Law Commons^™

Equity Market Structure Regulation: Time To Start Over, Paul G. Mahoney

Michigan Business & Entrepreneurial Law Review

Over the past half-century, the U.S. Securities and Exchange Commission (SEC)’s regulations have become key determinants of the way in which stocks trade and the fees that exchanges charge for their services. The current equity market structure rules are contained primarily in the SEC’s Regulation NMS. The theory behind Regulation NMS is that a system of dispersed markets operating pursuant to SEC-mandated information and order routing links will provide the benefits of consolidation and competition simultaneously.

This article argues that Regulation NMS has failed in that quest. It has produced fragmented markets and created questionable incentives for market participants, possibly …

Global Standards For Securities Holding Infrastructures: A Soft Law/Fintech Model For Reform, Charles W. Mooney Jr.

Michigan Journal of International Law

This Article outlines a “soft-law-to-hard-law” approach for the development and implementation of reforms to systems for the holding of publicly traded securities. It proposes the development of global standards for securities holding systems (“Global Standards”), to be led by the International Organization of Securities Commissions (the “IOSCO”). This approach contemplates that States would be encouraged and expected to implement the Global Standards by adopting “hard law” reforms through statutory and regulatory adjustments to their securities holding systems as well as modifications of the architecture of their securities holding systems. The successes of past IOSCO initiatives inspire this Article’s proposal, as …

Break From Tradition: Questioning The Primacy Of Self-Regulation In American Securities Law, John I. Sanders

Michigan Business & Entrepreneurial Law Review

This Comment outlines the circular path of American securities law—one that begins and ends with the primacy of self-regulation. Part I of this paper describes American securities law between 1792 and 1911 (the “Buttonwood Era”). In this era, a group of New York stock brokers utilized private contract law to create securities regulation for their private club, thereby establishing a tradition of self-regulation. Part II describes a short period of history in which individual states attempted to regulate the se-curities market through state statutes, the so-called “Blue Sky Laws.” Part III details the creation of the federal securities law regime …

Finance And Growth: The Legal And Regulatory Implications Of The Role Of The Public Equity Market In The United States, Ezra Wasserman Mitchell

Michigan Business & Entrepreneurial Law Review

The important study of the relationship between finance and economic growth has exploded over the past two decades. One of the most significant open questions is the role of the public equity market in stimulating growth and the channels it follows if it does. This paper examines that question from an economic, legal, and historical perspective, especially with regard to its regulatory and corporate governance implications. The US market is my focus.

In contrast to most studies, I follow both economic history and the actual flow of funds in addition to empirics and theory to conclude that the public equity …

The Future Of Securities Class Actions Against Foreign Companies: China And Comity Concerns, Dana M. Muir, Junhai Liu, Haiyan Xu

University of Michigan Journal of Law Reform

In Morrison v. National Australia Bank Ltd., the U.S. Supreme Court limited the application of U.S. securities fraud law in transnational situations. The Supreme Court noted that its decision was influenced by international comity considerations. In this Article, we evaluate the availability of class actions in China in cases involving alleged securities fraud. Because we find that the availability of those actions is too limited to fully protect U.S. shareholders, we argue that U.S. investors should be permitted to bring securities fraud class actions against non-U.S. companies whose securities are traded on a U.S. exchange regardless of where those investors …

High-Frequency Trading: Should Regulators Do More, Matt Prewitt

Michigan Telecommunications & Technology Law Review

High-Frequency Trading ("HFT") is a diverse set of algorithmic trading strategies characterized by fast order execution. Its importance in international markets has increased vastly in recent years. From a regulatory perspective, HFT presents difficult and partially unresolved questions. The difficulties stem partly from the fact that HFT encompasses a wide range of trading strategies, and partly from a dearth of unambiguous empirical findings about HFT's effects on markets. Yet certain important conclusions are broadly accepted. HFT can increase systemic risk by causing or exacerbating events like the "Flash Crash" of May 6, 2010. HFT can also enable market manipulators to …

The Meaning Of The Market Myth, Benjamin Means

Michigan Business & Entrepreneurial Law Review

This Book Review contends that the perfectly rational market may be a myth, not just in the sense of a false or over-simplified account of reality, but also in the deeper, anthropological sense of cultural explanation. Part I describes how rational-market theories were developed by financial economists and applied to Wall Street, sometimes without adequate appreciation for the difference between simplified economic models and real-world behavior. Part II contends that if the rational-market theory has met with acceptance that outstrips its empirical support, the favorable reception may be explained in part by the theory’s congruence with broader normative views about …

Give Smaller Companies A Choice: Solving Sarbanes-Oxley Section 404 Inefficiency, Paul P. Arnold

University of Michigan Journal of Law Reform

This Note argues that smaller public companies should have the option to opt out of Section 404 of the Sarbanes-Oxley Act of 2002. Optional compliance is economically preferable to the current approach of mandatory compliance. Companies that choose to comply with Section 404 will send a signal to the financial markets that their internal controls meet the high standards Section 404 demands, and investors will reward such companies if they actually value the benefit of that company's additional controls. Similarly, companies that benefit less from additional internal accounting will be able to avoid Section 404's high costs. To clarify the …

Administrative Governance As Corporate Governance: A Partial Explanation For The Growth Of China's Stock Markets, David A. Caragliano

Michigan Journal of International Law

This Note argues that during the first decade of stock market development (roughly 1990-2000) Chinese institutions, which emphasized administrative direction and control, functioned in lieu of legal and financial institutions. Preexisting modes of administrative governance introduced incentives that mitigated information asymmetry problems inherent in initial public offerings (IPOs) and contributed to enhanced market valuation during the post-IPO phase. The author focuses on two sui generis Chinese institutions employed during this time period: the quota system for equity share issuance and the Special Treatment (ST) system for underperforming issuers. In short, the thesis is that administrative governance substituted for corporate governance.

