CamEd Grand Interview (episode 14)

Summary

In this insightful interview, Professor Charles White from Columbia Law School discusses the evolution of the U.S. securities market, noting a shift from individual stock ownership to institutional investment. He addresses the reasons behind companies choosing to stay private, citing increased institutional market liquidity and high costs of public compliance. White also shares his perspective on the importance of education and trust in Cambodia's emerging capital market, emphasizing the role of smart regulation to foster innovation while protecting investors.

Takeaways

• 📚 The importance of education in financial regulation and capital markets was emphasized, suggesting that informed consumers are more likely to trust the market.
• 💼 Professor Charles White's background as a former banker and lawyer in New York, London, and Tokyo informs his perspective on financial regulation and market dynamics.
• 📉 The trend in the U.S. securities market is moving towards institutional investment rather than individual stock ownership, with about 80% of the market being institutional.
• 🏦 The private markets have become more liquid and accessible, allowing companies to access capital without going public, reducing the need for IPOs and leading to some companies going private.
• 💼 The cost of being public has increased due to regulations like Sarbanes-Oxley Act, making it less attractive for companies to go public and more costly to remain so.
• 🛑 The regulatory response to financial crises, such as the Sarbanes-Oxley Act and Dodd-Frank, tends to regulate against the last crisis rather than anticipating the next, reflecting a reactive rather than proactive approach.
• 🌐 The discussion touched on the global impact of credit ratings, where a country's rating can limit the credit quality of its companies, leading to structures like asset-backed financing to bypass these limitations.
• 💡 The 'sandbox approach' to regulation in Cambodia is highlighted as a smart method for regulators to understand and adjust to new financial innovations, ensuring they are well-informed before they hit the market.
• 🔒 The need for smart and tough regulation that reflects market realities was underscored, with the understanding that such regulation can actually benefit financial institutions by building investor trust.
• 🔑 The role of ambiguity in regulation was discussed, with the suggestion that it can be beneficial in preventing companies from pushing the boundaries of what is permissible.
• 🔄 The crypto industry's push for less regulation and the debate over whether crypto assets like Bitcoin should be treated as securities or commodities was highlighted, reflecting ongoing tension in the regulatory landscape.

Q & A

What is the current trend in individual stock ownership in the US?

The trend shows that individual stock ownership in the US is becoming less common, with Americans increasingly exposed to the stock market indirectly through pension funds, insurance policies, and other institutional investments.

What does it mean for the US market to be more institutional?

An institutional market refers to one that is dominated by large, sophisticated institutions managing investments. Approximately 80% of the US market is institutional, indicating a shift away from individuals owning a lot of stock directly.

Why are companies choosing to stay private or go private?

Companies may choose to stay private or go private due to the high costs and regulations associated with being public, as well as the ability to access capital through more liquid and flexible private markets.

What was the Sarbanes-Oxley Act and why was it enacted?

The Sarbanes-Oxley Act was enacted in 2002 in response to corporate scandals like those involving Enron and Worldcom. It aimed to improve corporate governance and oversight to prevent such frauds.

How did the Dodd-Frank Act respond to the 2008 financial crisis?

The Dodd-Frank Act was a legislative response to the 2008 financial crisis, seeking to provide greater oversight, independence, and enforcement tools to prevent future crises and protect the integrity of financial markets.

What is the role of education in building trust in a new capital market like Cambodia's?

Education plays a critical role in informing consumers about the risks and operations of the market, which helps to build trust. An informed consumer base is more likely to engage with and support the market.

How does tough regulation benefit financial institutions and the market as a whole?

Tough regulation can benefit financial institutions by creating a more comfortable environment for customers, ensuring that their investments are protected from fraud and market abuses. This, in turn, can attract more investments and increase market liquidity.

Can you explain the concept of asset or receivable-backed financing?

Asset or receivable-backed financing involves setting up an offshore entity in a country with a higher credit rating to receive payments from high-quality customers. This allows the entity to raise funds at a lower cost, reflecting the true credit quality of the underlying assets or receivables.

What is the current regulatory approach towards crypto assets and NFTs in the US?

The regulatory approach towards crypto assets and NFTs in the US is subject to debate. The crypto industry is pushing for less regulation and clearer boundaries, while regulators are focused on consumer protection and preventing fraud.

What advice does Professor Charles White give to Cambodian regulators and potential investors regarding securities?

Professor White advises Cambodian regulators to focus on education to build trust and to maintain tough but smart regulation that reflects market reality. For investors, he recommends studying, diversifying investments, and understanding the risks involved based on their individual circumstances.

How does the 'sandbox' approach benefit new financial innovations?

The 'sandbox' approach allows new companies with innovative products to work closely with regulators, who can better understand the products and address regulatory issues. This helps to adjust regulations as necessary and ensures a smoother entry of new products into the market.