December 8, 2006
Supreme Court May Fix an Old Error on Antitrust Law
The Supreme Court has agreed to hear and decide Credit Suisse First Boston v Billing, a Second Circuit opinion denying a motion to dismiss an antitrust case against the Wall Street underwriting industry based on share allocations in IPOs. The Wall Street Journal editorial page and Wall Street itself have whined about the holding, which I believe to be correct. Since the sixties, the Supreme Court has held that the SEC, enforcing the securities laws, and not the DOJ, enforcing the antitrust laws, has ultimate control over the competitive activities of Wall Street investment banks. The holding produced the unfortunate consequence of empowering the SEC to run the underwriting community like a public utility rather than a competitive industry. Industry wide rules (read anticompetitive rules) were fine as long as the SEC thought they were sound; the SEC tried to engineer a market (with the assent of the players) rather than let the market engineer itself (with rules against fraud as the boundary). The SEC has, as a consequence, chosen well with some rules and not so well with others (a classic government regulator). Exposing investment banks to robust antitrust regulation, which the SEC itself is loath to do, would have given us a far more vibrant and healthier trading market. In the end, however, the issue will not turn on policy, but on the obscure doctrine of "implied repeal." Did Congress, in passing the 33 and 34 securities acts, intend to pre-empt the older anti-trust legislation and cede anti-trust authority to the SEC??
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