IRRCi, IRRCi Research
Wednesday, September 3, 2014
Webinar on September 24th at 11 AM ET to Review Findings
NEW YORK, NY, September 4, 2014 – New academic research that serves as guide to high-frequency trading proposes an innovative solution to mitigate key problems created by high-frequency trading while simultaneously maintaining its benefits. The research from Stevens Institute of Technology sets forth a new “information transmission zoning” concept solution.
Traders located within the innermost zone – defined as the zone wherein the trader receives prices prior to the general market – would be considered market makers and therefore be required to obey Securities and Exchange Commission (SEC) market maker regulations. Traders outside this zone could act as traders. Drawing this distinction would create a fair playing field with respect to the dissemination of price information without decreasing liquidity.
Additionally, adopting this approach would require minimal financial information flow re-architecting, would build on the SEC’s National Market System (NMS), and would not require any major change in regulation or regulatory authority, according to the authors. Commissioned by the Investor Responsibility Research Center Institute (IRRCi), the research was conducted by Khaldoun Khashanah, Ph.D., Ionut Florescu, Ph.D. and Steve Yang, PhD., all of Stevens Institute of Technology Financial Engineering Division.
Jon Lukomnik, IRRCi executive director said, “The disruptive nature of high frequency trading technology is feeding into the perception that traders are gaming the system. So the question is: How do you keep the benefits, mitigate the problems and eliminate any unfairness? Finding a solution is an imperative, or we risk compromising trust in and the integrity of the financial markets. We hope this new research provides a sensible solution that can be implemented with little pain and big gain,” he said.
“High-frequency trading is a highly disruptive technology that has turned upside down traditional relationships between physical distance, time and information flow. Before us now are complex issues of how to regulate this unchartered territory of micro-second trading and the inter-relationships between space, time, information flow, market structure and trading rules,” says Khaldoun Khashanah, Ph.D, report lead author with Stevens Institute of Technology Financial Engineering Division. He explained, “Our examination of these new inter-relationships has resulted in our concept of information transmission distance, or how long it takes to get financial information from point A to point B in this new world of computer-generated algorithmic trading that moves virtually at the speed of light. Understanding information transmission distance criteria and systemic latency leads to our concept of ‘information transmission zoning’ that can be applied in conjunction with the SEC’s National Market System without the need for major, new regulations.
“The ‘traditional’ investor represent a, sizable, long-horizon portion of the equities market, while high-frequency trading is a transient component that can trigger substantial market instability. Our research seems to offer a pragmatic solution where investors – whether high or low frequency; whether holding for milliseconds or years – can coexist in the same market while adhering to trading rules for access, fairness, and transparency,” Khashanah concluded.
A practitioner summary of the research, High Frequency Trading: A White Paper and an Innovative Solution To Address Key Issues, is available here.
The full academic research study, On The Impact and Future of HFT: White Paper, is available here. A webinar to review the research and respond to questions is scheduled for Wednesday, September 24, 2014, at 11 AM ET. Register here or at https://www1.gotomeeting.com/register/681845673.
The Investor Responsibility Research Center Institute is a nonprofit research organization that funds academic and practitioner research that enables investors, policymakers, and other stakeholders to make data-driven decisions. IRRCi research covers a wide range of topics of interest to investors, is objective, unbiased, and disseminated widely. More information is available at the IRRCi Website.
Stevens Institute of Technology Stevens Institute of Technology, The Innovation University, is a premier, private research university situated in Hoboken, N.J. overlooking the Manhattan skyline. Founded in 1870, technological innovation has been the hallmark and legacy of Stevens’ education and research programs for more than 140 years. Within the university’s three schools and one college, more than 6,100 undergraduate and graduate students collaborate with more than 350 faculty members in an interdisciplinary, student-centric, entrepreneurial environment to advance the frontiers of science and leverage technology to confront global challenges. Stevens is home to four national research centers of excellence. More information is available at www.stevens.edu.
IRRC Media Contact: Kelly Kenneally +1.202.256.1445 | kelly@irrcinstitute.org
Stevens Institute Media Contact: Danielle Woodruffe +201.216.5139 | danielle.woodruffe@stevens.edu
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IRRCi, IRRCi Research
Monday, August 18, 2014
Available via PR Newswire.
IRRCi, IRRCi Research
Wednesday, July 30, 2014
Webinar on August 20, 2014 to Review Report Findings
New York, NY, July 31, 2014 – – A new report from PwC US and the Investor Responsibility Research Center Institute (IRRCi) indicates that while companies must disclose significant cyber risks, those disclosures rarely provide differentiated or actionable information. The report examines key cybersecurity threats to corporations and provides information to investors struggling to evaluate investment risk, business mitigation strategies, and the quality of corporate board oversight.
