US Capital Markets Face Uncertainty Entering 2019, With Volatility Likely to Continue
Performance in the U.S. capital markets was mixed in 2018, with the equity new issuance market showing strength through most of the year and debt issuance markets softening. In 2019, the U.S. economy is forecasted to continue to grow, albeit at a slower pace, but ongoing concerns over interest rates, domestic and geopolitical events, trade and the decelerated pace of global economic growth could cause further market volatility.
SEC Continues Steady Progress With Regulatory, Enforcement Goals
The SEC's regulatory and enforcement goals remain largely unchanged: a continued focus on protecting Main Street investors, streamlining regulations and encouraging capital formation.
New UK IPO Rules Encourage Independent Research, Address Perceived Conflicts of Interest
New IPO rules in the United Kingdom are aimed at ensuring the availability of information to the market earlier in the IPO process and remedying perceived conflicts of interest by giving unconnected analysts an opportunity to provide independent research.
New HKEx Rules Spur Bumper Year in Hong Kong Capital Markets, but Lasting Impact Remains Unclear
The Hong Kong Stock Exchange’s updated rules now permit the listing of companies with dual-class share structures and pre-revenue biotech companies, and facilitate the secondary listing in Hong Kong of Chinese companies with an existing listing on another stock exchange. But whether the new rules will lead to a long-term increase in the competitiveness of Hong Kong as a capital-raising venue remains to be seen.
Recent Trends in Renewable Energy
The sustainable features of well-structured renewable generation assets with contracted output, low operating costs, and predictable revenue and cost streams remain attractive in the market.
Second Circuit Adopts Secured Creditor Cramdown Standard Based on Market Efficiency
In In re MPM, the Second Circuit settled the question concerning the applicable cramdown interest rate methodology but left unresolved a critical element: What constitutes an “efficient market”? A close reading of the decision and the precedent upon which it relied reveals that a practical, transaction-based approach should be used in assessing market efficiency.
2019 US and Global M&A Outlook: Despite Mounting Headwinds, Potential Remains for New Year
Deal activity remained resilient in 2018, facilitated by relatively stable equity markets and readily available financing that prevailed for a significant portion of the year. A number of factors suggest significant activity will continue this year, so long as there is no meaningful deterioration in fundamental economic conditions or substantial disruption of access to financing.
Latin America Trend to Watch: Representations and Warranties Insurance
As with other novel legal and financial risk allocation structures and solutions that have been introduced in the region, representations and warranties insurance made its way into Latin America after first taking root elsewhere. The use of such policies is expected to continue to rise in the coming year, especially in Latin America's most complex, cutting-edge transactions.
US and EU Antitrust Enforcers Remain Active and Aggressive, With Some New Wrinkles
Antitrust enforcement agencies in the U.S. and Europe were busy in 2018. In the U.S., both the DOJ and FTC continued to scrutinize horizontal transactions in concentrated industries in which the merging parties appear to be close competitors. And despite coming changes to the leadership, the European Commission should remain active in merger and antitrust reviews, and will continue to explore new theories of potential harm.
US Corporate Governance: Turning Up the Heat
Companies and boards should expect investors in the new year to ask questions about companies' business strategies and governance with greater frequency and urgency. Lackluster responses are likely to be met with increased demands for change — in strategy, management or even board composition.
Trending Topics in Executive Compensation
In 2018, various executive compensation issues made headlines, including director compensation litigation, the impact of the Tax Cuts and Jobs Act on performance-based compensation, how the #MeToo movement is shaping policies and compensation arrangements, persisting gender pay disparity issues and SEC enforcement actions on executive perquisite disclosure.
Litigation / Controversy
2018-19 Supreme Court Update
Much of the attention on the U.S. Supreme Court has concerned its composition or its handling of cases involving some of the current administration's signature initiatives. But the Court’s extensive docket includes potentially significant disputes relevant to businesses, including those involving administrative law, the First Amendment, antitrust, securities, arbitration and class actions.
Securities Class Action Filings Show No Signs of Abating
In addition to a significant number of securities litigation cases brought by those objecting to mergers, filings in 2018 included a large number of more traditional stock-drop cases. We expect this trend to continue, particularly if the volatility in the markets extends into 2019.
DOJ Policies Aim to Reduce Enforcement Burden on Cooperating Entities
The DOJ’s policies in 2018 represented a deliberate change in tone and a growing sensitivity to the burdens companies face under investigation. But because the DOJ remains committed to individual prosecutions, companies can expect the department to continue to seek their assistance in investigating the conduct of culpable employees.
Expanding Theories of Liability in the #MeToo Era
Allegations of sexual misconduct in the corporate context have increasingly been followed by derivative actions and securities fraud claims since the #MeToo movement gained traction in 2017. An understanding of the nature and focus of shareholder suits in this context can assist public companies, their executives and board members in determining how best to avoid and manage this emerging litigation risk.
Compliance Investigations in China Take On New Urgency
Companies concerned about heightened Chinese scrutiny of their China operations in the current trade climate are seeking to ensure that any compliance-related issues are promptly detected, investigated and remediated. Clients are advised to pay attention to, among other issues, the use of WeChat for business use and protecting the attorney-client privilege.
Key Delaware Corporation Law Developments in 2018
A number of significant decisions in the Delaware courts in 2018 are likely to have ripple effects throughout 2019. Among them were a series of cases that further developed the parameters of the Corwin and MFW doctrines and the first-ever Delaware case approving the termination of a merger because of a material adverse effect.
