|
Greetings!
On March 25th, the Securities and Exchange Commission approved Nasdaq's $62 million compensation pool for member firms who lost money after a design flaw delayed Facebook's open. Initial reports in the media described this as a defeat to Wall Street firms seeking reparation from larger losses.
I disagree with such assertions. Rather, this development is setting the stage for what will most likely be a long and contentious court battle between top-tier litigators. With this decision, the SEC is in effect handing the question of "limitation of liability" of today's for-profit exchanges over to litigators.
For those of us who know a litigator, or have had the misfortune of sitting across a table from one, you know that litigators are a different breed of attorney. My sister, who I love dearly, was a former litigator for one New York City's top law firms.
And she was good, very good, which meant she had a deadly combination of legal savviness, true grit and a will to defend her client by all means possible. Her definition of being "in zone" is-- let's just say-- different than most people's. I will not attempt to make any comparisons, only to say litigators are not the Navy SEALS of their profession. They do not come in undetected in the cover of night to exercise some surgical, precision assignment. They are very comfortable and-- actually prefer-- coming in loud, in full daylight. When they are done, whether they have won or lost, the landscape is different.
For the most part, our market structure today is the product of the combination of competition and regulation. There have been rare moments where a market structure change was determined not by these forces, but rather an outside force with a perspective or opinion unlike any which exists among market participants. For example, in 1996, after a three-and-a-half year investigation, the Justice Department announced its $1 billion settlement with litigators from 24 major Nasdaq dealers over anti-competitive practices. The decisions made between those two groups have left an imprint in the design on our markets today.
If any of this sounds over-alarming or irrational then I would encourage you to read some of the comment letters filed last year on this topic. LINK It does not take a reader long before they realize that these 'comment' letters were not written by the usual cast of market structure experts. Terms like false and misleading statements, gross misconduct and malfeasance are not used by our industry experts. Requests for a jury trial are only something a litigator would request. Receiving such a result would be comparable to getting home field advantage. The litigators are here and we need to pay attention.
Why? Because, the extent of limitation of liability of for-profit exchanges is complex and needs to be considered in context of the overall relationship with all the other for-profit market participants. It is not a micro market structure issue that should be decided in a vacuum of the other issues. Unfortunately, it appears that is the course this in on. And while it is doubtful that any decision will repeal limitation of liability to the full degree, it is likely that new standards or precedents will be set.
So when you read reports or updates on this topic, think about that litigator you know. For me, I will be thinking of my sister, and I know that somewhere out there is someone like her, who has done nothing since May 16, 2012 but eat, drink and sleep our market structure. This highly intelligent and motivated attorney is working diligently on a high profile case with large stakes and a client who has much to win or lose. Change is coming.
Sincerely Yours & Proud to Be,
 Jim Toes STA President | 
