A Legal Perspective on Technology and the Capital Markets: Social Media, Short Activism and the Algorithmic Revolution

50 Pages Posted: 11 Sep 2019 Last revised: 29 Oct 2019

Date Written: October 28, 2019

Abstract

In this essay, I examine the technological revolution in the capital markets through the normative lenses of law, policy and regulation. Do new media platforms necessarily enhance market efficiency? Or do they facilitate fraud and manipulation of stock prices? I focus on the rise of short activism on Twitter, Seeking Alpha and similar forms of social media: much like a stock promoter induces others to buy so he or she can sell at a profit, so a short activist might dupe others into selling so he or she can lock in profits before the stock rises again.

Second, I examine the ways in which the rise of algorithmic trading shapes the emergence of accurate prices in the capital markets, from cybersecurity risk to limit order cancellations. There is growing evidence that prosecutors are taking technologically induced price distortions quite seriously. Finally, I consider emerging frontiers of technological innovation in the capital markets. The jury is still out on whether the benefits of digital ledger technology exceed the costs of the rampant investor deception which has led to a steady stream of crypto prosecutions and enforcement actions.

Keywords: law, technology, capital markets, finance, activism, short, algorithmic, trading, cybersecurity, limit order

JEL Classification: K2, G1

Suggested Citation

Mitts, Joshua, A Legal Perspective on Technology and the Capital Markets: Social Media, Short Activism and the Algorithmic Revolution (October 28, 2019). Available at SSRN: https://ssrn.com/abstract=3447235 or http://dx.doi.org/10.2139/ssrn.3447235

Joshua Mitts (Contact Author)

Columbia Law School ( email )

435 West 116th Street
New York, NY 10025
United States

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