This article examines the regulatory challenges raised by recent, overlooked changes in insurance markets that have led to a functional convergence between insurance and the broader financial sector.The law literature on financial regulation last addressed the issue of convergence over a decade ago, before the latest generation of market innovation and at a time when concern over systemic stability was not at the forefront. This article revisits the convergence phenomenon in the context of insurance, and does so by applying an analytical framework that distinguishes between two “boundary problems” that accompany all financial regulation. One problem concerns jurisdictional boundaries: to what degree does market integration require that diverse regulations be harmonized across jurisdictions? The other relates to definitional boundaries: within a given jurisdiction, how should distinctions be drawn among financial products and firms that have come to perform similar economic functions? Two conclusions follow from applying this framework that are in tension with the current thrust of policy as well as the literature. First, the Federal Insurance Office established by Dodd-Frank is inappropriately structured to leverage international harmonization agreements into domestic reforms, whereas the reverse orientation would be more effective. Second, frequent calls for more “functional regulation” fail to appreciate the subtle advantages of retaining formalistic legal definitions, even in the face of increasing economic convergence.At bottom, both boundary problems are a product of the possibility for regulatory arbitrage across jurisdictions or industry definitions, and the potential for a loosely regulated shadow finance sector to arise. Here, insurance is used as a case study to demonstrate that regulatory arbitrage can occur along a surprising number of fronts and is difficult to reliably estimate ex ante when formulating financial regulation. For this reason, the Article argues, scholarship that has proposed a requirement for financial regulators to perform a quantitative cost-benefit analysis as part of their rulemaking overestimates the benefits that such a procedure would provide in practice.
{"title":"The Convergence of Insurance with Banking and Securities Industries, and the Limits of Regulatory Arbitrage in Finance","authors":"Matthew C. Turk","doi":"10.2139/SSRN.2467684","DOIUrl":"https://doi.org/10.2139/SSRN.2467684","url":null,"abstract":"This article examines the regulatory challenges raised by recent, overlooked changes in insurance markets that have led to a functional convergence between insurance and the broader financial sector.The law literature on financial regulation last addressed the issue of convergence over a decade ago, before the latest generation of market innovation and at a time when concern over systemic stability was not at the forefront. This article revisits the convergence phenomenon in the context of insurance, and does so by applying an analytical framework that distinguishes between two “boundary problems” that accompany all financial regulation. One problem concerns jurisdictional boundaries: to what degree does market integration require that diverse regulations be harmonized across jurisdictions? The other relates to definitional boundaries: within a given jurisdiction, how should distinctions be drawn among financial products and firms that have come to perform similar economic functions? Two conclusions follow from applying this framework that are in tension with the current thrust of policy as well as the literature. First, the Federal Insurance Office established by Dodd-Frank is inappropriately structured to leverage international harmonization agreements into domestic reforms, whereas the reverse orientation would be more effective. Second, frequent calls for more “functional regulation” fail to appreciate the subtle advantages of retaining formalistic legal definitions, even in the face of increasing economic convergence.At bottom, both boundary problems are a product of the possibility for regulatory arbitrage across jurisdictions or industry definitions, and the potential for a loosely regulated shadow finance sector to arise. Here, insurance is used as a case study to demonstrate that regulatory arbitrage can occur along a surprising number of fronts and is difficult to reliably estimate ex ante when formulating financial regulation. For this reason, the Article argues, scholarship that has proposed a requirement for financial regulators to perform a quantitative cost-benefit analysis as part of their rulemaking overestimates the benefits that such a procedure would provide in practice.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-07-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122009352","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In the Halliburton case, the United States Supreme Court is expected to reconsider the Basic ruling that, twenty-five years ago, adopted the fraud-on-the-market theory, which has since facilitated securities class action litigation. In this paper we seek to contribute to this reconsideration. We provide a conceptual and economic framework for a reexamination of the Basic rule, taking into account and relating our analysis to the Justices’ questions at the Halliburton oral argument. We show that, in contrast to claims made by the parties, the Justices need not assess the validity or scientific standing of the efficient market hypothesis; they need not, as it were, decide whether they find the view of Eugene Fama or Robert Shiller more persuasive. Class-wide reliance, we explain, should depend not on the “efficiency” of the market for the company’s security but on the existence of fraudulent distortion of the market price. Indeed, based on our review of the large body of research on market efficiency in financial economics, we show that, even fully accepting the views and evidence of market efficiency critics such as Professor Shiller, it is possible for market prices to be distorted by fraudulent disclosures. Conversely, even fully accepting the views and evidence of market efficiency supporters such as Professor Fama, it is possible for market prices not to be distorted by fraudulent disclosures. In short, even assuming the Court was somehow in a position to adjudicate the academic debate on market efficiency, market efficiency should not be the focus for determining class-wide reliance. We put forward an alternative approach that is focused on the existence of fraudulent distortion. We further discuss the analytical tools that would enable the federal courts to implement our alternative approach, as well as the allocation of the burden of proof, and we explain that a determination of fraudulent distortion would not usurp the merits issues of materiality and loss causation. Questions asked by some of the Justices at the oral argument suggest that such an alternative approach might appeal to the Court. The proposed approach avoids reliance on the efficient market hypothesis and thereby avoids the problems with current judicial practice identified by petitioners (as well as those stressed by Justice White in his Basic opinion). It provides a coherent and implementable framework for identifying class-wide reliance in appropriate circumstances. It also has the virtue of focusing on the economic impact (if any) of the actual misstatements and omissions at issue, rather than general features of the securities markets.
