Law and Financial Markets Project

Project Director: Dr Eva Micheler 

The Law and Financial Markets Project is based in the LSE's Law Department. The project provides a framework for a research group of LSE faculty and associated participants from outside academia to explore the interactions of law, regulation, financial markets and financial institutions, principally within the EU and the UK.

Research Focus

The Project’s research focuses on three core themes:

  • law, risk and markets, including:

    • how law and regulation constitute markets

    • the impact of market activity on the development and operation of law and regulation

    • the nature and effects of interactions between private law and regulatory rules

    • the impact of law and regulation on the management of risk within markets

  • regulatory dynamics, including:

    • the rationales and dynamics of regulatory processes and techniques

    • the operation of multi-level governance regimes for financial regulation

    • accountability and legitimacy of regulatory institutions

  • governance and ethics of financial institutions, including:

    • corporate governance of financial institutions

    • the challenges of defining and developing ethical practices within financial institutions

Project Activities

The Project organises collaborative workshops, seminars and conferences with lawyers, regulators and policy makers in order to explore salient issues in a mixed academic/practitioner environment.

The Project is connected with the LSE student body. The Project is responsible for the seminar series on corporate and financial law within the LSE LLM programme.

At undergraduate level the Project is linked with the Law and Financial Markets Student Society which shares and discusses the outputs of the Project with undergraduate law students.

The Project is also home to the London Law Club, in which senior judges and academics convene to discuss emergent or complex areas of legal doctrine related to financial markets. The London Law Club is run on an invitation basis, and chaired by Prof Michael Bridge.

The Project also runs an executive short course on Financial Services and Markets Regulation twice a year. The course is directed by Prof Julia Black, and is aimed at lawyers and regulators who are seeking to keep up to date with the rapidly developing regulatory agenda at the global level, and in the EU and UK.


Project Members

The Director of the Project is Dr Eva Micheler. Other LSE faculty and visiting professors participating in the Project are Dr Jo Braithwaite, Prof Julia Black, Prof Michael Bridge, Dr Carsten Gerner-Beuerle, Prof David Kershaw, Prof Niamh Moloney, Sarah Paterson, Dr Philipp Paech, and Dr Edmund Schuster. In addition, four Visiting Professors are members of the Project: Jonathan Fisher QC, Prof Christos Hadjiemmanuil, Leslie Kosmin QC and Roger McCormick. The Project’s current post-doctoral research fellow is Dr Giuliano Castellano.

Members of the project have links to other centres in the LSE. Eva Micheler is a co-investigator of the ESRC Centre for Systemic Risk. David Kershaw is a senior research member of the Corporate Finance and Governance programme run by the  LSE Financial Markets Group.

 

VISITING FELLOWSHIPS


Information about the department's arrangements for Visiting Fellowships can be found here.

 

FUNDING OPPORTUNITIES


Herbert Smith, Freshfields Bruckhaus Deringer and Gómez-Acebo & Pombo Abogados are the project's Foundation Funders. For details of the benefits of contributing to the project, please contact the Project Director, Dr Eva Micheler.

 

 

PUBLICATIONS & POLICY BRIEFINGS



Eva Micheler, ‘Custody Chains and Remoteness – Disconnecting Investors from Issuers'

available via: http://ssrn.com/abstract=2413025 
or http://dx.doi.org/10.2139/ssrn.2413025

The article shows that the current market infrastructure systemically prevents investors, both shareholders and bondholders, from exercising their rights against issuers. Equity and debt securities are now normally held through a chain of custodians. These custodians are connected with each other through contract law. There also exists legislation determining the relationship between custodians and their clients.
    The thesis of the article is that custody chains have become independent from investors and issuers. Neither issuers nor investors are able to control the length of the chain or the content of the legal arrangements that governs the custody chain. Custodians are connected through a series of bilateral links that are independent of each other. This erodes the rights of investors.
    This problem cannot be overcome by contract law, corporate law or property law. The thesis of the article is that structural reform is required to reduce the number of intermediaries that operate between issuers and investors. A central, direct and transparent mechanism should be created through which investors hold securities. The paper observes that in the past incumbent market participants have lobbying intensively to preserve the exiting structure and predicts that they are likely to oppose any change that will be proposed in the future.

