Enforcing Self-Regulatory Organization's Penalties and the Nature of Self-Regulation (with Caroline Novogrod), 40 Hofstra Law Review 963 (2012)
Few issues are as poorly understood and under-theorized as the
concept of "industry self-regulation." The Second Circuit recently raised
important issues about the nature of such self-regulations when it held
that the industry's self-regulatory agency, the Financial Industry
Regulatory Authority ("FINRA"), lacked the authority to judicially
enforce the fines it levies against member broker-dealers.
In this Article we provide a theoretical framework for
understanding the nature of self-regulation and then discuss the role of
courts in effectuating the self-regulatory process. Our thesis is simple:
the success of industry self-regulation critically depends on the market
power of the firms in the self-regulatory organization ("SRO"). If the
firms have market power, then as long as the industry generates profits
for members, self-regulation can work. But if either profitability or
market power decline, self-regulation will fail. We believe that our
analysis leads to a deeper understanding of the appropriate relationship
between self-regulatory agencies and the judiciary, where the issue is
whether and to what extent a self-regulatory organization can invoke the
power of the courts to enforce its rules and disciplinary decisions.
Date of Authorship for this Version
Macey, Jonathan and Novogrod, Caroline, "Enforcing Self-Regulatory Organization's Penalties and the Nature of Self-Regulation" (2012). Faculty Scholarship Series. Paper 4675.