Regulating Investors Not Issuers: A Market-Based Proposal
57 Pages Posted: 14 Feb 2000
Date Written: 2000
The present securities regulatory regime in the United State focuses on the protection of investors. Investor protection, in turn, leads to a robust capital market. The federal government accomplishes its goal of investor protection through the registration and direct regulatory control of issuers, intermediaries, and self-regulatory organizations in the securities markets. The Article contends that regulators should instead regulate investors. Although against current wisdom, a securities regime that regulated investors would allow regulators to take a more market-driven approach toward investor protection, resulting in a less paternalistic regime. For those investors with good information on issuers in the market, for example, no mandatory regulations are necessary. Rather investors will contract for desired protections; those market participants failing to provide valued protections will receive less of for their securities or services. As a result, market participants will voluntarily provide desired protections. The Article, therefore, proposes to classify investors based on their informational resources. Such classification frees those investors able to protect themselves to engage in a wide variety of investments while allowing regulators to focus their resources on investors less well-equipped.
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