{"title":"Rethinking Basic","authors":"L. Bebchuk, Allen Ferrell","doi":"10.2139/ssrn.2371304","DOIUrl":"https://doi.org/10.2139/ssrn.2371304","url":null,"abstract":"In the <em>Halliburton</em> case, the United States Supreme Court is expected to reconsider the <em>Basic</em> ruling that, twenty-five years ago, adopted the fraud-on-the-market theory, which has since facilitated securities class action litigation. In this paper we seek to contribute to this reconsideration. We provide a conceptual and economic framework for a reexamination of the <em>Basic</em> rule, taking into account and relating our analysis to the Justices’ questions at the <em>Halliburton</em> oral argument. We show that, in contrast to claims made by the parties, the Justices need not assess the validity or scientific standing of the efficient market hypothesis; they need not, as it were, decide whether they find the view of Eugene Fama or Robert Shiller more persuasive. Class-wide reliance, we explain, should depend not on the “efficiency” of the market for the company’s security but on the existence of fraudulent distortion of the market price. Indeed, based on our review of the large body of research on market efficiency in financial economics, we show that, even fully accepting the views and evidence of market efficiency critics such as Professor Shiller, it is possible for market prices to be distorted by fraudulent disclosures. Conversely, even fully accepting the views and evidence of market efficiency supporters such as Professor Fama, it is possible for market prices not to be distorted by fraudulent disclosures. In short, even assuming the Court was somehow in a position to adjudicate the academic debate on market efficiency, market efficiency should not be the focus for determining class-wide reliance. We put forward an alternative approach that is focused on the existence of fraudulent distortion. We further discuss the analytical tools that would enable the federal courts to implement our alternative approach, as well as the allocation of the burden of proof, and we explain that a determination of fraudulent distortion would not usurp the merits issues of materiality and loss causation. Questions asked by some of the Justices at the oral argument suggest that such an alternative approach might appeal to the Court. The proposed approach avoids reliance on the efficient market hypothesis and thereby avoids the problems with current judicial practice identified by petitioners (as well as those stressed by Justice White in his <em>Basic</em> opinion). It provides a coherent and implementable framework for identifying class-wide reliance in appropriate circumstances. It also has the virtue of focusing on the economic impact (if any) of the actual misstatements and omissions at issue, rather than general features of the securities markets.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131150414","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This Article analyzes various incentives for market makers as a potential regulatory tool to address the interrelated crises in capital formation and market making in smaller-cap stocks. While considering the nature and development of the market making crisis and its impact on capital formation, such approaches as incentives for market makers conferring advantages in the trading process itself and issuer-to-market maker compensation arrangements are evaluated. The Article also addresses the significance of the integrated model of market making.
{"title":"Linking the Securities Market Structure and Capital Formation: Incentives for Market Makers?","authors":"S. Dolgopolov","doi":"10.2139/ssrn.2169601","DOIUrl":"https://doi.org/10.2139/ssrn.2169601","url":null,"abstract":"This Article analyzes various incentives for market makers as a potential regulatory tool to address the interrelated crises in capital formation and market making in smaller-cap stocks. While considering the nature and development of the market making crisis and its impact on capital formation, such approaches as incentives for market makers conferring advantages in the trading process itself and issuer-to-market maker compensation arrangements are evaluated. The Article also addresses the significance of the integrated model of market making.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"38 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-02-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121720592","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Several recent judicial decisions have held that bankruptcy planning discussions by boards of directors do not have to be disclosed to the public trading markets under the obligations of the United States federal securities acts. The discussions, the courts held, are not "material." It is hard to imagine anything more important to investors than bankruptcy planning discussions by boards of directors. At issue is why courts are engaging in a legal fiction to amend a federal rule on disclosure obligations.
