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The purpose of this paper is to investigate the role of social capital in the issuances of Rule 144A debt. Using a sample of 1,378 debt offerings from 1997 to 2015 in the US, this paper provides empirical evidence on whether and to what extent social capital affects the cost of Rule 144A debt.

This paper employs a county-level measure of social capital and links social capital to the yield spreads of Rule 144A debt. A Heckman selection model is sued to address the sample selection bias, and an instrumental variable approach and propensity score matching methodology are implemented to deal with the potential endogeneity issue. The authors check for robustness using an alternative measure of social capital.

The results of the analysis provide evidence that issuers headquartered in the counties with higher levels of social capital experience lower yield spreads in their Rule 144A debt offerings. The findings are robust to a Heckman selection model, an instrumental variable approach and propensity score matching. Furthermore, the analysis reveals the marginal effect of social capital that the effect of social capital is more pronounced for the issuing firms with higher agency cost of debt and lower institutional ownership. The effect of social capital is more prominent after financial crisis.

This paper provides novel evidence of the effect of social capital on the cost of privately placed debt. The issuances of Rule 144A debt are subject to significant information asymmetry and are targeted at sophisticated institutional investors. This paper sheds further light on how institutional investors incorporate the regional social capital in their pricing scheme of private placement of Rule 144A debt.

The purpose of this paper is to empirically test information asymmetry and agency conflicts hypotheses, as to firm's choices in selling preferred stock in public and private markets.

Using firm‐level preferred stock issue data, the author uses a multivariate logistic model to see a firm's different preferred stock selling decisions among public market, rule 144A market, and non rule 144A market. The paper examines the impact of the firm's idiosyncratic risk and cash flow volatility.

It is found that private placement (non rule 144A) firms have higher information asymmetry than public offering firms. In addition, private placement (rule 144A) firms have higher operating risk than public offering firms. The non Rule 144A market and rule 144A market for preferred stocks are significantly different.

This topic can be further studied with more detailed, preferred stock issue data.

The paper extends our understanding of the preferred stock market selling mechanism.

To explain the SEC's new Compliance and Disclosure Interpretations (“CDIs”) relating to the recently adopted amendments to Rule 144A and Rule 506, which permitted general solicitation and general advertising (“general solicitation”) in all Rule 144A offerings and select Regulation D offerings under Rule 506.

The article summarizes amended rules and recently issued CDIs, while also explaining some of their implications.

The new CDIs provide a number of helpful clarifications and confirmations on aspects of the amended rules relating to general solicitation, transitioning between different types of Rule 506 offerings and investor verification under Rule 506(c).

Practical summary of recent SEC guidance with explanation from seasoned corporate securities attorneys.

We examine the maturity structure in private placements of debt and relate it to contracting, signaling, tax, and liquidity risk considerations for firms. We find that firms with higher tax rates issue private placements of debt with longer maturities, consistent with the tax hypothesis. However, our results do not support the contracting, signaling, and liquidity risk hypotheses. In addition, the results are confined to the smaller firms in the sample, firms without a public debt rating, and debt issues not pursuant to Rule 144A. The evidence is consistent with smaller firms issuing private placements of debt to avoid monopoly rent extraction from banks.

This paper aims to investigate how firms from emerging economies choose among different international bond markets: global, US144A and Eurobond markets. The authors explore if the ranking in regulatory stringency –global bonds have the most stringent regulations and Eurobonds have the most lenient regulations – leads to a segmentation of borrowers.

The authors use a novel data set from emerging economy firms, treating them as consolidated entities. The authors also obtain descriptive evidence and perform univariate non-parametric analyses, conditional and multinomial logit analyses to study firms’ marginal debt choice decisions.

The authors show that firms with poorer credit quality, less ability to absorb flotation costs and more informational asymmetries issue debt in US144A and Eurobond markets. On the contrary, firms issuing global bonds – subject to full Securities and Exchange Commission requirements – are financially sounder and larger. This exercise also shows that following the global crisis, firms from emerging economies are more likely to tap less regulated debt markets.

This is, to the authors’ knowledge, the first study that examines if the ranking in stringency of regulation – global bonds have the most stringent regulations and Eurobonds have the most lenient regulations – is consistent with an ordinal choice by firms. The authors also explore if this ranking is monotonic in all determinants or there are firm-specific features which make firms unlikely to borrow in a given market. Finally, the authors analyze if there are any changes in the debt-choice behavior of firms after the global financial crisis.

The purpose of this paper is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notes issued in July and August 2008.

The paper provides excerpts from the June 2008 Supplement to the Options Disclosure Document; Regulatory Notice 08‐38, SEC Emergency Orders on Short Selling; Regulatory Notice 08‐39, Variable Insurance Products; Regulatory Not ice 08‐41, Portfolio Margin Program; Regulatory Notice 08‐42, SEC Rule 144 and TRACE Eligibility; and Regulatory Notice 08‐43, Trade Reporting and Compliance Engine (TRACE)

The Orders and Guidance in Regulatory Notice 08‐38 address the naked short selling of the securities of 19 public companies. Through Regulatory Notice 08‐39, FINRA proposes to update and consolidate the rules governing member firm communications with the public about variable insurance products. Regulatory Notice 08‐41 addresses margin requirements based on projected loss scenarios, and also discusses concentrated equity positions and day trading. Regulatory Notice 08‐42 notes that once a security meets the definition of “TRACE‐eligible security”, all secondary market transactions in such securities are “reportable TRACE transactions”. Regulatory Notice 08‐43 describes additional data elements in real‐time TRACE data that will identify transactions as either inter‐dealer or customer transactions and, in customer transactions, whether the dealer is on the buy or sell side.

These are direct excerpts designed to provide a useful digest for the reader and an indication of regulatory trends. The FINRA staff is aware of this summary but has neither reviewed nor edited it. For further detail as well as other useful information, the reader should visit www.finra.org

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued in January, February, and March 2010.

The paper provides excerpts from FINRA Regulatory Notice 10‐05, Deferred Variable Annuities; Regulatory Notice Regulatory Notice 10‐09, Reverse Convertibles, and Regulatory Notice 10‐14, Trade Reporting and Compliance Engine (TRACE).

(10‐05) FINRA Rule 2330 (formerly NASD Rule 2821) establishes sales practice standards regarding recommended purchases and exchanges of deferred variable annuities. No member shall recommend to any customer the purchase or exchange of a deferred variable annuity unless such member or person associated with a member has a reasonable basis to believe that the transaction is suitable in accordance with NASD Rule 2310 and, in particular, that there is a reasonable basis to believe that the customer has been informed, in general terms, of various features of deferred variable annuities. NASD Rule 2310 requires that, before recommending the purchase or sale of a security, firms must have a reasonable basis for determining that the product is both suitable for at least some investors, and suitable for each specific customer to whom it is recommended. (10‐09) Reverse exchangeable securities, commonly called “reverse convertibles,” are popular structured products with retail investors, due in large part to the high yields they offer. However, reverse convertibles are complex investments that often involve terms, features and risks that can be difficult for retail investors and registered representatives to evaluate. (10‐14) FINRA believes that it is important to provide access to historical transaction‐level data through the Trade Reporting and Compliance Engine (TRACE), particularly for research purposes.

These are direct excerpts designed to provide a useful digest for the reader and an indication of regulatory trends. The FINRA staff is aware of this summary but has neither reviewed nor edited it. For further detail as well as other useful information, the reader should visit www.finra.org