Regulation of Online Investing (Laws 3088)

COURSE INFORMATION AND TIMETABLE

 

LECTURER :        Prof. Dimity Kingsford Smith

Room 1142

Ph: 9385 2245

e-mail : d.kingsfordsmith@unsw.edu.au

 

CLASSES:            Semester 2, 2006, Tuesdays 6-8pm.

 

CLASS VENUE:   AGSM City Premises, O’Connell St, Sydney, 2000.

 

SUBJECT DESCRIPTION AND OBJECTIVES

 

 

There are 1.5 million online investors in Australia, and the ASX estimates that 30% of all trades are done by electronic means. Privatisations, demutualisations and compulsory superannuation choice and investment mean that most Australians will be active in the investment markets at some time in their lives. Attracted by convenience and low fees, many will invest online. There is now a substantial body of law and policy in the area of financial regulation, addressed specifically to online financial transactions and to the fact that most markets are electronic and no longer traditional.

 

 

The course will begin with an introduction to the Internet and the institutions and new business types that have grown up around the online investing industry. It will then consider the relevance of the Australian Financial Services Licensing provisions to these online market operators. The course will go on to consider the operating conditions of online brokers, and the legal and practical implications of their customer relations. The subsequent parts of the course will cover public securities and financial products offerings and electronic offering documents, the challenges to traditional exchanges from alternative trading systems and electronic communications networks and how these might be regulated. Internet fraud, market manipulation and misleading and deceptive conduct in online financial services will be covered next followed up by an analysis of the enforcement and liability implications of a number of the topics previously considered during the course.

 

As the course proceeds it will tackle a number of issues which have particular salience in the online context: online investing from an international, rather then simply Australian perspective. Behavioral finance and what it and other research on user’s responses to the Internet tell us about online investor decision-making and the implications for regulation; restructuring of financial relationships and the loss of regulatory ‘gate-keepers’ eg the loss of advisory brokers; the implications for regulation of the overwhelming amounts of financial information available, much of it for free; the appearance of new actors such as day-traders who combine the attributes of professional and non-professional investors; the difficulties of regulating an inter-jurisdictional industry taking account of developments in other countries and through trans-national bodies such as IOSCO. Some observations on regulatory policy and practice in relation to online delivery of financial services will also be explored as they arise. 

 

     Classes will combine some lecturing with mainly seminar discussion format, based on prepared materials. A set of reading materials will be available and students will be expected to have read and considered these in response to questions in the reading guide, in advance of class.

 

     Students will have a mix of assessment options, primarily a research essay, some team work assessment tasks for class participation as the course progresses (eg class presentation), and a short piece of writing to be handed in at the end of week 6 of the course, outlining the student’s essay topic and approach.

 

     The course will be offered drawing on the expertise and connections of the Australian Research Council Discovery online investing project already underway in the UNSW Law Faculty. More information and resources can be found at www.cyberlawcentre.org/onlineinvesting/

 

 

 

