Oregon Law Review : Vol. 89, No. 1, p. 175-262 : Fairness, Utility, and Market Risk
I argue that securities regulation is best viewed as part of a larger societal framework that serves to protect individuals from stock market risk. I contend that management of market risk is a valid societal goal; that securities regulation is one component of a societal risk-management structure that has never been identified as such; and that we can improve upon this structure, not by pursuing traditional avenues of securities law reform, but by restructuring the institutional framework through which investors participate in the stock market. This Article proceeds in three Parts. In the first, I argue that we lack a satisfactory theory about how securities regulation protects investors. I focus on the lack of a sound intellectual foundation for the modern notion that it is accurate share prices, which come about thanks in part to SEC-mandated disclosures, that provide protection. In the next Part, I describe a new theory for how to conceptualize securities regulation. I argue that we can rationalize our regulatory framework if we look at it as part of a larger societal riskmanagement system. I first discuss why protection from risk is a valid societal goal; then, I outline what securities regulation contributes to this endeavor (I focus on whether the efficient markets hypothesis (EMH) should continue to inform our understanding of securities regulation even under this new framework); and last, I look at the exogenous mechanisms available to investors for managing market risk. In the final Part of this Article, I analyze the normative implications of this analysis. I argue that today’s risk-management framework does not do enough to help investors and consider several avenues of reform.