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To explain actions the US Securities and Exchange Commission (SEC) brought on August 27, 2018, against a group of affiliated investment advisers and broker-dealers for what the SEC considered misleading and insufficient representations and disclosures, insufficient compliance policies and procedures, and insufficient research and oversight concerning the use of faulty quantitative models to manage certain client accounts.

Explains the SEC’s findings concerning the advisers’ and broker-dealers’ failure to confirm that certain models worked as intended, to disclose the risks associated with the use of those models, to disclose the role of a research analyst in developing the models, to disclose the use of volatility overlays along with the associated risks, to determine whether a fund’s holdings were sufficient to support a consistent dividend payout without a return of capital, and to take sufficient steps to confirm the advertised performance of another investment manager whose products they were marketing. Provides insight into the SEC’s position and offers key takeaways.

These cases are significant for advisers who use quantitative models to implement their investment strategies in the management of client accounts and signal the SEC’s continued focus on investment advisers’ compliance with disclosure obligations to discretionary account investors.

Each manager should consider its own facts and circumstances, and should consult with counsel, in assessing how and to what extent to incorporate the SEC’s conclusions in crafting disclosure and other communications with investors on matters such as adequate representations, testing and validation of models, disclosure of errors, and verifying performance claims.

Practical guidance from experienced securities lawyers.

To explain the US Securities and Exchange Commission (the “SEC”) staff’s (the “Staff”) participating affiliate exemption from investment adviser registration for foreign advisers set forth in a line of Staff no-action letters issued between 1992 and 2005 (the “Participating Affiliate Letters”) and to discuss recent guidance issued by the Staff in an information update published in March 2017 (the “Information Update”) with respect to complying with requirements of the Participating Affiliate Letters.

Reviews the development of the Staff’s approach regarding the non-registration of foreign advisers that rely on the Participating Affiliate Letters from prior to the issuance of those letters through the Information Update and sets forth recommendations for registered investment advisers and their participating affiliates.

While there are arguments that the Information Update goes beyond restating established standards and does not clearly explain whether submission of all listed documentation is required, the Information Update will likely standardize the information submitted to the SEC.

Practical guidance for advisers relying on the Participating Affiliate Letters from experienced securities and financial services lawyers.

The purpose of this paper is to explain the final rules adopted by the Commodity Futures Trading Commission (CFTC) on February 9 amending its Part 4 regulations governing commodity pool operators (CPOs) and commodity trading advisors (CTAs).

The paper explains, among other things, changes to CPO registration exemptions, additional reporting obligations for registered CPOs and CTAs, the imposition of new requirements for registered CPOs relying on certain exemptions, to provide annual financial statements, required risk disclosures regarding swap transactions, required annual affirmation and eligibility for exemptions and exclusions from CPO and CTA registration, and an initiative to harmonize CPO reporting, disclosure, and recordkeeping requirements of the CFTC and the SEC for registered investment companies.

Since the adoption of Rule 4.13(a)(4) in 2003, fund sponsors have frequently relied on the exemption made available by that rule to avoid both registration with the CFTC as CPOs and compliance with the CFTC's disclosure, reporting and recordkeeping requirements. The CFTC has now rescinded that exemption.

All advisers to registered investment companies need to evaluate their exposure to CFTC regulation after this rule amendment.

The paper provides practical guidance from experienced financial services lawyers.

This study uses Hall's (1976) theory of low/high context culture with theories of interpersonal adaptation (Gudykunst, 1985; Patterson, 1983) to test communication preferences, flexibility, and effectiveness in same‐ and mixed‐culture negotiation. Ninety‐three same‐culture low context (Israel, Germany, Sweden, and U.S.), 101 same‐culture high context (Hong Kong, Japan, Russia, Thailand), and 48 mixed‐culture mixed context (U.S.‐Japan, U.S.‐Hong Kong) dyads negotiated a 1 ½ hour simulation. Transcripts were content coded for direct and indirect integrative sequences and analyzed with hierarchical linear regression. Supporting the theory, results revealed more indirect integrative sequences in high context dyads and more direct integrative sequences in low context and mixed context dyads. Direct integrative sequences predicted joint gains for mixed context dyads.

