In a new white paper, Brattle Principal Ioannis Gkatzimas, Senior Associate Ryan Leary, and Research Analyst Musa Isani examine the transition away from USD LIBOR in the US market, detailing USD LIBOR’s downfall and the emergence of its recommended replacement, the Secured Overnight Financing Rate (SOFR). They also discuss a few market-based alternatives to SOFR, the initiatives and legislation designed to address challenges associated with the USD LIBOR transition, and the economic considerations for potential litigation that could arise related to the transition.

The full white paper, “From USD LIBOR to SOFR: A Look at LIBOR’s Exit, SOFR’s Ascendance, Emerging Alternatives, and Economic Considerations for Litigation,” is available below.

View White Paper 

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The winners of the 2022 Brattle Group Prize in Corporate Finance are:

First Prize, $25,000: Andreas Fuster, Paul Goldsmith-Pinkham, Tarun Ramadorai, and Ansgar Walther
Predictably Unequal? The Effects of Machine Learning on Credit Markets
The Journal of Finance, February 2022

Distinguished Paper, $10,000: Asaf Bernstein
Negative Home Equity and Household Labor Supply
The Journal of Finance, December 2021

Distinguished Paper, $10,000: Isaac Hacamo and Kristoph Kleiner
Forced Entrepreneurs
The Journal of Finance, February 2022

The Brattle Group has funded this annual award for more than 20 years. These prizes are presented at the AFA’s annual meeting, and this year’s awards were announced at the AFA’s Annual Meeting 2023, which took place January 6–8 in New Orleans, LA. All papers published in issues of The Journal of Finance from the first five issues of the given year, and December of the previous year, are eligible. We congratulate the winners on their achievements!

View a complete list of past winners

More about the AFA

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Prompted by discussions among policymakers and market participants about how to strengthen the resiliency of the US Treasury (UST) market, the survey was designed to gather feedback on the legal, operational, regulatory, and policy issues associated with the clearing of UST securities and repos. Various market participants – including dealers, asset managers, and brokers – were asked about their views on additional central clearing, including potential benefits and concerns. While most respondents were generally supportive of clearing, opinions varied based on the different types of respondents, suggesting additional research on the costs and benefits of additional clearing is warranted.

The report is the latest in a series of Brattle-prepared reports for ISDA as the private trade organization continues to help guide the transition away from the London Interbank Offered Rate (LIBOR) and solicits information from market participants about emerging areas of market and regulatory interest. The current report was supported by a Brattle team including Principals Ioannis Gkatzimas and Torben Voetmann, Senior Associate Nguyet Nguyen, and Associate Jacob Pastor.

See the full report, “Summary of Responses to the 2022 ISDA UST Survey,” below.

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Dr. Goldstein will also continue in his capacity as Professor of Finance at Babson College, where he holds the Donald P. Babson Chair in Applied Investments. He specializes in examining the structure of equity and bond markets and does work in climate change, dividend policy, asset pricing, real estate, and privatization.

We wish Dr. Goldstein all the best in this new role.

The post Brattle Congratulates Academic Advisor Dr. Michael Goldstein on Appointment as Secretary/Treasurer of the Financial Management Association appeared first on Brattle.

“These talented individuals provide in-depth expertise to a vast array of clients on matters related to financial services, energy, tax, and more,” shared Brattle President & Principal David Sunding. “In addition, they have made exemplary contributions to mentoring and developing their colleagues, and truly demonstrate the exceptional leadership pipeline we are fortunate to have at the firm.”

Our new Principals:

• Hollie Mason | Practice Leader: Broker-Dealers & Financial Services | Chicago
  An attorney with more than 15 years of experience in the financial industry, Ms. Mason provides expert testimony and consulting services concerning securities litigation and enforcement matters. She has deep knowledge of Financial Industry Regulatory Authority (FINRA) and Securities & Exchange Commission (SEC) rules.
• David McKnight | New York
  Mr. McKnight has over 20 years of experience providing expert testimony and consulting services in matters pertaining to mass torts, securities, finance, valuation, and bankruptcy. In mass tort matters, he has worked with liability forecasts, insurance coverage, and discounted cash flows.
• Albert Metz | New York
  Dr. Metz is a securities and finance expert with deep experience in credit analysis, financial modeling, asset pricing, market efficiency, and event studies. He has consulted on asset pricing, antitrust, mergers and acquisitions, market manipulation, collusion, fixed income securities, and various debt derivatives.
• Christine Polek | Boston
  Ms. Polek serves as a consulting and testifying expert in complex litigation requiring the application of economic, financial, and statistical analysis to legal and regulatory issues – with a focus on valuation, tax controversy, and labor and employment.
• Akarsh Sheilendranath | Boston
  Mr. Sheilendranath is an energy economist with a unique blend of expertise in wholesale electricity markets, electric transmission, and regulatory corporate finance. He specializes in transmission policy, utility investment strategy and planning, large-scale renewable integration, and cost-benefit assessments.
• Anul Thapa | Boston
  Mr. Thapa has over 12 years of experience applying economic and finance principles in complex oil and gas-related litigation, arbitration, and regulatory proceedings. His experience in commercial disputes includes damages estimation, valuation, and pricing related to energy assets and contracts.
• Mike Tolleth | New York
  Mr. Tolleth specializes in the economic analysis of energy markets, with expertise in financial modeling and valuation of energy assets, contracts, and businesses. He supports clients in litigation and arbitration matters and provides expert testimony related to cost of service, rate design, cost of capital, regulatory policy, long-run marginal cost pricing, and market power.

