Rethinking the National Market System

By Peirce, Hester | Journal of Corporation Law, Spring 2018 | Go to article overview

Rethinking the National Market System


Peirce, Hester, Journal of Corporation Law


I. INTRODUCTION II. THE MUDDY 1975 CONGRESSIONAL VISION: A NATIONAL MARKET SYSTEM        A. The Genesis of the '75 Amendments        B. Discerning the Purpose of the '75 Amendments III. THE SEC'S APPROACH TO FACILITATING A NATIONAL MARKET SYSTEM        A. Early Implementation of the National Market System Mandate        B. Assessing the SEC's Early Steps Toward a National Market           System        C. Regulation NMS--An Enthusiastic Embrace of the National          Market System Mandate IV. THE ABILITY OF THE MARKETS TO CONSTRUCT A NATIONAL MARKET SYSTEM        ORGANICALLY V. WHY RECONSIDERING THE NATIONAL MARKET SYSTEM IDEA MATTERS NOW VI. CONCLUSION 

I. INTRODUCTION

In 2005, the Securities and Exchange Commission (SEC) adopted Regulation National Market System (Regulation NMS), a set of rules that instigated major changes in the structure of US equity markets. (1) Regulation NMS was controversial before it was adopted and has remained so a decade after its implementation. That regulation was the offspring of a much older statutory directive to the SEC to build a national market system. The Securities Acts Amendments of 1975 ('75 Amendments), among other things, attempted to integrate, coordinate, and modernize the equity markets.

The '75 Amendments--an ambiguous mandate to the SEC to remove barriers to competition in the equity markets, yet also to manage that competition for the public good--were a fitting product of their time. In many areas, the 1970s were a decade of deregulation born of a realization that heavily regulated industries, such as airlines and trucking, were not serving customers as well as they would if they were less regulated. In other areas, such as President Nixon's price controls and the environment, the 1970s saw experimentation with more centralized and comprehensive regulation. one contemporary author, looking back at the period from 1960 to 1979, explained: "all of us--scholars, legislators, the general public--are at this moment confronting the peculiar spectacle of two powerful trends that seem to be directly at odds with each other. one is toward greater government regulation, the other toward less." (2) The national market system embodied this same tension--a recognition of the importance of the value of competition, but a belief that the government needed to manage competition to make sure that the market worked in the public interest as efficiently as possible.

This Article looks back at the adoption of the '75 Amendments and argues that it is time to reconsider the necessity of the law's national market system mandate. Part II introduces the national market system mandate in the context of the time in which it became law. Part III discusses the SEC's role in acting on the national market system mandate. Part IV discusses why a national market system could develop better organically than as the product of a statutory mandate. Part V posits that now is a good time to reconsider the SEC's national market system mandate, and Part VI concludes.

II. THE MUDDY 1975 CONGRESSIONAL VISION: A NATIONAL MARKET SYSTEM

Described both as "deregulatory" (3) and as "the most fundamental restructuring of the securities industry since the adoption of the Securities Exchange Act of 1934," (4) the '75 Amendments were designed, among other things, "to facilitate the establishment of a national market system for securities." (5) This mandate grew out of a period of great interest in the securities markets during which people were asking questions such as whether the stock market could support the broader economy as it grew rapidly, how computerized the markets should be, and how investor confidence in the functioning of the markets could be strengthened. (6) Congress and the SEC investigated these and other issues in a series of inquiries. (7) According to Congress, the '75 Amendments were "the culmination of' Congress' "most searching reexamination of the competitive, statutory, and economic issues facing the securities markets, the securities industry, and, of course, public investors, since the 1930's. …

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