{"title":"Bankruptcy Planning is Not Material?","authors":"D. Oesterle","doi":"10.2139/SSRN.2394156","DOIUrl":"https://doi.org/10.2139/SSRN.2394156","url":null,"abstract":"Several recent judicial decisions have held that bankruptcy planning discussions by boards of directors do not have to be disclosed to the public trading markets under the obligations of the United States federal securities acts. The discussions, the courts held, are not \"material.\" It is hard to imagine anything more important to investors than bankruptcy planning discussions by boards of directors. At issue is why courts are engaging in a legal fiction to amend a federal rule on disclosure obligations.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"71 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-02-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116152627","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article studies the regulatory strategies to address the potential systemic risk of hedge funds operation in financial markets. Due to the implications of the choice of regulatory strategies and instruments in terms of mitigating systemic risk, the article focuses on one critical aspect of hedge fund regulation, namely the choice between direct regulation and indirect regulation. Having defined the distinction between direct and indirect regulation, also mapping its implications in terms of regulatory techniques and instruments, the arguments for and against direct and indirect regulation of hedge funds are analyzed. This article argues that the indirect regulation of hedge funds through their counterparties and creditors, while being less costly, can better address regulatory arbitrage by hedge funds and their potential contribution to systemic risk. This policy recommendation is further supported by the economic and organizational structure of hedge funds and their particular features in terms of the number and composition of their counterparties and creditors.
{"title":"The Hedge Fund Regulation Dilemma: Direct vs. Indirect Regulation","authors":"Hossein Nabilou, A. M. Pacces","doi":"10.2139/ssrn.2323377","DOIUrl":"https://doi.org/10.2139/ssrn.2323377","url":null,"abstract":"This article studies the regulatory strategies to address the potential systemic risk of hedge funds operation in financial markets. Due to the implications of the choice of regulatory strategies and instruments in terms of mitigating systemic risk, the article focuses on one critical aspect of hedge fund regulation, namely the choice between direct regulation and indirect regulation. Having defined the distinction between direct and indirect regulation, also mapping its implications in terms of regulatory techniques and instruments, the arguments for and against direct and indirect regulation of hedge funds are analyzed. This article argues that the indirect regulation of hedge funds through their counterparties and creditors, while being less costly, can better address regulatory arbitrage by hedge funds and their potential contribution to systemic risk. This policy recommendation is further supported by the economic and organizational structure of hedge funds and their particular features in terms of the number and composition of their counterparties and creditors.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-01-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128878019","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Many mutual fund shareholders invest in funds with supra-competitive fees that reduce their expected return even though lower cost alternatives are available. While financial arbitrage could address this problem, conventional arbitrage is difficult to implement in the mutual fund market. This article proposes legal reform to our system of mutual fund regulation that responds to the problem of high-cost funds by providing the investors who are making the most substantial mistakes with salient and transparent market information about the existence of superior investment alternatives. We first consider ways that regulation could be reformed to facilitate what we call "short redemption," the mutual fund analog to "short selling" of securities. A vibrant market for short redemptions would allow smart money to arbitrage fee differences by selling (redeeming) short high fee funds while buying comparable low-fee funds. But because of predictable resistance from the shorted funds and the difficulty of obtaining shares to borrow, we conclude that the short redemption is unlikely to be sufficient arbitrage discipline of inefficient high fee funds. Instead, we propose regulatory reform that would encourage low fee funds to offer "improved performance guarantees." An improved performance guarantee promises that the consumer will achieve a better net financial outcome if she switches from a current provider to a competitor product. The core notion is to guarantee to the consumer an improvement in relative performance. The guarantee functions as an arbitrage of high fee funds that would improve price competition in the mutual fund market. Our central claim is that lawmakers and regulators can enhance competition in mutual funds by enabling sophisticated investors to arbitrage supra-competitive fees.
