Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, October 4, 2016

Schwartz on Venture Exchanges

Jeff Schwartz has posted Venture Exchange Regulation: Listing Standards, Market Microstructure, and Investor Protection on SSRN with the following abstract:

This chapter from the forthcoming Handbook on Law and Entrepreneurship (Gordon Smith & Christine Hurt eds.) sets out a template for the regulation of venture exchanges — securities markets specifically designed for trading smaller and younger firms.

I argue for listing standards that eliminate the smallest and youngest firms, and those where the listing exchange perceives a heightened risk of fraud. I also suggest that market microstructure rules should mandate fully transparent call-auction trading and limit trading to the listing exchange. Finally, I argue that the most efficient and effective way to protect investors is to deemphasize ex ante regulation, in particular, mandated disclosures, much of which retail investors would likely ignore, and instead emphasize ex post regulation, in particular, SEC enforcement of the rules against securities fraud, market manipulation, and insider trading.

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