Jo Braithwaite, 'Law after Lehmans' LSE Law Society and Economy Working Paper Series 11/2014

The September 2008 collapse of the Lehman Brothers group marked the nadir of the global financial crisis. While the regulatory aftermath has been extensively debated, the effects of the case law that arose from the insolvency have not. This paper explains the need to redress the balance. It starts by considering the quantity and qualities of the Lehmans case law, examining why the 30 plus decisions handed down by the English courts enjoy an unusually high precedent-setting potential. The paper proceeds by analysing the precedential effects of these decisions, and it reports on a recent workshop held at the London School of Economics that met to consider this question. Subject to the event’s terms of engagement, the paper draws out several themes from the discussion, including the impact of the Lehmans cases on the principles of contractual interpretation, the law of trusts and insolvency law. By way of conclusion, it is submitted that the impact of Lehmans case law reaches far beyond that particular insolvency, to worldwide users of standard form documents, the global financial markets and the common law itself. Seen in this light, the Lehmans case law is a significant, but under-appreciated, side-effect of the global financial crisis.

 

Who Should Prosecute Fraud, Corruption and Financial Markets Crime?

In this briefing, Jonathan Fisher QC argues that City fraud, financial markets offences and corruption should be investigated and prosecuted by a single enforcement authority instead of the multiplicity of agencies currently involved. The recent establishment of the Economic Crime Command at the National Crime Agency has muddied the waters further. It is high time for the Government to deliver on its Coalition Agreement commitment by allowing the Serious Fraud Office to mutate into an enlarged new economic crime-busting agency, leaving the Financial Conduct Authority to concentrate on the imposition of civil penalties for regulatory and compliance breaches which do not demand a criminal response.

 

Criminalising Bank Managers (Julia Black and David Kershaw, Professors of Law, LSE)

This Policy Briefing evaluates the Parliamentary Commission on Banking Standards recommendation to criminalise the reckless behaviour of senior bank managers.
 

The Commission on Banking Standards Report and Bank Incentives: A Missed Opportunity (Julia Black and David Kershaw, Professors of Law, LSE)

This Policy Briefing asks whether the Commission has missed an opportunity to address the skewed incentives for bank managers created by the UK’s system of corporate law and governance.
 

Legal Risks and Risks to Lawyers (Julia Black, LSE and Karen Anderson, Herbert Smith Freehills LLP) June 2013

The financial crisis exposed risks that were not foreseen and in the subsequent quest to attribute blame to the financial institutions, their managers, auditors, regulators, credit rating agencies, and politicians, a question was also asked: where were the lawyers? Were lawyers close enough to the events that they should be blamed, whether for their actions, or for a failure to act as gatekeepers

In its most recent roundtable, discussion the Herbert Smith Freehills and London School of Economics Regulatory Reform Forum debated the role that lawyers can and should play in managing risks in financial institutions.

This paper summarises some of the issues debated, including:

• Practical challenges in identifying, assessing and monitoring legal risks
• Expectations on the role of lawyers in financial institutions
• Consequential liability for lawyers

It also reports on a survey conducted of the firms invited to the forum, on the involvement of the legal function in legal risk management.
 

'Creating an ethical framework for the financial services industry' (Julia Black, LSE and Karen Anderson, Herbert Smith Freehills LLP) February 2013

The Herbert Smith Freehills and London School of Economics Regulatory Reform Forum held a roundtable event to discuss creating an ethical framework for the financial services industry. The event was attended by senior members of the financial services industry, academics, lawyers and key policy makers. This paper summarises some of the matters discussed.
 

'Breaking up is hard to do : The next stage' (Julia Black, LSE and Martyn Hopper, Herbert Smith LLP) May 2012

LFMP and Herbert Smith hosted a seminar in December 2010 with HM Treasury on the future of UK financial regulation. The accompanying discussion paper, by Julia Black and Martyn Hopper (revised, 2012) discusses the objectives, remit, powers and accountability of the new regulators and sets out key principles to guide the reform.