{"title":"Improved Performance Guarantees","authors":"I. Ayres, Quinn D. Curtis","doi":"10.2139/ssrn.2375842","DOIUrl":"https://doi.org/10.2139/ssrn.2375842","url":null,"abstract":"Many mutual fund shareholders invest in funds with supra-competitive fees that reduce their expected return even though lower cost alternatives are available. While financial arbitrage could address this problem, conventional arbitrage is difficult to implement in the mutual fund market. This article proposes legal reform to our system of mutual fund regulation that responds to the problem of high-cost funds by providing the investors who are making the most substantial mistakes with salient and transparent market information about the existence of superior investment alternatives. We first consider ways that regulation could be reformed to facilitate what we call \"short redemption,\" the mutual fund analog to \"short selling\" of securities. A vibrant market for short redemptions would allow smart money to arbitrage fee differences by selling (redeeming) short high fee funds while buying comparable low-fee funds. But because of predictable resistance from the shorted funds and the difficulty of obtaining shares to borrow, we conclude that the short redemption is unlikely to be sufficient arbitrage discipline of inefficient high fee funds. Instead, we propose regulatory reform that would encourage low fee funds to offer \"improved performance guarantees.\" An improved performance guarantee promises that the consumer will achieve a better net financial outcome if she switches from a current provider to a competitor product. The core notion is to guarantee to the consumer an improvement in relative performance. The guarantee functions as an arbitrage of high fee funds that would improve price competition in the mutual fund market. Our central claim is that lawmakers and regulators can enhance competition in mutual funds by enabling sophisticated investors to arbitrage supra-competitive fees.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"30 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-01-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123400563","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Mukesh Bajaj, Sumon C. Mazumdar, Daniel A. McLaughlin
Following the Supreme Court’s 1988 decision in Basic, securities class plaintiffs can invoke the “rebuttable presumption of reliance on public, material misrepresentations regarding securities traded in an efficient market” [the “fraud-on-the market” doctrine] to prove class-wide reliance. Although this requires plaintiffs to prove that the security traded in an informationally efficient market throughout the class period, Basic did not identify what constituted adequate proof of efficiency for reliance purposes. Market efficiency cannot be presumed without proof because even large publicly-traded stocks do not always trade in efficient markets, as documented in the economic literature that has grown significantly since Basic. For instance, during the recent global financial crisis, lack of liquidity limited arbitrage (the mechanism that renders markets efficient) and led to significant price distortions in many asset markets. Yet, lower courts following Basic have frequently granted class certification based on a mechanical review of some factors that are considered intuitive “proxies” of market efficiency (albeit incorrectly, according to recent studies and our own analysis). Such factors have little probative value and their review does not constitute the rigorous analysis demanded by the Supreme Court. Instead, to invoke fraud-on-the market, plaintiffs must first establish that the security traded in a weak-form efficient market (absent which a security cannot, as a logical matter, trade in a “semi-strong form” efficient market, the standard required for reliance purposes) using well-accepted tests. Only then do event study results, which are commonly used to demonstrate “cause and effect” (i.e., prove that the security’s price reacted quickly to news --- a hallmark of a semi-strong form efficient market) have any merit. Even then, to claim class wide reliance, plaintiffs must prove such cause and effect relationship throughout the class period, not simply on selected disclosure dates identified in the complaint as plaintiffs often do. These issues have policy implications because, once a class is certified, defendants frequently settle to avoid the magnified costs and risks associated with a trial, and the merits of the case (including the proper application of legal presumptions) are rarely examined at a trial.
{"title":"Assessing Market Efficiency for Reliance on the Fraud-on-the Market Doctrine After Wal-Mart and Amgen","authors":"Mukesh Bajaj, Sumon C. Mazumdar, Daniel A. McLaughlin","doi":"10.2139/ssrn.2302734","DOIUrl":"https://doi.org/10.2139/ssrn.2302734","url":null,"abstract":"Following the Supreme Court’s 1988 decision in Basic, securities class plaintiffs can invoke the “rebuttable presumption of reliance on public, material misrepresentations regarding securities traded in an efficient market” [the “fraud-on-the market” doctrine] to prove class-wide reliance. Although this requires plaintiffs to prove that the security traded in an informationally efficient market throughout the class period, Basic did not identify what constituted adequate proof of efficiency for reliance purposes. Market efficiency cannot be presumed without proof because even large publicly-traded stocks do not always trade in efficient markets, as documented in the economic literature that has grown significantly since Basic. For instance, during the recent global financial crisis, lack of liquidity limited arbitrage (the mechanism that renders markets efficient) and led to significant price distortions in many asset markets. Yet, lower courts following Basic have frequently granted class certification based on a mechanical review of some factors that are considered intuitive “proxies” of market efficiency (albeit incorrectly, according to recent studies and our own analysis). Such factors have little probative value and their review does not constitute the rigorous analysis demanded by the Supreme Court. Instead, to invoke fraud-on-the market, plaintiffs must first establish that the security traded in a weak-form efficient market (absent which a security cannot, as a logical matter, trade in a “semi-strong form” efficient market, the standard required for reliance purposes) using well-accepted tests. Only then do event study results, which are commonly used to demonstrate “cause and effect” (i.e., prove that the security’s price reacted quickly to news --- a hallmark of a semi-strong form efficient market) have any merit. Even then, to claim class wide reliance, plaintiffs must prove such cause and effect relationship throughout the class period, not simply on selected disclosure dates identified in the complaint as plaintiffs often do. These issues have policy implications because, once a class is certified, defendants frequently settle to avoid the magnified costs and risks associated with a trial, and the merits of the case (including the proper application of legal presumptions) are rarely examined at a trial.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-12-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129078830","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzes the Securities and Exchange Commission's June 2013 proposal relating to money market funds. It argues that the proposal seeks to address a problem originating in the banking industry, not the MMF industry, and whose solution lies in banking regulation, not MMF regulation.
