Not Dead Yet: How New York's Finnerty Decision Salvaged the Stock Exchange Specialist
Hofstra University - Maurice A. Deane School of Law
December 2, 2009
St. John's Journal of Legal Commentary, Vol. 23, No. 1, Spring 2008
Hofstra Univ. Legal Studies Research Paper No. 09-24
In recent years, regulators of financial centers have attempted to criminalize practices traditionally and begrudgingly accepted by the market.
In 2007, a federal judge in the Southern District of New York effectively halted the government's attempts at prohibiting interpositioning, a questionable strategy that challenges the ability of the stock exchange Specialist to concurrently serve both his own accounts and those of the public.
To wit, the publicized judgment notwithstanding the verdict of Judge Denny Chin in the Finnerty case raised many questions about prosecutors' application of S.E.C. Rule 10b-5 to trading behavior that had been noted for decades; in turn, the Judge's written decision revitalized the debate over the utility of market players (like Specialists) who have enjoyed the best seats on American exchange trading floors for almost 150 years.
Within the framework of a famed Broadway show, this article examines the case of U.S. v. Finnerty (while providing a history of the stock exchange Specialist) and a comparison to other cases faulting self-dealing by such professionals. In addition to highlighting the judicial questioning of the criminalization of practices normally incurring reprimands and fines, the article presents a framework for discussion of the primary roles of stock exchanges themselves - specifically, when do market centers owe a duty to their public customers, and when are its intermediaries free to fend for themselves?
Number of Pages in PDF File: 36
Keywords: stock exchange, specialist, interpositioning, S.E.C. Rule 10b-5
JEL Classification: K22, G38, G14Accepted Paper Series
Date posted: December 7, 2009
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