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The Continuing Need for Broker-Dealer Professionalism in IPOs


James A. Fanto


Brooklyn Law School - Gerald Baylin Professor of Law & Co-Director of the Center for the Study of Business Law & Regulation


Ohio State Entrepreneurial Business Law Journal, Vol. 2, No. 2, pp. 679-701, 2008
Brooklyn Law School, Legal Studies Paper No. 104

Abstract:     
In this essay, I contend that the IPO process and its abuses of the late 1990s reveal a fundamental problem in the brokerage industry. The abuses show the culmination of a concerted training in business, business schools, and even law schools and, more generally, in society: the acceptance of self-interested profit maximization as the sole goal for business and financial activities. I first review the IPO abuses from the perspective of individual self-interest and the group enhancement of it to show the fundamental motivation of the abuses. I then examine the regulatory responses to these abuses in order to point out their incompleteness. I argue that the reforms were incomplete because they established limited broker-dealer professionalism, focusing only on research analysts, which perversely encouraged those not directly touched to continue to engage in self-interested conduct. I also contend that this absence of full broker-dealer professionalism can lead to reputational risk that threatens these financial institutions and even the stability of the securities markets. I thus suggest that the professional reform for broker-dealers must be wide-ranging and must reach into the training of future bankers and brokers in the business schools. However, I also offer a practical, stopgap reform suggestion that can help alleviate reputational risk.

Number of Pages in PDF File: 24

Keywords: broker-dealer, professionalism

JEL Classification: K22

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Date posted: March 31, 2008 ; Last revised: July 7, 2008

Suggested Citation

Fanto, James A., The Continuing Need for Broker-Dealer Professionalism in IPOs. Ohio State Entrepreneurial Business Law Journal, Vol. 2, No. 2, pp. 679-701, 2008; Brooklyn Law School, Legal Studies Paper No. 104. Available at SSRN: http://ssrn.com/abstract=1114222

Contact Information

James A. Fanto (Contact Author)
Brooklyn Law School - Gerald Baylin Professor of Law & Co-Director of the Center for the Study of Business Law & Regulation ( email )
250 Joralemon Street
Brooklyn, NY 11201
United States
718-780-7566 (Phone)
718-780-0375 (Fax)

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