{"title":"The SEC's Money Market Fund Proposal: An Inappropriate Use of the Investment Company Act to Address a Bank Regulatory Problem","authors":"Melanie L. Fein","doi":"10.2139/ssrn.2322883","DOIUrl":"https://doi.org/10.2139/ssrn.2322883","url":null,"abstract":"This paper analyzes the Securities and Exchange Commission's June 2013 proposal relating to money market funds. It argues that the proposal seeks to address a problem originating in the banking industry, not the MMF industry, and whose solution lies in banking regulation, not MMF regulation.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-09-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125313416","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This Article analyzes the reach of a private right of action under federal securities law for violations of trading obligations and abuses of trading privileges by market makers in today’s rapidly evolving securities markets. The development of the applicable case law is traced, and potential approaches to a coherent theory of a private right of action are considered. The Article also discusses the significance of the changing economics and institutional framework of providing liquidity in securities markets and related regulatory debates.
{"title":"Providing Liquidity in a High-Frequency World: Trading Obligations and Privileges of Market Makers and a Private Right of Action","authors":"S. Dolgopolov","doi":"10.2139/SSRN.2032134","DOIUrl":"https://doi.org/10.2139/SSRN.2032134","url":null,"abstract":"This Article analyzes the reach of a private right of action under federal securities law for violations of trading obligations and abuses of trading privileges by market makers in today’s rapidly evolving securities markets. The development of the applicable case law is traced, and potential approaches to a coherent theory of a private right of action are considered. The Article also discusses the significance of the changing economics and institutional framework of providing liquidity in securities markets and related regulatory debates.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-06-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127326771","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyses the legality of private prediction markets under U.S. law, describing both the legal risks they raise and how to manage those risks. As the label “private” suggests, such markets offer trading not to the public but rather only to members of a particular firm. The use of private prediction markets has grown in recent years because they can efficiently collect and quantify information that firms find useful in making management decisions. Along with that considerable benefit, however, comes a worrisome cost: the risk that running a private prediction market might violate U.S. state or federal laws. The ends and means of private prediction markets differ materially from those of futures, securities, or gambling markets. Laws written for those latter three institutions nonetheless threaten to limit or even outlaw private prediction markets. As the paper details, however, careful legal engineering can protect private prediction markets from violating U.S. laws or suffering crushing regulatory burdens. The paper concludes with a prediction about the likely form of potential CFTC regulations and a long-term strategy for ensuring the success of private prediction markets under U.S. law.
{"title":"Private Prediction Markets and the Law","authors":"T. Bell","doi":"10.5750/JPM.V3I1.453","DOIUrl":"https://doi.org/10.5750/JPM.V3I1.453","url":null,"abstract":"This paper analyses the legality of private prediction markets under U.S. law, describing both the legal risks they raise and how to manage those risks. As the label “private” suggests, such markets offer trading not to the public but rather only to members of a particular firm. The use of private prediction markets has grown in recent years because they can efficiently collect and quantify information that firms find useful in making management decisions. Along with that considerable benefit, however, comes a worrisome cost: the risk that running a private prediction market might violate U.S. state or federal laws. The ends and means of private prediction markets differ materially from those of futures, securities, or gambling markets. Laws written for those latter three institutions nonetheless threaten to limit or even outlaw private prediction markets. As the paper details, however, careful legal engineering can protect private prediction markets from violating U.S. laws or suffering crushing regulatory burdens. The paper concludes with a prediction about the likely form of potential CFTC regulations and a long-term strategy for ensuring the success of private prediction markets under U.S. law.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"29 7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-12-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132231276","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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