The Political Economy of Securities Industry Bars

57 Pages Posted: 8 Mar 2021

See all articles by James Fallows Tierney

James Fallows Tierney

University of Nebraska at Lincoln - College of Law

Date Written: February 24, 2021

Abstract

Financial regulators can bar or exclude people from various industries. Yet securities regulators tend to impose too many broker bars, and too few against other financial professionals. While scholars have taken this pattern for granted, it presents a puzzle for securities law: what are these sanctions’ function? They are how securities law implements its distributive commitment to investor protection—making investors better off at brokers’ expense. Their function is to designate certain securities law rules as giving rise to a property-rule-like entitlement to capital owners not to have their profits from investing involuntarily transferred away from them by market intermediaries.

Drawing from law and political economy, this article argues that industry bars' function reflects the particular social and historical context in which the securities laws arose. Despite decades of failed attempts, financial mar-ket reform happened only after a critical mass of modestly wealthy Americans, who had newly began investing in the stock market, found their savings defrauded or manipulated away from them. The early securities laws borrowed industry exclusion from the stock exchanges’ self-regulatory practice, and subsequent amendments have expanded exclusion’s role. Exclusion remains today the doctrinal tool that securities law uses for determining that certain misconduct reflects intolerable risk that a person working in the financial industry will involuntarily redistribute the returns on investors’ capital.

This project aims to bring a political-economy approach back in to corporate and securities law scholarship—identifying hidden ways that doctrine and practice in capital markets regulation reflect and reinforce distributions of power and wealth and society.

Keywords: securities, enforcement, industry bar, political economy, LPE

JEL Classification: G28, K21, K22, K23, D45, D63, D73

Suggested Citation

Tierney, James, The Political Economy of Securities Industry Bars (February 24, 2021). Available at SSRN: https://ssrn.com/abstract=3761903 or http://dx.doi.org/10.2139/ssrn.3761903

James Tierney (Contact Author)

University of Nebraska at Lincoln - College of Law ( email )

103 McCollum Hall
P.O. Box 830902
Lincoln, NE 68583-0902
United States

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