Academic journal article Journal of Corporation Law

Intelligent Agents and Futures Shock: Regulatory Challenges of the Internet

Academic journal article Journal of Corporation Law

Intelligent Agents and Futures Shock: Regulatory Challenges of the Internet

Article excerpt

Intelligent Agents and Futures Shock: Regulatory Challenges of the Internet

SECURITIEs REGULATION IN CYBERSPACE. By Howard M. Friedman. New York, NY: Bowne Publishing, 1998. Pp. xxxviii, 301, Appendices A-G. $225.00,

Reviewed by Robert Norman Sobol*


The tremendous growth and spreading availability of the Internet has confronted securities regulators with profound questions about the proper role of securities regulation in today's financial markets. Does new, widespread access to issuer and other information mean that the entire mandatory disclosure regime that the U.S. securities laws first created in 1933 is brought into doubt? The answer to that question is an emphatic "no," Such required disclosure provides a minimum of particularly relevant issuer information to the investing public in a concentrated form and will continue to do so far into the future. Should the Securities and Exchange Commission (SEC) seriously and fundamentally reexamine the current combination of mandatory offer registration, with limited exemptions, and enforcement tools? The answer to that question is an equally emphatic "yes." Current technological developments must be explored by the SEC for possible uses to enhance capital formation by increasing new, automated, oversight modalities, while loosening the hold of the current offer system's possible disincentives to capital formation, including higher transaction costs due to compliance with superfluous and redundant regulations. Pilot programs to automate, via specialized software programs, disclosure analysis, oversight, and enforcement functions must be heavily funded and launched. Nothing less than a technological "call-to-arms" is required if we are to meet the challenge and opportunities presented by the revolutionary changes now occurring. Nonetheless, the SEC should be applauded for the brilliant ways it has confronted the early years of this technological challenge. Although some may criticize it for not going far enough, it appears that the SEC has, in fact, deliberately used the various weapons in its arsenal, including no-action letters and interpretive releases, to appropriately and quickly confront the new securities law issues presented before it in a prudent fashion. Additionally, at the time of the writing of this Review, the SEC is apparently at work on further interpretive guidance in this area of the Internet and securities law.

The present state of Internet securities law is described and analyzed in exhaustive fashion in Professor Howard M. Friedman's book, Securities Regulation in Cyberspace, the second edition of which was recently published by Bowne. It is essential reading for anyone attempting to understand this area and is impressive in its sheer breadth, which it achieves without any loss to its overriding clarity or crisp writing style. This Review will first describe a possible technological scenario for securities investment activities in the year 2005, the activities of which are in no way endorsed, but that is intended to prod the reader into thinking about the ramifications of such developments, including the implications for those charged with the enforcement of the securities laws.1 Next, this Review will provide a general description of the current state of Internet securities law developments, which are covered in great detail in Friedman's book, Finally, some of his insights and advice will be highlighted and commented upon.


Forecasting the future of Internet securities regulation can be a difficult task. Despite analytical obstacles, envisioning such scenarios can be instructive in formulating a present-day approach to regulatory reform, One possible "future" might be as follows.

The year is 2005. Simon Investor wakes up at 2:30 in the afternoon to fire up access to the Internet. After getting the latest hacker patch for version 17.2 of his investment opportunity software, he asks the computer to pull up his investment activity for the past day. …

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