Course | Columbia Law School

This course, a joint offering of the Law School and the Business School, concerns the regulation of capital markets: the New York Stock Exchange, NASDAQ and the wide variety of other institutions devoted to the trading of securities. Capital markets perform important social functions: providing liquidity for investors and incorporating information into prices, which in turn serve as vital guides to real economic activity. The effectiveness with which capital markets perform these functions and their costs of operation are determined in significant part by the rules governing the persons who operate, and trade in, these markets.

The course begins with a consideration of major domestic and transnational capital market institutions. It then addresses the economic theory that explains how capital markets operate and the incentives that motivate their various players. These beginning segments lay the groundwork for a more informed discussion of the substantive law that governs capital markets. Specific regulatory areas to be considered include: (1) the definition what constitutes an "exchange" under Securities Exchange Act of 1934 (which is important with regard to how new electronic and foreign trading platforms are regulated); (2) the concept of self-regulatory obligations and the obligations of specialists and market makers; (3) quote transparency, trade transparency, quote consolidation and "best execution" requirements, as well as the extent to which market institutions have property rights in the information generated by their activities; (4) insider trading; (5) short sale restrictions; and (6) price manipulation. The course, with its focus on persons who operate or trade in capital markets, should be distinguished from Securities Regulation (L6347, spring term), which is devoted primarily to the regulation of the behavior of issuers and their agents in connection with the primary offering and secondary trading of their securities.