The purpose of this study is to examine the relationship between board capital and firm earnings quality with different controlling shareholders for a sample of 252 listed firms in Indonesia over the period 2011–2017.

This study uses a two-step dynamic generalized method of moments panel regression to estimate the board capital effect on earnings quality. The board capital measure is constructed from educational capital, networking capital and experience capital. Meanwhile, discretionary accrual is used as the proxy for earnings quality. All financial data is from the annual report. Board capital data is a combination of an annual report, RelSci data, Linkedin searching and Bloomberg data.

The findings of this study report that board capital has a significant effect on earnings quality. Higher board capital may result in better earnings quality. In further investigation, this study finds that firms with higher education backgrounds tend to have better earnings quality. Meanwhile, firms with higher experienced board members tend to have bad earnings quality. Additionally, networking capital does not have any impact on earnings quality. The findings of this study also document a strong size effect of controlling shareholders in moderating the relationship between board capital and earnings quality.

This study contributes to upper-echelon, institutional, positive accounting and agency theory. It implies that agency cost plays an important role in that relationship. In a more deep analysis, this study records different board capital effects on earnings quality across controlling shareholders.

Shareholders should elect board directors following their competencies and should note that not all competencies will give a quality earning report. The educational background of board members will enhance earnings quality, but the experience of a board member will reduce the earnings quality. Further, the relationship between board capital and earnings quality is significantly moderated by controlling shareholders, implying that different controlling shareholders need different board capital.

This study examines board capital effects on earnings quality with different controlling shareholders using four major theories. The board capital measure is tedious and detailed allowing to capture the comprehensive human capital.

This paper surveys corporate officers responsible for greenhouse gas (GHG) reporting and assurance to determine the attributes that influence their choice between an accounting and a non-accounting GHG assurance provider. Differences in the relative importance of these attributes between those selecting accounting and non-accounting assurers are also explored.

A survey questionnaire was completed by 25 corporate officers responsible for reporting and voluntarily assurance of GHG emissions in Australia. The questionnaire asked the respondents to indicate the relative importance of 41 company and assurer attributes in influencing their assurance provider choice.

Results indicate that attributes related to the assurance provider, such as team and team leader assurance knowledge, reputation, objectivity and independence, are more influential than attributes related to the nature of the company or the nature of the GHG emissions. Attributes such as geographical dispersion of operations were found to be differently important to this decision between companies purchasing assurance from accounting and non-accounting firms.

The study’s main limitation is the small number of participants. Future research may extend this study by exploring the conditions under which companies voluntarily assure GHG emissions as well the motivations of responsible officers in their assurer choice.

This paper provides valuable insights to GHG assurers to assist their understanding of the attributes that are important to potential GHG assurance clients.

The study makes unique contributions to the assurer choice literature by not only addressing this issue in the context of the dichotomous GHG assurance market but also by addressing it from the perspective of the assurance purchaser.

This study investigates how the maximum cultural intelligence (Max CQ) within a team – defined as the highest cultural intelligence level of an individual member – affects intra-team communication, conflict dynamics and, ultimately, team satisfaction and performance in global virtual teams (GVTs).

Utilizing quantitative research methods, this investigation draws on a dataset comprising 3,385 participants, which forms a total of 686 GVTs.

The study reveals that MaxCQ significantly enhances team communication, which in turn mitigates conflict, increases satisfaction and improves performance. It is noteworthy that the influence of MaxCQ on GVT success is more significant than the average cultural intelligence (CQ) of team members, providing critical insights for effective GVT management strategies.

The findings suggest that managers may optimize team dynamics not by uniformly increasing each member’s CQ but by concentrating on maximizing the CQ of one individual who can act as an influencer within the team. Strategically placing individuals with high CQ in GVTs can enhance overall team function.