1	25 July	Introduction (week 1) Introduction to the course and overview of course content Take up, operation and relevance to financial markets of information and telecommunications technology and particularly the Internet Formation of class assignment groups and discussion of assessment
2	1 August	The institutions and businesses of online investing (week 2) ·        Understanding the context of an online investing transaction Virtual visit to an online investing site Data providers, financial information portals, investing software vendors, online investing newsletters and ‘tip-sheets’, investing bulletin boards and chat rooms (Internet discussion sites) The role of the ASX and ASIC
3	8 August	Who needs a financial services licence? (week 3) Licensing of online broking sites and ASX regulation of ‘participating’ brokers; What is ‘advising’ in online investing, and when must it be licensed?   What is ‘dealing’ in online investing, and when must it be licensed? Instances of unlicensed online investing activity
4	15 August	License and operating conditions for online investing sites (week 4) What licence conditions and operational requirements are particularly relevant to online investing? What disclosure requirements (eg FSG provision) must be met? Dispute resolution arrangements Consider the particular case of Internet discussion sites
5	22 August	Customer relations and online investing sites (week 5) Key terms and conditions of customer agreements especially disclaimers, commission rates and automatic and margined credit Account opening, authentication and signing of customer agreements Straight through processing, operational capacity, limit orders and confirmation of transactions The non-advisory nature of online investing, data-mining and the suitability requirement
6	29 August	Public offerings and electronic offer documents (weeks 6 & 7) ·        Corporate fundraising and electronic prospectuses, including multi-media offer documents Comparisons with recent US reforms to securities offerings Advertising and ‘free writing’
7	5 September	Public offerings and electronic offer documents (weeks 6 & 7) ·        Financial products and electronic product disclosure statements ·        The particular case of superannuation offered online
8	12 September	The challenge to traditional stock exchanges: automated trading systems and electronic communication networks (week 8)  The challenge to traditional stock exchanges from new electronic trading platforms and proprietary trading systems Are ATS and ECNs ‘stock exchanges’? How should they be regulated? Should they have data collection/dissemination and regulatory roles?
9	19 September	Fraud, market manipulation and misleading conduct in online investing (weeks 9 & 10) The various types of fraudulent, manipulative and misleading schemes, and how they use online investing processes (eg ‘pump-and-dump’ schemes) Appropriate Corporations Act for dealing with main types of schemes ASIC approaches to dealing with contraventions Enforceable undertakings and unlawful online investing behaviour
break   10	Weeks 25 September  & 2 October (Week 10)	Mid-session break   Law Faculty Reading Week (for essays etc)
11	10 October	Fraud, market manipulation and misleading conduct in online investing (weeks 9 & 10) The various types of fraudulent, manipulative and misleading schemes, and how they use online investing processes (eg ‘pump-and-dump’ schemes) Appropriate Corporations Act for dealing with main types of schemes ASIC approaches to dealing with contraventions Enforceable undertakings and unlawful online investing behaviour
12	17 October	Enforcement and liability (week 11) ASIC investigatory, sanctioning and enforcement powers especially in the inter-jurisdictional context Facilitative or prosecutorial styles of regulation.  The current debate about civil or criminal approaches and pyramidal approach to enforcement policy ASIC Internet supervision and enforcement actions ASIC and court powers to conform orders to particular circumstances of online investing Investigation and enforcement approaches in other countries ·        Limits of international principles – IOSCO principles – Memoranda of Understanding (MOU) – global networks of regulatory principles.
13	24 October	The future? (week 12) §         Day traders – professional or ordinary investors? §         Education and building financial capacity in the online investor? §         General or personal advice online – a distinction without a difference? §         Is online trading just gambling, dressed up as investment? §         Does this subject have a future – won’t it be just securities and financial services regulation again, because soon we will all invest this way?
14	30 October	Revision and essay return

 

TEACHING METHOD

Classes will combine lecture format and seminar discussion based upon prepared materials. A detailed Reading List will be made available to those who enrol in the course. There is no text book which adequately covers this area.  Materials will be made available at the beginning of the semester, probably by Web-CT. Students will be expected to have read the assigned materials in advance of each class.

 

 

 

 

 

ASSESSMENT

 

1	Short written outline of essay, 1000 words Due date:  September 2006.	10% of final assessment
2	Short class presentation and general class participation; Date to be arranged in class	30% of final assessment
3	Compulsory research essay of 5,000 words Due date:  December 2006	60% of final assessment

 

1.      Short written outline of essay (10% of assessment): The due date for the essay  outline is September 2006.

2.      Compulsory Research Essay Question (60% of assessment):

The compulsory research essay of 5,000 words is due December 2006. Students are encouraged to choose a topic of their own. It may be helpful to choose something in an area of work interest, or which reflects their own experience in another way – eg arising from having online investing as a hobby or interest. The topic should be one which raises contemporary issues of regulatory or public interest significance or which has legal impact on investor’s rights or the working of the markets (broadly understood). Students are reminded that this is a master of laws course, and that credit will be given for legal and regulatory policy and legal theoretical arguments. Credit will not be given for simple description of the law, nor for pure description of the online investing context – the aim is to encourage analysis of real regulatory problems and what might be done about them.

3.      Short Class Presentation and Class Participation (30% of assessment): The course will be run with an initial introduction of approximately 30 minutes of the 2 hour seminar each week. The remaining 1.5 hours will be for discussion. In the Reading Guide for the course there are a number of questions for discussion each week. Each week the groups formed at the beginning of the course will choose from the listed questions, and make a short (5 minute) presentation in response to the chosen question.  The group should be prepared to lead in discussion in a general way for the whole of the remainder of the class at which it makes its presentation.

            a)  A compulsory presentation. 

