Markets crave predictability

Via Financial Times:

 

We need a world financial court with specialist judges

High-level financial crime is showing increasing disrespect for national boundaries too and can be just as overwhelming for a local judge.

We need to ensure that: (i) courts stay up-to-date with global financial market developments, (ii) judges have the requisite competence to unravel facts and apply laws that often pre-date and did not anticipate current practices (or that were too hastily drafted in response to political pressure) and (iii) the risk of a wrong decision contributing to systemic risk in a global, highly interconnected marketplace is mitigated.

Widespread usage of master agreements across geographical, cultural and language divides promotes legal certainty and huge cost efficiencies. But it could also amplify any mistake that a court makes in deciding a term’s proper meaning. As a result, the market may have a greater interest in the outcome of a particular case than two private parties who are litigating it.

Recognising this wider market interest is important. That is why we may need a mix of judges with legal training and experience, on the one hand, and lay experts, on the other.

We need judges that have not only common law training, but also judges with knowledge of civil code and Islamic finance concepts who collectively represent broad linguistic capability as well.

There is another challenge: to capture the collective experience of banking and legal architects who built the industry and understand the key issues.

Some have shown signs of wanting to “give back” and could be recruited to play a senior gate-keeping role as judges to preserve their legacy.

The current reliance on national tribunals of general jurisdiction and ad hoc arbitration is unsatisfactory. It is too decentralised, too inefficient and expensive and, perhaps most importantly, it is failing to produce a settled, authoritative body of law or the predictability that the markets crave and on which financial stability depends.

Do we need a world financial court? And if so, where would we put it? London and New York are obvious choices. Perhaps The Hague, a city which bills itself as “the legal capital of the world”, where it would be possible to leverage off a tradition of international court support and a pool of highly-trained and multi-lingual staff.

Think about it. We have special courts for everything from family law to tax. World trade benefits from the existence of the WTO tribunal and the dedicated bar that it has nurtured. International financial market law is no less global or systemically relevant than international trade law.

Some say that creating a truly world court is too ambitious, that it would take a long time to set up and we can’t wait. Maybe. However, if that is the case, we should roll up our sleeves, not put all our eggs in the regulatory basket, and start focused training for our judges on derivatives. Right away.

 

Posted via email from Jim Nichols