The Internationalization Of The Securities Markets: Preface To A Symposium, Joel Seligman

Michigan Journal of International Law

This preface begins by tracing certain of the initial steps taken by the SEC in the internationalization of securities trading. Regulations involving issuers of new securities are discussed in two contexts. First, when foreign private issuers offer securities into the United States, and second, when securities are simultaneously offered in the United States and abroad. The preface concludes by introducing each of the articles in this symposium.

Survey Of Registration And Disclosure Requirements In International Securities Markets, Scott D. Cohen

Michigan Journal of International Law

This survey of the domestic registration and disclosure requirements in the United Kingdom, the Federal Republic of Germany, France, Australia, Switzerland, the Netherlands, Canada, and Japan provides a topical overview of the institutions, requirements, and procedures involved in securities trading in foreign markets. While the goal of a unified international securities regulation system may represent the best long-term course for an efficient world-wide system of capital markets, the necessity to conform to domestic securities regulations will remain important in the coming years.

The Changing Structure Of The Securities Markets And The Securities Industry: Implications For International Securities Regulation, Aulana L. Peters, Andrew E. Feldman

Michigan Journal of International Law

This article addresses the impact internationalization has had on the world's securities markets with a particular focus on its role in forcing change in the structure of those markets. Part I describes the forces involved in the internationalization process, and analyzes capital movement and other phenomena that demonstrate the extent of internationalization. Next, it reviews the structural changes that securities markets and the securities industry have made in response to the internationalization process. Part II analyzes the measures regulators have taken to address the implications of those developments. Part III discusses the October Market Break and how it illustrates the …

Securities Regulation In The International Marketplace: Bilateral And Multilateral Agreements, Daniel L. Goelzer, Anne Sullivan, Robert Mills

Michigan Journal of International Law

This article examines the experience of the SEC in securities regulation with respect to the international securities markets, focusing first as background upon recent developments in those markets, and then on the actual regulation of issuer disclosure, the trading markets, and enforcement in general. In each of the latter three areas, the article will consider the Commission's direct domestic actions in response to international trade, and compare those with international approaches to establish standards in these areas. This comparison demonstrates that international cooperation can, and should, develop new protections and predictable, common themes of regulation, for disclosure, market regulation, and …

Capital Neutrality And Coordinated Supervision: Lessons For International Securities Regulation From The Law Of International Taxation And Banking, Charles Thelen Plambeck

Michigan Journal of International Law

Part I of this article provides some background on the legal forces which have influenced globalization and internationalization of the world's securities markets. Part II focuses on the international tax law principle of capital neutrality. Fundamentally, the principle of capital neutrality requires that regulations should not unintentionally direct the movement of capital. Part II analyzes the bases and parameters of the principle of capital neutrality, the experiences of international taxation in applying the principle to a globalizing economy, and the possibilities for applying the principle to international securities regulation. Part III focuses on the international banking law principle of coordinated …

Survey Of National Legislation Regulating Insider Trading, Mary J. Houle

Michigan Journal of International Law

In recent years much attention has been focused on the phenomenon of "insider trading." The United States Securities and Exchange Commission (SEC) now appears to have wide-spread public support for its hard-line approach toward insider trading practices. Previously hostile to a broad prohibition of insider trading, even the Supreme Court has lent a sympathetic ear to the pleas of the SEC in the recent Carpenter case, which hinted at support for the misappropriation theory of insider trading. The prevailing attitude is that confidence in the fair operation of the securities markets must not be undermined by insiders who deprive those …

Rule 10b-6: Options Trading By Participants In A Distribution, Michigan Law Review

Michigan Law Review

After briefly discussing the history of options trading, this Note argues that where participants in a distribution trade options, the potential for abuse is sufficient to warrant regulation of this activity. It then evaluates existing statutes and SEC rules that seek to prevent similar abuses and concludes that language in some of these provisions -- particularly rule 10b-6 -- can be construed to prohibit participants in a distribution from engaging in certain put and call transactions that might manipulate the price of the security being distributed.

An Analysis Of Recent Proposals For Reform Of Federal Securities Legislation, William H. Painter

Michigan Law Review

Today the securities industry is in the midst of rapid change. Indeed it has been for at least the past decade, but in recent years the pace of change has increased, and its emphasis has shifted. Legislative and administrative reforms that could not have been anticipated a decade ago are likely in the near future, and it is still impossible to predict accurately the shape of the markets of tomorrow or the rules by which they will be governed. It is the purpose of this Article to focus on these recent developments, to summarize and evaluate various proposals for reform, …