement before the U.S. Securities and Exchange Commission’s September 29, 2009 roundtable on securities lending, CSFME’s Executive Director Ed Blount outlined the Center’s research findings regarding cash collateral reinvestment, borrower default, lending agent compensation and fee splits, and proxy voting. “Risks and Responsibilities in Securities Lending” by Ed Blount Testimony to the United States Senate Special Committee on Aging Chairman Herb Kohl (D‐WI) and Ranking Member Bob Corker (R‐TN), Wednesday, March 16, 2011. Early in 2011, Ed Blount, CSFME Executive Director and ABA Banking Journal contributing editor, interviewed Gregoire Bordier, senior partner at Bordier & Cie. They discussed the experience of being a private banker in the midst of the financial crisis, and what makes a private bank in Switzerland tick. CSFME Executive Director, Ed Blount, reviews two books taking opposite sides in the debate about the role short selling played in the financial crisis. After the failure of the computer models, the “market posse” assessed the degree of risk that existed for Bear Stearns’s counterparties, and it turned out to be quite accurate. This September 2008 article in the RMA Journal by Ed Blount examines what went wrong during the financial crisis, and how market participants were misled and let down by traditional methods of assessing risk. On March 30, 2011, CSFME presented this concept brief on lender-directed voting to the staff of the SEC’s Division of Trading & Markets, the Division of Risk, Strategy and Financial Innovation and the Division of Investment Management. The purpose of the meeting was to discuss § 984(b) of the Dodd‐Frank Act. A September 30, 2011 from the California State Teachers’ Retirement System to the United States Securities and Exchange Commission voicing support for CSFME’s lender-directed voting proposal and encouraging its adoption and implementation. A September 2, 2011 CSFME letter to the New York Stock Exchange outlining the Lender Directed Voting concept, and outlining the ways in which the practice may help stabilize corporate governance and stock loan operations, increase corporate governance efficiency, and reduce systemic volatility in the stock loan markets. A July 15, 2011 CSFME letter to the Securities and Exchange Commission. The letter outlines recent systemic and technological advances enabling modifications to existing practices, which could permit broker‐dealers to vote proxies at the direction of currently disenfranchised, institutional, beneficial owners of lent securities (“Lender Directed Voting”). The letter further describes the numerous benefits lender directed voting could provide to a wide range of market participants. Securities Lending with Cash Collateral Reinvestment in Retirement Plans: Withdrawal Restrictions and Risk Raise Concerns. March 2011 summary of committee research prepared by the majority staff of the United States Senate’s Special Committee on Aging. An October 2010 paper substantively examining allegations of “vote buying” and manipulation of corporate governance in the U.S. equities securities lending markets. A January 2001 report of the CPSS-IOSCO Joint Task Force on Securities Settlement Systems