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The SEC as Financial Stability Regulator

Forthcoming, Journal of Corporation Law

59 Pages Posted: 27 Jun 2017  

Hilary J. Allen

Suffolk University Law School

Date Written: June 26, 2017

Abstract

It is well established that the Securities and Exchange Commission (“SEC”) has a mandate to protect investors and to encourage capital formation, but this Article argues that the SEC also has another mandate – to promote financial stability. Importantly, this does not mean that the SEC needs to abandon its traditional identity, or adopt the regulatory tools and methods deployed by prudential regulators like the Federal Reserve. Instead, this Article argues that the SEC is best suited to promoting the stability of the financial system from a market, rather than a prudential, perspective.

To make this argument more concrete, this Article looks in detail at high frequency trading – a practice that is fundamentally changing the structure of the equity markets the SEC oversees. From a close reading of the SEC’s communications on the subject of high frequency trading, this Article establishes that financial stability has indeed been a motivating concern of the SEC as it explores regulatory reform of high frequency trading, and equity market structure reform more generally. This Article therefore explores what a financial stability-minded approach to regulating high frequency trading would mean for the SEC’s other mandates, the types of resources the SEC would need to discharge such a task, and how the SEC’s relationship with other financial regulatory agencies might be impacted.

Suggested Citation

Allen, Hilary J., The SEC as Financial Stability Regulator (June 26, 2017). Forthcoming, Journal of Corporation Law. Available at SSRN: https://ssrn.com/abstract=2992699

Hilary J. Allen (Contact Author)

Suffolk University Law School ( email )

120 Tremont Street
Boston, MA 02108-4977
United States

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