EVENTS


16 October 2014 9.30am-5.30pm | 9.04 Tower 2, LSE Campus

Perspectives on Systemic Risk
Organisers: Jon Danielsson (SRC) and Eva Micheler (Department of Law, LSE)

Systemic financial risk can be caused by many factors such as: financial decisions, legal and accounting rules, and politics. While all of these factors can on their own trigger systemic events, it is the interaction between them which is especially dangerous because it creates new avenues for vicious feedback loops. Unfortunately, these channels for systemic risk are usually studied within disciplinary silos, giving us a rather fragmented understanding of how systemic risk is created. The aim of the conference is to bring together speakers from accounting, economics, finance, law and political science to break down these silos and present a more complete analysis of the nature of systemic risk

- conference programme

 

 

22 October 2014  6pm-7.30pm  |  NAB1.07 New Academic Building

Fit for purpose? Does UK company law contribute to short termism in UK companies?

Chair: Sir Geoffrey Owen (LSE)

Speakers: Ian Gilham (Chairman, Horizon Discovery Plc); Professor David Kershaw (LSE); William Underhill (Partner at Slaughter & May, London)

Whether or not managers of UK companies are subject to short term pressures is one of the most important current policy debates. The mechanisms through which institutional investors invest in capital markets are thought to be subject to several pressures to invest with the short rather than the long term in mind. The remuneration structures and reporting requirement of fund managers provide one such example of such pressures. However as Professor Roe of the Harvard Law School has argued, in order for capital market short termism to be translated into business short termism there needs to be a transmission mechanism to transfer such pressures into the board room.

 

RECENT EVENTS


24 March 2014
CONFERENCE:
Intermediated Securities and Investor Rights

On 24 March 2014, Dr. Eva Micheler organised a conference entitled 'Intermediated Securities and Investor Rights'. The event was funded by the Law and Financial Markets Project and the Systemic Risk Centre. The aim of the conference was to determine whether the law is able to ensure that securities continue to be negotiable. The main question was whether it is possible to conclude that holding and lending chains have become too complex and inter-connected that investors are systemically compromised in their ability to exercise rights against the issuers.

The event was oversubscribed and attended by regulators, practitioners as well as academics. The contributions made by participants showed that the event raised questions of fundamental importance to the current debate on stewardship, investor rights, corporate governance and also on systemic risk in financial markets. It added a new perspective on both the discussion on intermediated securities and the discussion on stewardship and corporate governance.

The program, a conference report and selected slides can be found here:

22 January 2014  6.00-7.30pm, NAB.2.06
Modern Issues in International Commercial Law: Can We Hold a Legal Dialogue Across the Channel?
Speaker: Jean-François Riffard (University of Auvergne, School of Law)
Chair: Eva Micheler (LSE, Law Department)

11 December 2013  5pm-6.30pm  NAB1.15, New Academic Building
International Legal Risks for Banks and Corporates
Philip Wood, QC (Hon.) Special Global Counsel, Allen & Overy LLPChair: Professor David Kershaw (LSE, Department of Law)

5 December 2013    6pm-7.30pm, Wolfson Theatre, New Academic Building
The Role of the Sharia Scholar in Islamic Finance
Speaker:
Sheikh Nizam Yaquby

20 November 2013   6pm-7.30pm  NAB1.15, New Academic Building
One Step Ahead: Private Equity and Hedge Funds after the Global Financial Crisis
Speaker: Timothy Spangler, Partner (Kaye Scholer) and Adjunct Professor (UCLA)

As the recession stutters onwards systemic and structural causes for the financial crash continue to dominate international news and debate. Despite public interest, alternative investment vehicles such as private equity and hedge funds remain elusive. Both have always had a unique position in the market, designed as they are to function outside of the rules that govern other financial organizations. But what is it that they do and - significantly - how is it that they have prospered since the 2008 meltdown despite the introduction of new regulatory regimes? , Timothy Spangler, author of the award-winning book ‘One Step Ahead’, explores how the structures of alternative investment funds enable them to adapt and react to global financial conditions. The seminar focus ranges from small start-ups to the titans of the industry. It explores how private equity and hedge funds operate, drive economic growth, and have become essential vehicles for investment for both public and private sectors the world over.
Chair: Professor Julia Black (LSE, Department of Law)
 

13 November 2013   6pm-7.30pm, NAB1.15,
New Academic Building
The Ubiquitous Role of Financial Collateral
David Murphy (Rivast consulting, formerly ISDA)

Post crisis financial reforms have handed a central role to collateral. It is required for many bilateral derivatives transactions; it is a central risk mitigant in central clearing; and it will be required for many intragroup exposures as local capital and liquidity requirements are imposed. At the same time, unsecured interbank credit is declining importance, with many banks instead relying on collateralised central bank funding. It is therefore timely to investigate the role of collateral in the financial system, the legal infrastructure which supports its use, and the dynamics of collateralised transactions. In this context the phenomenon of procyclicality naturally arises. Thus while supervisors have determined that in the large there is enough high quality collateral available, short term increases in collateral requirements can be de-stabilising. We examine this issue, highlighting the delicate balance between collateral-as-credit-risk-mitigant and collateral-as-liquidity-risk-creator.

