LAW 388 - Broker-Dealer and Exchange Regulation

This course concerns the structure, business operations, and regulation of broker-dealers in the securities markets, as well as the securities markets themselves. These firms, the professionals who work in them, and the securities markets in which they operate perform important social functions: facilitating investments and capital raising, providing liquidity for investors and companies, and incorporating information into prices. The effectiveness with which these markets perform these functions and their costs of operation are determined in significant part by the rules governing exchanges, broker-dealers, and market makers. After an overview of the securities markets, trading platforms, and exchanges, we will focus on the regulation of brokerage firms and their associated persons. We will cover how firms are regulated by the Securities and Exchange Commission (SEC) and the securities self-regulatory organizations (SROs), such as the Financial Industry Regulatory Authority (FINRA). Over the course of the semester, we will review the specialized SEC and FINRA rules that regulate the activities of Wall Street firms in connection with the underwriting and trading of securities; learn how market-making activities are performed and governed; evaluate retail sales and trading practices and rules protecting retail brokerage customers; and study how regulators use the anti-fraud and manipulation provisions of the federal securities laws to safeguard market integrity. The course will explore several key topics in depth to illustrate how these concepts and rules work, using SEC actions involving high frequency trading (HFT) practices, manipulation, fair pricing and mark-ups, and payment for order flow (PFOF) practices to provide students with insight into current and ongoing issues confronting broker-dealers and the lawyers who advise them.

The course will be helpful for students who may advise financial-services firms or who intend to work in the corporate and securities area more generally, either in private practice, in an in-house capacity, or as part of a regulatory authority such as the SEC, the securities SROs such as FINRA and the stock exchanges, or at various state securities regulators.