JUDGES AND SYSTEMIC RISK IN THE FINANCIAL MARKETS[dagger]

By Golden, Jeffrey | Fordham Journal of Corporate & Financial Law, April 1, 2013 | Go to article overview
Save to active project

JUDGES AND SYSTEMIC RISK IN THE FINANCIAL MARKETS[dagger]


Golden, Jeffrey, Fordham Journal of Corporate & Financial Law


INTRODUCTION

This paper will keep company with others that consider the regulation of over-the-counter ("OTC") derivatives, and the particular role and potential effectiveness of proposals in the new regulatory regimes that have emerged since the recent financial crisis (or crises, depending on how you count) for central clearing as a means of mitigating systemic risk.1

However, in what follows, I want the reader to think outside the current regulatory debate for a moment. Instead, I would ask the reader to pause while contemplating the subject of systemic risk in the global financial markets and consider how courts and judges fit in.

I. THE COURTS AS HOSPITALS

Our newspapers are full of articles about financial market regulation. Parliamentarians and congressmen do not shy away from weighing in on this subject too. Financial regulation can be seen as a kind of 'preventive medicine,' and we attach great importance to getting it right.

That is as it should be. Preventive medicine in matters of both personal and financial health is important. In the recent crisis, the malaise afflicting the financial markets had arguably reached epidemic proportions. Financial market participants were, and some still are, seriously, if not terminally, ill. Moreover, we can expect more accidents to occur and more victims to surface in the future. However, as the courts are our 'hospitals,' perhaps we should worry more about the condition of the courts and whether we have enough qualified staff for them.

It is indeed a little surprising that with all the debate about the future of financial regulation and the statements on the subject that politicians, regulators, economists and academics make - and even statements by the legal profession itself - so little attention has been paid to the role of our judges in mitigating risk. After all, judges around the world interpret regulations, fill in the legislative and regulatory gaps, and resolve ambiguities. In addition, they can be expected to settle any number of financial market disputes - some of them highly complex and technical - that are likely to follow from the considerable losses, and in some cases the demise, of major financial institutions and their counterparties.

This paper aims to address an apparent gap in the debate. What role should we wish to see our courts play in dealing with complex financial instruments, disputes arising from the financial crisis, and, in due course, matters requiring interpretation of the new regulatory regime? Are the courts, as currently constituted, equipped to play that role? Is there more that the markets, the regulatory community, and the legal profession can do to ready them?

II. WHY COURTS ARE IMPORTANT

Why are courts relevant to discussions about financial market systemic risk? Well, for a start, courts are potential allies of regulators in the battle to safeguard our financial markets from systemic risk. Courts in the United States and elsewhere have 'fleshed out' securities regulation in the past, thereby promoting legal certainty and, as a result, contributed to market stability. That is why, as law students and young lawyers, although we were taught black letter law and we read regulations, we spent a lot more time reading and studying cases. When addressing questions such as, "How much due diligence should I do in connection with this IPO?", we looked to the cases: in one such case we read what one lawyer did (poor young Stanton) - and it wasn't enough; while another told the story of a lawyer who did do enough. The cases showed the way to the 'safe harbors' into which to sail, gave examples of 'shipwrecks' as a warning along the way, and, most importantly, related the principles of law and regulation to real world facts. The facts will change, and the facts are always important.

Intelligently interpreting financial market regulations in light of new facts will continue to be important. Judges who understand finance can do this.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

JUDGES AND SYSTEMIC RISK IN THE FINANCIAL MARKETS[dagger]
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?