Chair: Dr Jo Braithwaite (LSE, Department of Law)

13 November 2013   6pm-7.30pm,  CLM302,
Clements House
Ethics, Interest and Finance
Speaker:
Ann Pettifor (Director of Policy Research in Macroeconomics, PRIME)

6 November 2013   6pm-7.30pm, CLM302,
Clements House
Islamic Finance and Derivatives
Speaker:
Habib Motani (Partner, Clifford Chance)

30 October 2013   6pm-7.30pm, NAB1.15,
New Academic Building
Intellectual Property Financing: the work of UNCITRAL
Speaker: Spyridon Bazinas (Senior Legal Officer, UNCITRAL Secretariat)

Economic development increasingly depends on innovative ideas that often become the subject of intellectual property rights. Yet, more often than not, while there is no sufficient funding to create or develop intellectual property, using intellectual property as collateral for credit is from difficult to impossible. The main reason is the fact that intellectual property law is not sufficiently coordinated with secured financing law. Matters become even more complex when a transaction involves a portfolio of intellectual property rights protected under the laws of several countries and the question of applicable law arises, or when a licensor or licensee of intellectual property becomes insolvent. The lecture will examine how the UNCITRAL Legislative Guide on Secured Transactions: Supplement on Security Interests in Intellectual Property (2010) addresses all these issues. More specifically, the lecture will examine the interaction of secured financing and intellectual property law, types of intellectual property financing practices, the creation, registration/perfection, priority and enforcement of a security interest in intellectual property, acquisition financing with respect to intellectual property, law applicable to a security interest in intellectual property and the impact of insolvency of a licensor or licensee of intellectual property.

Chair: Professor Michael Bridge (LSE, Department of Law)

30 October2013    6pm-7.30pm, NAB1.04,
New Academic Building
Debt Financing and Sukuk
Speaker: Roger Wedderburn-Day (Partner, Allen & Overy)

 

28 October 2013   6pm-7pm, CLM202, Clements House
Introduction to Islamic Finance: Concepts and Structures
Speaker:
Bi Farmida (Partner, Norton Rose Fulbright)
 

10 October 2013
Law after Lehmans

To mark the fifth anniversary of the collapse of the Lehman Brothers group, the LSE Department of Law and the LSE Law and Financial Markets Project is organising a half-day workshop, ‘Law after Lehmans’. ...

The objective of the event is to consider the impact of Lehmans-related cases on the English law. Speakers will be attending from, inter alia, PWC, City law firms, the Bar, LSE and the Universities of Oxford and Cambridge.

It is widely acknowledged that the collapse of the Lehman Brothers group was one of the most significant events in the global financial crisis. In the short-term, the group's collapse brought the world’s financial system to the brink of disaster. In the longer-term, these events have had an obvious and profound effect on worldwide programmes of financial regulatory reform. This spike of new regulation has been extensively debated by practitioners and academics alike. The cumulative effects of the Lehmans-related cases have, however, received comparatively little attention, and it is this imbalance that the workshop aims to redress. The cases will be considered in terms of their impact on different elements of English law, namely, property rights, contractual interpretation and insolvency law.

related publication:
Jo Braithwaite, 'Law after Lehmans' LSE Law Society and Economy Working Paper Series 11/2014

 

9 October 2013 6pm-7.30pm, Thai Theatre (New Academic Building)
The History and Evolution of Islamic Finance
Speaker:
Iqbal Khan (CEO, Fajr Capital)

30 September -  4 October 2013
Short Course on Financial Services and Markets Regulation
Our one week executive education course ...

24 April 2013
The Global Financial Crisis: The Case for a Criminal Response
Colloquium organised by Jonathan Fisher QC with David Greene QC.
The paper summarising the discussions and exploring the case for a stronger criminal response by UK law enforcement authorities to the global financial crisis is available here.