“Cybersecurity has moved from the back office to the corporate board room because it poses a deep threat to a company’s bottom line and reputation,” said Jon Lukomnik, executive director of the Investor Responsibility Research Center Institute (IRRCi). “The reality today is that virtually every company is reliant on information and technology, so not one company or sector is left out.”
Lukomnik added, “The severity of the gap between the magnitude of cybersecurity threat and the lack of steps boards have taken to address the risks is a key issue for investors and policy makers alike. In recent weeks both Securities and Exchange Commissioner Luis Aguilar and Treasury Secretary Jack Lew have made public comments regarding cybersecurity issues.” Lukomnik explained, “Even when Boards do act, investors often feel in the dark on cybersecurity. First, it’s dynamic and highly technical. Second, companies can be reluctant to disclose details on threats because they are concerned about providing hackers with a roadmap to vulnerabilities.”
What Investors Need To Know About Cybersecurity: How to Evaluate Investment Risks was commissioned by IRRCi and authored by Kayla Gillan, leader of PwC’s Investor Resource Institute, and PwC Advisory principals Joe Nocera and Peter Harries. Both Nocera and Harries are leaders in PwC’s cybersecurity practice.
“This report is designed to help investors begin to navigate critical cybersecurity issues, with a focus on sector-specific portfolio risk,” said Gillan. “It outlines cybersecurity trends, industry threats and strategies investors can pursue to evaluate risk, even with limited information.”
The report suggests that investors focus on corporate preparedness for cyber attacks, and then engage with highly-likely targets to better understand corporate preparedness, and to demand better and more actionable disclosures (though not at a level that would provide a cyber-attacker a roadmap to make those attacks).
“The consequences of poor security include lost revenue, compromised intellectual property, increases in costs, impact to customer retention, and can even contribute to C-level executives leaving companies,” said Nocera. “This paper can help investors ask the ‘right’ questions to assess the level of risk they may be facing.”
The study suggests investors ask the following key questions:
- Does the company have a Security & Privacy executive who reports to a senior level position within the company?
- Does the company have a documented cybersecurity strategy that is regularly reviewed and updated?
- Does the company perform periodic risk assessments and technical audits of its security posture?
- Can senior business executives explain the challenges of cybersecurity and how their company is responding?
- What is the organization doing to address security at its business partners?
- Has the company addressed its sector-based vulnerability to cyber attack?
- Does the organization have a response plan for a cyber incident?
The study also outlines common motivations for cyber-attacks, by industry sector, based on PwC experience: ![]()
The full report is available here A webinar to review the findings and respond to questions is scheduled for Wednesday, August 20, 2014 at 2 PM EDT. Register here.
The Investor Responsibility Research Center Institute is a nonprofit research organization that funds academic and practitioner research that enables investors, policymakers, and other stakeholders to make data-driven decisions. IRRCi research covers a wide range of topics of interest to investors, is objective, unbiased, and disseminated widely. More information is available at the IRRCi Website.
PwC’s Investor Resource Institute
Through the Investor Resource Institute, PwC strives to provide insights to, and recieve insights from, the investment community. We offer our views on accounting, auditing, corporate reporting, data security, and a myriad of other issues; as well as transparency about what we do that may be of interest to investors. We host events large and small, that are designed to strengthen the bridge not only between PwC and the investment community, but also between investors and others.
About PwC US
PwC US helps organizations and individuals create the value they’re looking for. We’re a member of the PwC network of firms in 157 countries with more than 184,000 people. We’re committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com/US. Gain customized access to our insights by downloading our thought leadership app: PwC’s 365™ Advancing business thinking every day.
Learn more about PwC by following us online: @PwC_LLP, YouTube, LinkedIn, Facebook and Google +.
© 2014 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC US refers to the US member firm, and PwC may refer to either the PwC network of firms or the US member firm. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
IRRC Media Contact:
Kelly Kenneally
+1.202.256.1445 | kelly@irrcinstitute.org
PwC US Media Contact:
Steven Silber
646-471-4059 (o); 914-954-1028 (m) | steven.g.silber@us.pwc.com
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IRRCi, IRRCi Research
Monday, June 16, 2014
This article is available via CNBC.
