Supreme Risk

57 Pages Posted: 20 Aug 2021 Last revised: 7 Oct 2021

See all articles by Benjamin Edwards

Benjamin Edwards

University of Nevada, William S. Boyd School of Law

Date Written: August 18, 2021

Abstract

While many have discussed the social issues that might arise because of a majority-conservative Supreme Court, one critical consequence of the current Supreme Court has been overlooked: the role of the Supreme Court in generating or avoiding systemic risk. For some time, systemic financial risk has been regulated by a mix of self-regulatory organizations (SROs), such as the Depository Trust Corporation, and federal regulators such as the Financial Stability Oversight Council. However, the Supreme Court’s recent jurisprudence now creates real risk that federal courts will declare keystone SROs unconstitutional because they do not fit neatly into an eighteenth-century constitutional framework.

SROs are under-appreciated regulatory entities comprised of industry members regulating their own industries with deferential oversight from federal administrative agencies. While ordinary civics discussions entirely omit SROs, they play a critical legal and economic roles and exercise enormous power delegated to them by the federal government. Yet as nominally private entities, they enforce federal law and their own rules without abiding by the restrictions imposed on governmental entities, such as providing due process.

This article makes three contributions to the literatures in financial regulation and constitutional law—disciplines which rarely interact. First, it provides a detailed account of how SROs became functionally integrated into the federal government and serve as federal law enforcement and regulators. Second, it shows how four different constitutional doctrines, now resurging under a conservative-majority Supreme Court, pose existential threats to existing SRO models. Third, the Article explains how Supreme Court decisions declaring SROs unconstitutional or limiting their powers generate systemic risk and may trigger a financial crisis.

Keywords: SRO, self-regulation, constitutional law, financial regulation, securities, NYSE, FINRA, NFA, Future, Systemic Risk

Suggested Citation

Edwards, Benjamin, Supreme Risk (August 18, 2021). Florida Law Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3907534 or http://dx.doi.org/10.2139/ssrn.3907534

Benjamin Edwards (Contact Author)

University of Nevada, William S. Boyd School of Law ( email )

4505 South Maryland Parkway
Box 451003
Las Vegas, NV 89154
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
166
Abstract Views
934
rank
227,718
PlumX Metrics