Students will be assigned a class and will be expected to provide the rest of the class with a short presentation on the topic of the night.  Further details about this exercise will be given to students in the first lecture, when the assignment of classes will also be addressed.

b)  Participation in class over the course of the semester.

Attendance at all classes will not guarantee a pass grade for this component of the course.  Your mark will be based upon the quality, not quantity of your contributions. You will be rewarded for oral contributions which demonstrate that you have read the assigned materials and reflected on the issues raised.  This includes coming to class prepared with questions about issues that you have not understood or which you think require further discussion, as well as participation in any class discussions of problem exercises or other in-class exercises that may take place from time to time. 

At the end of session, we will ask each of you to assess your contribution to class in writing according to set criteria and giving reasons. While we are not bound by your self-assessment, we will take it into account and if your mark differs significantly from that which you think you deserve you can request reasons why.

SPECIAL NOTE: Students who believe they have difficulties in making oral presentations or speaking in class should discuss this with the lecturer. 

Criteria for Assessment of Class Participation

·         Substantive dimensions of assessment are similar to those used in assessing written work. Students should seek to show that they understand the application of, and underlying reason for the use of, the skills emphasised in the lectures.

·        Students will be assessed on the quality rather than the quantity of their contributions. Nevertheless, it is difficult to award marks to students who are absent or who do not participate in the lecture discussion and exercises. In order to obtain a passing grade, it is ordinarily essential to:

i) attend regularly;

ii) enthusiastically participate in the lecture discussions and exercises.

·        The following descriptions are of "typical" levels of performance in certain categories of marks. The categories are based on total marks of 20 for class performance:

 

ACADEMIC ASSISTANCE

The Learning Centre at the University of New South Wales provides Online Academic Skills Resources at http://www.lc.unsw.edu.au/olib.html to help students develop skills in areas such as essay and assignment writing.

The Learning Centre also offers individual assistance for any study-related concern to all UNSW students enrolled in degree programs. You can make an appointment for help with academic writing on an individual basis.  The Learning Centre does not teach English, however you can use the Learning Centre resources to improve your language.  The resource library can be accessed at http://www.lc.unsw.edu.au/ILC.html.  Any students wanting English language tuition should inquire at the Institute of Languages, whose homepage can be found at http://www.lang.unsw.edu.au.

UNIVERSITY POLICY ON ASSESSMENTS AND ACADEMIC MISCONDUCT

Information produced by the UNSW Law School regarding assessments can be located at http://www.law.unsw.edu.au/current_students/admininfo/assessment.asp.  Please pay particular attention to the penalties for submitting assignments after the due date or exceeding word limits.

The UNSW Academic Misconduct Policy can be viewed at

https://my.unsw.edu.au/student/academiclife/assessment/AcademicMisconductStudentMisconduct.html

Students should familiarise themselves with these policies and consult them throughout the course when needed.

 

·        Corporations Act 2001, the 2006 edition.

·        Baxt R, Black A, Hanrahan P, Securities and Financial Services Law (Butterworths, 2003).

·        Collection of reading materials for this course.

·        Kinsky, R, Online Investing On the Australian Sharemarket (2^nd edition, 2005; Wrightbooks).  

·        H M Friedman Securities Regulation in Cyberspace (2004 Aspen)

·        J F Olsen & H L Pitt Securities in the Electronic Age: A Practical Guide to the Law and Regulation (Glasser Legal Works, 2000)

·        CLERP: Paper No. 6, Financial Markets and Investment Products,1997.

·        Tomasic, Roman, Bottomley, Stephen, and McQueen, Rob, Corporations Law in Australia (2^nd ed, 2002)

·        Walker, Gordon, Fisse, Brent and Ramsay, Ian (ed), Securities Regulation in Australia and New Zealand (LBC, 2^nd ed, 1998)

·        Walker, Gordon & Fisse, Brent (ed), Securities Regulation in Australia and New Zealand (Oxford, 1^st ed, 1994)

·        Braithwaite J and Drahos P, Global Business Regulation (CUP, 2000)

·        Baldwin, Robert and Cave, Martin, Understanding Regulation (Oxford, 1999).

·        Financial System Inquiry Discussion Paper (November 1996).

·        Financial System Inquiry Final Report (March 1997).