IRRCi, IRRCi Research
Wednesday, June 11, 2014
NEW YORK, NY, June 12, 2014 – Two academic research papers that promise to spark new scrutiny of corporate actions such as mergers and acquisitions have won the prestigious Investor Responsibility Research Center Institute (IRRCi) annual investor research competition that focuses on the interaction of the real economy with investment theory. One research paper documents that informed trading of equity options prior to takeover announcements is more pervasive than would be expected, while the other examines managers’ incentives to “play it safe” with actions such as buying “cash cow” companies in diversifying industries.
“Both research papers have the potential to change how we look at key aspects of corporate transactions such as mergers and acquisitions,” said IRRCi executive director Jon Lukomnik. “One paper indicates that we may have a significant and systemic insider trading problem. The other winning research paper provides empirical evidence that managers often destroy value through diversifying acquisitions to insulate themselves from difficult financial situations,” he explained.
Lukomnik is set to recognize the following winners at the Columbia Law School 2014 Millstein Governance Forum, The State of Corporate Governance, at the Gala Dinner scheduled for June 12, 2014, in New York City. The winning research teams will be presented with a $10,000 award for each paper.
- Informed Options Trading prior to M&A Announcements: Insider Trading? by Patrick Augustin, Assistant Professor of Finance, McGill University; Menachem Brenner, Research Professor of Finance at New York University Stern School of Business; and Marti G. Subrahmanyam, Charles E. Merrill Professor of Finance, Economics and International Business, New York University Stern School of Business. Download the research here.
- Playing it Safe? Managerial Preferences, Risk, and Agency Conflicts by Todd A. Gormley, Assistant Professor of Finance at The Wharton School at the University of Pennsylvania; and David Matsa, Associate Professor of Finance at the Kellogg School of Management at Northwestern University. Download the research here.
“We became intrigued by reports of a number of illegal insider trading cases in options ahead of takeover announcements, in particular the leveraged buyout of Heinz by Warren Buffet and 3G Capital,” said award winner Patrick Augustin. “Hence, we set out to investigate whether instances of informed trading in options occur systematically or whether they were just random bets. The statistical evidence we present is consistent with informed trading strategies, and is too strong to be dismissed as just random speculation. Our findings likely will be highly useful to regulators, firms and investors in understanding where and how informed investors trade,” Augustin added.
Award winner David Matsa said, “Our research finds that all too often, corporate executives of struggling firms shy away from taking the risks necessary to maximize shareholders’ return. When not disciplined by the threat of a hostile takeover, distressed firms are more likely to hoard cash and acquire firms in unrelated industries. In these situations, the traditional solutions to managerial agency conflicts are counterproductive because high corporate debt levels and large managerial equity stakes only exacerbate managers’ tendency to play it safe.”
“The Millstein Center is very pleased to be affiliated with and to host the announcement of the IRRC Institute Annual Investor Research Award. The type of deep, provocative research that the IRRCi supports through these awards is critical to the fields of corporate governance, economics, and finance,” said Ira Millstein, co-chair of the Millstein Center for Global Markets and Corporate Ownership at Columbia Law School.
The IRRCi Investor Research Award fills a vacuum by fostering critical research that integrates investment theory and the real world economy. Along with previous winning research, this year’s winning academic papers will be valuable tools for investors, policymakers, academia, and other stakeholders in terms of rethinking assumptions, testing conventional wisdom and helping to improve the investment landscape.
The following panel of renowned judges reviewed the submissions and selected the two winning papers:
- Mark Anson Chief Investment Officer, Acadia Investment Management
- Collette Chilton Chief Investment Officer, Williams College
- James Hawley Professor and Director of the Elfenworks Center for Fiduciary Capitalism at St. Mary’s College
- Robert J. Jackson, Jr. Faculty Co-Director, Ira M. Millstein Center for Global Markets and Corporate Governance and Associate Professor of Law and Milton Handler Fellow at Columbia Law School
- Erika Karp Founder and Chief Executive Officer, Cornerstone Capital Inc.
- Bill Miller Chairman, Chief Investment Officer & Portfolio Manager, Legg Mason Capital Management
- Nell Minow Co-founder and Board Member, GMI Ratings
To learn more about the award, see:
About The IRRC Institute
The IRRC Institute is a not-for-profit organization that provides thought leadership at the intersection of corporate responsibility and the informational needs of investors. More information is available at the IRRCi Website.
IRRC Award Contact:
Jon Lukomnik
+1.212.344.2424 | jon@irrcinstitute.org
IRRC Media Contact:
Kelly Kenneally
+1.202.256.1445 | kelly@irrcinstitute.org
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IRRCi, IRRCi Research
Monday, April 21, 2014
Webinar on Tuesday, April 29th at 1 PM ET to Review Findings.
