Wall Street Polices Itself: How Securities Firms Manage the Legal Hazards of Competitive Pressures PDF
Preview Wall Street Polices Itself: How Securities Firms Manage the Legal Hazards of Competitive Pressures
Wall Street Polices Itself This page intentionally left blank Wall Street Polices Itself How Securities Firms Manage the Legal Hazards of Competitive Pressures DAVID P. MCCAFFREY DAVID W. HART New York Oxford Oxford University Press 1998 Oxford University Press Oxford New York Athens Auckland Bangkok Bogota Bombay Buenos Aires Calcutta Cape Town Dar es Salaam Delhi Florence Hong Kong Istanbul Karachi Kuala Lumpur Madras Madrid Melbourne Mexico City Nairobi Paris Singapore Taipei Tokyo Toronto Warsaw and associated companies in Berlin Ibadan Copyright © 1998 by Oxford University Press, Inc. Published by Oxford University Press, Inc. 198 Madison Avenue, New York, New York 10016 Oxford is a registered trademark of Oxford University Press All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press. Library of Congress Cataloging-in-Publication Data McCaffrey, David P., 1930- Wall Street Polices Itself: How Securities Firms Manage the Legal Hazards of Competitive Pressures / by David P. McCaffrey and David W. Hart. Includes bibliographical references and index. ISBN 0-19-511187-7 1. Securities industry—United States—Self-regulation. I. Hart, David W. II. Title. HG4910.M367 1997 332.6'2'0973—dell 97-18732 9 8 7 6 5 4 3 21 Printed in the United States of America on acid-free paper Acknowledgments This book could be written only because individuals in the securities in- dustry and the regulatory community were generous with their time and knowledge. Those we interviewed would not agree with all that is here, but we have tried to repay their courtesy by trying as best we can as out- siders to understand their work's complexities and challenges. We prom- ised confidentiality, and so refrain from listing all their names. With their permission, however, we want to mention certain individuals. William J. Fitzpatrick of the Securities Industry Association (SIA), who played a key role in the development of the legal and compliance profession over the past 35 years, frequently spoke with us, provided related SIA material, and introduced us to numerous professionals in the area. Robert Albano, Peter Chepucavage, Philip J. Hoblin, Jr., Thomas Russo, Murray Teitelbaum, and O. Ray Vass went out of their way to be helpful, and we are especially grateful to them. Thanks also to several academic colleagues. Kirk Hart of Brigham Young University inspired us to approach the project as a book, and his wise counsel fundamentally shaped the manuscript. Sue Faerman of the University at Albany, State University of New York (SUNY), first articulated the key question in the book—that is, if self-regulation by work teams is a promising way to organize factories and offices, why is "self-regulation" highly suspect in the securities industry and other policy areas? Professor Faerman has done so much to help us think through the answers that she should by all rights be added as a coauthor. Steve Wasby vi Acknowledgments provided information, editing, and suggestions that went far beyond the norms of being a good colleague. Rhonda Allen, Elizabeth Castle, Bo Kyoung Lee, Kate Messinger, and Dwight Smith helped assemble the vari- ous data sets used here. Also, the University at Albany, SUNY, provided McCaffrey a sabbatical leave in the Fall of 1996 and support in many other critical, and deeply appreciated, ways. Herb Addison of Oxford University Press advised us so effectively and graciously that we actually wanted to make deadlines. Also, we are grateful to Paula Wald and Will Moore at Oxford for the attentive care they gave to editing the manuscript. Last but by no means least, we want to thank the Institutional Investor, the Fordham Law Review, the National Economic Research Associates, the National Association of Securities Dealers, the National Council of Individual Investors, the New York Stock Exchange, and the Securities Industry Association for generously permitting us to reproduce certain material included here. Albany, New York D. P. M. December 1997 D.W. H. Contents 1 Self-Regulation in Broker-Dealer Firms 3 2 The Social Benefits and Risks of Entrepreneurs and Free Agents 25 3 Government Regulation of Broker-Dealer Firms 42 4 Controls at Self-Regulatory Organizations and Broker-Dealer Firms 66 5 Private Litigation and Arbitration 93 6 Economic and Technological Changes—Coping with New Regulatory Problems 123 7 Differences among Broker-Dealer Firms 150 8 Foundations of Effective Self-Regulation 176 References 189 Index 209 This page intentionally left blank Wall Street Polices Itself
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