While existing literature primarily examines the individual effects of CQ on communication and conflict management, this study sheds light on the collective interplay between MaxCQ, communication and conflict. It highlights the importance of MaxCQ, along with the frequency of team communication and conflict, in influencing team satisfaction and performance in GVTs.

The purpose of this paper is to enrich the discussion on the determinants of training participation and informal learning of scientists and engineers (S&Es).

Tobit analyses on survey data.

The authors find that both formal training and informal learning are particularly related to job and firm characteristics instead of labour supply characteristics. S&Es employed in firms that apply innovative production processes more often participate in formal training, and also benefit from the informal learning potential of their jobs. However, lifelong learning is not triggered in firms with many product innovations. S&Es who are employed in firms that operate on highly competitive markets also participate in formal training less often. The same holds for S&Es employed in small firms, although the latter compensate this by more hours of self‐teaching. S&Es employed in jobs that require a high level of technical knowledge more often participate in formal training, whereas those employed in jobs that require more general skills are more involved in informal learning. Furthermore, older S&Es with long firm tenures participate in formal training less often, and have fewer opportunities for learning in their jobs. Therefore, their competence level is at risk.

Public policies that stimulate process innovation also appear to prevent skills obsolescence among S&Es. Public policies that aim to diminish labour market shortages of S&Es by discouraging early retirement should particularly take account of the necessity to keep the human capital of older S&Es with long firm tenures up to date.

The paper contributes to the literature on the determinants of human capital development by including both formal training and different modes of informal learning; and employee characteristics as well as job and firm characteristics in its analyses.

The purpose of this paper is to investigate the implications of supply chain strategies that manufacturing companies can use to minimise or overcome natural resource scarcity, and ultimately improve resource efficiency and achieve competitive advantage. The relationship between resource efficiency and competitive advantage is also explored.

The proposed research model draws on resource dependence theory. Data were collected from 183 logistics, purchasing, sustainability and supply chain managers from various manufacturing companies and analysed by applying the partial least squares structural equation modelling technique.

The results indicate that both buffering and bridging strategies improve resource efficiency; however, only bridging strategies seem to lead to firm’s competitive advantage in terms of ownership and accessibility to resources. The relationship between resource efficiency and competitive advantage is not supported.

Future research could confirm the robustness of these findings by using a larger sample size and taking into account other supply chain members.

This research provides guidance to managers faced with the growing risk of resource scarcity to achieve a resource efficient supply chain and an advantage over competitors.

Studies have explored the appropriate strategies for minimising dependencies caused by the scarcity of natural resources in the field of supply chain management; however, there is limited empirical work on investigating the impact of these strategies on resource efficiency and competitive advantage.

This paper investigates the strategic behavior of algorithmic trading firms from an innovation economics perspective. The authors seek to uncover the sources of competitive advantage these firms develop to make markets inefficient for them and enable their survival.

First, the authors review expected capability, a quantitative behavioral model of the sustainable, or reliable, profits that lead to survival. Second, they present qualitative data gathered from semi-structured interviews with industry professionals as well as from the academic and industry literatures. They categorize this data into first-order concepts and themes of opportunity-, advantage- and meta-seeking behaviors. Associating the observed sources of competitive advantages with the components of the expected capability model allows us to describe the economic rationale these firms have for developing those sources and explain how they survive.

The data reveals ten sources of competitive advantages, which the authors label according to known ones in the strategic management literature. We find that, due to the dynamically complex environments and their bounded resources, these firms seek heuristic compromise among these ten, which leads to satisficing. Their application of innovation methodology that prescribes iterative ex post hypothesis testing appears to quell internal conflict among groups and promote organizational survival. The authors believe their results shed light on the behavior and motivations of algorithmic market actors, but also of innovative firms more generally.

Based upon their review of the literature, this is the first paper to provide such a complete explanation of the strategic behavior of algorithmic trading firms.