New York, NY, and Washington, D.C., April 22, 2014 – – Corporate boards are exceeding legal oversight requirements on environmental and social issues, with more than half of S&P 500 companies providing board level oversight of environmental and/or social issues above and beyond that required by law. Board Oversight of Sustainability Issues finds that many industries subject to scrutiny – paper, forestry, healthcare, utility companies – are among the most likely to have board oversight of sustainability issues. But, the retail sector lags despite criticism for recycling and labor and human rights practices.
Commissioned by the Investor Responsibility Research Center Institute (IRRCi) and released on Earth Day, the study was conducted by the Sustainable Investments Institute (Si2). A webinar is scheduled for Tuesday, April 29, 2014 at 1 PM ET to review the findings and respond to questions. Download the research here. Register for the webinar here.
“The sizable percentage of S&P 500 companies elevating environmental and social issues to the board level reflects the growing understanding among directors and executives of the financial risks and opportunities of sustainability and to the importance to long-term corporate planning,” said Jon Lukomnik, IRRCi executive director.
While sustainability has been a concern of corporations and investors for years, there has been little research focused on how boards oversee a company’s sustainability efforts. This research sets out to fill that gap. It offers an industry-by-industry analysis, along with other detailed analyses such as correlations between revenue and net income for companies with board oversight of environmental and social issues.
“The report identifies key trends on issues and industries, which seem to be a direct reflection of public scrutiny and industry risk exposure,” said Peter DeSimone, report author and cofounder and deputy director of Si2. “For example, energy companies have long been targets of sustainability proponents. It’s logical that these companies would be among the most likely to have Board oversight of environmental issues.”
“But that simple rationale is confounded by the retail sector – the fourth least likely to have board oversight – despite the fact that the industry has been under fire on issues ranging from sweatshops to recycling practices. The same holds true for technology hardware companies that battle accusations surrounding supply chain labor and human rights abuses, and are enveloped in reporting on conflict minerals as required by Dodd-Frank,” DeSimone added.
Among the findings of Board Oversight of Sustainability Issues are:
- Boards of 55.4 percent of S&P 500 companies have explicit oversight responsibilities for social and/or environmental issues.
- About a third of the companies with board level oversight of sustainability issues have assigned that responsibility to the Corporate Governance and Nominating Committee (34%) and about the same amount assigns it to a Public Affairs or Sustainability Committee (32%). The remainder places the responsibility in other committees or delegates it to the board as a whole.
- Social issues (55 percent) were more often covered by board oversight structures and policies than environmental topics (33 percent). One reason may be that 42% of the S&P 500 companies have the board monitor political spending.
- Most companies with board oversight of sustainability issues have established independence standards for those committees (81 percent) and permitted them to hire outside counsel, advisors and experts at their sole discretion (92 percent). However, only five percent had set explicit sustainability expertise standards for members of these committees.
- The paper and forestry (100 percent), healthcare services (93 percent), oil and gas (81 percent), utilities (80 percent) and aerospace and defense (80 percent) industries were the most likely to have board oversight of sustainability issues, while the real estate (29 percent), construction and engineering (33 percent), technology hardware (33 percent), retail (34 percent), industrials (35 percent) and media (35 percent) sectors were the least likely.
- There was a strong correlation between company size, as measured by revenue and net income, and the rate of board oversight of sustainability issues. Top quintile companies by revenue were more than three times more likely to have Board oversight of environmental and/or social issues than those in the bottom quintile.
The findings are based on a review of committee charters and sustainability reporting conducted in the final quarter of 2013. The study excluded the issue of ethics, as all U.S. publicly-traded companies are required to at minimum have audit committees review fraud and other ethical lapses as a result of the Sarbanes-Oxley Act of 2002.
The Investor Responsibility Research Center Institute is a not-for-profit organization headquartered in New York, NY, that provides thought leadership at the intersection of corporate responsibility and the informational needs of investors. More information is available a the IRRCi Website
IRRC Media Contact
Kelly Kenneally
+1.202.256.1445
kelly@irrcinstitute.org
The Sustainable Investments Institute (Si2) provides institutional investors with in-depth, impartial analysis of environmental and social policy shareholder resolutions filed at U.S. companies. It also is an incubator for empirical research on emerging sustainability topics and corporate and investor responsibility issues. More about Si2 is at www.siinstitute.org.
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