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First Prize, $25,000: Peter M. DeMarzo and Zhiguo He
Leverage Dynamics without Commitment
The Journal of Finance, December 2020

Distinguished Paper, $10,000: Itamar Drechsler, Alexi Savov, and Philipp Schnabl
Banking on Deposits: Maturity Transformation without Interest Rate Risk
The Journal of Finance, February 2021

Distinguished Paper, $10,000: Pat Akey and Ian Appel
The Limits of Limited Liability: Evidence from Industrial Pollution
The Journal of Finance, February 2021

The Brattle Group has funded this yearly award for more than 20 years. These prizes are presented at the AFA’s annual meeting, and this year’s awards were announced at the virtual 2022 ASSA/American Finance Association’s (AFA) Annual Meeting on January 7–9. All papers published in the prior year’s issues of The Journal of Finance are eligible. We congratulate the winners on their achievement!

View a Complete List of Past Winners

More about the AFA

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In preparation for the LIBOR cessation and other related IBOR changes, the International Swaps and Derivatives Association (ISDA) and its counsel have worked with The Brattle Group to prepare a series of reports on IBOR benchmarks fallback rates. Two additional reports in this series have been recently published, one related to technical adjustments to fallback formulas for the Intercontinental Exchange (ICE) Swap Rates and the other related to market participant responses to an ISDA consultation about the proposed implementation of those suggested fallback formulas.

ISDA first published a May 2021 Brattle-prepared report: Review of Proposed Technical Adjustments to Fallback Formulas for the Intercontinental Exchange (“ICE”) Swap Rates. This report reviews the technical adjustments for the fallback formulas for ICE Swap Rates, the worldwide reference rate value for fixed interest rate swap rates for major currencies across tenors. ICE Swap Rates are linked to LIBORs in a non-linear manner and are not covered by ISDA’s Supplement 70 to the 2006 ISDA Definitions and the associated protocol. These technical adjustments were introduced in early 2021 through whitepapers released by the Working Group on Sterling Risk-Free Reference Rates in the UK, and the Alternative Reference Rates Committee in the US. Brattle’s report evaluated the technical adjustments that account for differences in day count convention and payment frequency between the ICE Swap Rates and the IBOR fallbacks.

Most recently, ISDA published the Brattle-prepared report Summary of Responses to the ISDA 2021 Consultation on Fallbacks for GBP LIBOR ICE Swap Rate and USD LIBOR ICE Swap Rate. This August 2021 report follows ISDA’s June 2021 market-wide consultation on implementing the suggested fallbacks for the GBP LIBOR ICE Swap Rate and the USD LIBOR ICE Swap Rate, which were introduced by the above whitepapers. The Consultation asked market participants from around the globe whether they agreed with the suggested fallback provisions, and sought additional input on implementing the suggested fallbacks. This report provides a summary of the responses to the Consultation.

To learn more about IBOR benchmark reform and the transition away from LIBOR, click here.

The reports were supported by a Brattle team including Principals Ioannis Gkatzimas and Torben Voetmann; and Senior Associates Yingzhen Li and Nguyet Nguyen.

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The authors explain that market manipulation occurs when an economically rational actor deliberately uses false information to cause demand or supply to deviate from underlying economic fundamentals in order to benefit from that deviation. Financial derivatives often serve as the means through which such benefits are derived, as the enforcement actions brought by the Commodity Futures Trading Commission (CFTC) and other U.S. regulators attest. Since the CFTC has moved resources from its Division of Market Oversight into its Division of Enforcement, it has expressed interest in pursuing major violations of its market manipulation rules.

With the CFTC’s heightened surveillance, the authors aimed to address the following questions:

• Should derivative traders be concerned that they might have civil liability if they hold positions that benefit from another market actor’s manipulation?
• Is there a way to proactively distinguish legitimate trading from manipulative behavior?
• For traders who held derivatives positions injured by manipulative behavior, what recourse is available to address their harms?
• Do the antitrust laws provide an additional source for liability for or recovery from manipulative behavior?

The article also presents a framework that can be used to distinguish legitimate behavior from manipulative trading. The authors explain that if a derivatives holder trades in the market for the underlying product or contract (a “trigger”) in a manner that could alter the market price (a “nexus”) and favorably affect the value of the derivatives (the “target”), the question then turns to whether the revenues produced from the target are sufficiently large to more than compensate any losses and expenses incurred in the triggering trades (“leverage”). If the revenues from the derivatives exceed the losses incurred by the trades that “triggered” the chain of events, then the derivatives could be viewed as a speculative position that might have been positioned as a leveraged target for manipulation, a determination that then hinges upon the intent of the actor. Conversely, if revenues from the derivatives are less than or equal to any losses in the triggering trades, the derivatives act as a hedge consistent with the legitimate use of such instruments.

The article, “Derivatives’ Roles in Manipulation,” is available for download below.

View Article

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