Significant Rulings Expected for Ongoing Mass Tort, Consumer Class Action Issues
Significant developments are expected in 2019 on issues that have been percolating in the mass tort and class action litigation arena for several years, including arbitration, cy pres, preemption and personal jurisdiction. Litigation reform efforts, however, may stall out in the newly elected Congress.
Trade Secrets Take Center Stage, and Contracts Play a Lead Role
Trade secrets have long been legally recognized but only recently have begun to share equal billing with other forms of IP protection. Enforcement under the Defend Trade Secrets Act indicates that tailored agreements may be the best protection against misappropriation of trade secrets.
Preparing for Democratic Oversight Investigations
Companies should anticipate that House Democrats will launch a number of investigations that reach beyond President Trump and his administration, and should be prepared with a game plan for responding to a subpoena or other inquiry in the event they are impacted by a congressional investigation.
International Arbitration Community Turns Its Focus to Cybersecurity
Over the past year, the Draft Cybersecurity Protocol for International Arbitration has shaped the discussion of cybersecurity in arbitration proceedings. The final document is expected to be released in 2019 and likely will provide a framework for cybersecurity measures to be considered based on the unique circumstances of each case.
Foreign Investment Control Reforms in Europe
The geopolitical environment continues to drive reform of foreign investment rules worldwide. The European Union as well as France, Germany, Russia and the U.K. are clarifying and tightening such rules in specific sectors in the interest of national security, with potentially significant implications for regulatory engagement and transaction management.
Trump Policy Actions Could Reshape Health Care and Life Sciences Landscape
With major bipartisan health care legislation unlikely in the newly elected Congress, those in the health care industry should closely follow the Trump administration’s executive actions, which may be the most accurate reflection of the future regulatory landscape.
Enhanced US Export Controls and Aggressive Enforcement Likely to Impact China
In the latter part of 2018, the U.S. government initiated efforts that in 2019 could severely constrain Chinese growth and ultimately be more effective than tariffs in leveraging changes to Chinese behavior.
Responding to the Call for Equal Pay
Heightened awareness to pay equity issues have led to expanded equal pay state laws in the U.S. and gender pay gap reporting laws in Europe. Companies should review and address pay disparities, and be prepared for class actions and renewed court focus on the issue.
Political Law: What to Consider When Providing Investment Fund Services to US State and Local Government Entities
Broker-dealers and registered investment advisers that seek to or provide services to U.S. state and local government entities must continue to develop and refine compliance programs to address laws regulating government investments, political contributions, gifts, lobbying and solicitation of business, conflicts of interest, and procurement.
California Privacy Law: What Companies Should Do to Prepare in 2019
The California Consumer Privacy Act is the broadest and most comprehensive privacy law enacted in the U.S. to date. While it does not go into effect until January 1, 2020, companies would be well-served by taking steps toward compliance in 2019, all the while monitoring ongoing rulemaking.
European Data Protection and Cybersecurity in 2019
Data protection laws in Europe evolved substantially in 2018, with the implementation of the GDPR and the Directive on Security of Network and Information Systems becoming national law at the member state level. In 2019, the focus will transition from theory to practice, as implementation gives way to enforcement.
US Tax Reform and Cross-Border M&A: Considering the Impact, One Year In
Several new features of the U.S. international tax system introduced as part of the Tax Cuts and Jobs Act were meant to act as “carrots and sticks” to encourage U.S.-parented multinational companies to remain headquartered in and locate business activity in the United States. Their success remains to be determined, especially as potential global changes in corporate taxation could affect companies' decisions on how to structure cross-border M&A.
Regulatory Relief May Generate Increased M&A Activity Among Banks
For a number of years following the financial crisis, the regulatory environment represented a significant challenge and source of uncertainty for bank M&A activity. The Crapo bill and other recent actions by banking regulators will meaningfully ease regulatory burdens on superregional, regional and larger community banking organizations, and make M&A opportunities more attractive.
As Interest in Blockchain Technology Grows, So Do Attempts at Guidance and Regulation
The number of blockchain-enabled projects continues to rise as regulators work to apply existing laws and regulations to autonomous, decentralized platforms. Some clarity on issues such as whether a digital token is a security and whether ICOs are money transmitters is expected in 2019.
Despite Leadership Changes, No Pivot in Priorities Expected for Consumer Financial Services Enforcement
Leadership changes at both the CFPB and DOJ may impact agency priorities in 2019; however, the trend of fewer enforcement actions seems likely to continue. Financial institutions will be best served by maintaining strong compliance management programs and watching for developments at these agencies.
Significant Regulatory, Jurisdictional and Enforcement Challenges Ahead for CFTC
Over the coming year, the CFTC will further consider significant proposed amendments to swaps trading rules, and will need to address the EU's plans to adopt legislation that could subject U.S.-based clearinghouses to substantial EU oversight as well as the consequences of a series of court decisions that has called some of the CFTC's anti-manipulation and anti-fraud efforts into question.
Key Developments in US Sanctions
U.S. sanctions expanded considerably in 2018. Among other actions, OFAC for the first time incorporated substantial compliance commitments into a settlement agreement and included digital currency addresses as identifying information when it announced certain cyber sanctions-related designations. We expect that the Trump administration will continue to favor sanctions as a tool of U.S. foreign policy and that enforcement activity will increase in the year ahead.
Editorial Board: Thomas H. Kennedy, Boris Bershteyn, Adrian J. S. Deitz, Victor Hollender, Scott C. Hopkins, Edward B. Micheletti