·        International Organisation of Securities Commissions (IOSCO), Multilateral Memorandum of Understanding, Concerning Consultation & Cooperation and the Exchange of Information (May 2002) <http://www.iosco.org/iosco.html>

·        International Organisation of Securities Commissions (IOSCO), Objectives and Principles of Securities Regulation, (February 2002) <http://www.iosco.org/iosco.html>

·        Loss, Louis, Fundamentals of Securities Regulation, (2001).

Cyber-securities Law Institute, Faculty of Law, University of Toledo, USA:

http://law.utoledo.edu/Cybersecurities/

 

John Stark Reed, Head Cyber-enforcement, Securities and Exchange Commission, Washington DC, USA:

http://www.johnreedstark.com/

 

Australian Securities and Investments Commission, especially those items dealing with online investing:

http://www.asic.gov.au/
http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/online_trading.pdf/$file/online_trading.pdf

 

Australian Securities and Investments Commission, FIDO web-page:

http://www.fido.asic.gov.au/

 

Securities Exchange Commission, Washington DC, USA:

http://www.sec.gov/

 

Financial Services Authority, London, UK:

http://www.fsa.gov.uk/
http://fsahandbook.info/FSA/index.jsp

 

Australian Online Investing Websites listed in chapter 3 of Kinsky, R, Online Investing On the Australian Sharemarket (2^nd edition, 2005; Wrightbooks), or those at

http://cyberlawcentre.org/onlineinvesting/refs/refs-I.html 

 

 

Class attendance

Attendance at classes is compulsory.  If you attend less than 80% of classes without reasonable excuse you may be refused final assessment.

 

Illness or Misadventure

If your performance is affected by illness or misadventure you should notify your teacher as soon as possible, preferably with a medical certificate or other documentary evidence of your special circumstances. 

 

Late work

If you fail to submit work for assessment on time you will find that marks will be deducted for lateness, unless you have obtained an extension from me prior to the date for submission.  The penalty applied will be at the rate of 5% of the marks for each day or part thereof that the essay is late up to a maximum of 50% penalty.

 

Plagiarism

All work submitted in this course for assessment must be your own work.  It should not be written in collaboration with any other student, lawyer or professional person to whom you may have access.  You may of course in preparing work for assessment, consult your teacher and the Law Librarians. 

 

All work submitted in this course for assessment must have been generated for this course alone.  In other words, you should not submit for assessment work which you may have completed for another course or professional requirement. 

 

Plagiarism (the use of another person’s words and ideas without appropriate acknowledgement) will not be tolerated.  You must observe the Faculty rules on plagiarism.  For further information, please refer to the Faculty’s information section, Academic Misconduct, at the following address: http://www.law.unsw.edu.au/Current_Students/adminInfo/misconduct/index.asp

 

Word limits

Strict word limits will apply to all assessed work.  In calculating the number of words, all text, footnotes (including citations of references), tables, and appendices will be included.  The bibliography will not be included in the word limit. 

 

Penalties will apply to assessed work which exceeds the word limit as follows:

 

0-10%	No penalty
11-29%	15% penalty
30% and over	30% penalty

 

Marking

Your teacher in Financial Services Regulation is committed to ensuring that all marking is fair and comparable across all class groups.  All HD and fail papers are double-marked.  Your teacher will also be expected to produce roughly similar marking profiles for their classes. 

 

If you wish to query a mark awarded to you for any of your assessment tasks, you must follow this procedure:

·        Approach your teacher no earlier than three days after the assessment task is returned to you to request feedback.  Your teacher will provide you with feedback on your performance.  Please note that it is unusual for a teacher to alter his or her original mark, except to correct a manifest mathematical error. 

·        If you are still dissatisfied with your mark, you may approach the course convenor to arrange for another teacher to informally review the paper.  The course convenor must be satisfied that the student sought and obtained feedback on the assessment task in question.  The reviewer will not mark the paper afresh, but will only determine whether the mark is fair and reasonable (i.e., within 3-5 marks of what the work is worth).  The reviewer will make a non-binding recommendation to the original teacher, either recommending that the original mark stand or that the mark be adjusted upwards or downwards. If the teacher accepts the reviewer’s recommendation, any substituted mark — including a lower mark — will become final.

·        If you are still dissatisfied after this process, you may formally appeal your mark.  Please consult university rules for the necessary procedures.  You may be charged an administrative fee.