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84 Fordham L. Rev. 977 (2015-2016)
Disruptive Technology and Securities Regulation

handle is hein.journals/flr84 and id is 1003 raw text is: ARTICLES DISRUPTIVE TECHNOLOGY AND SECURITIES REGULATION Chris Brummer* Nowhere has disruptive technology had a more profound impact than in financial services-and yet nowhere do academics and policymakers lack a coherent theory of the phenomenon more, much less a coherent set of regulatory prescriptions. Part of the challenge lies in the varied channels through which innovation upends market practices. Problems also lurk in the popular assumption that securities regulation operates against the backdrop of stable market gatekeepers like exchanges, broker-dealers, and clearing systems-a fact scenario increasingly out of sync in twenty-first- century capital markets. This Article explains how technological innovation disrupts not only capital markets but also the exercise of regulatory supervision and oversight. It provides the first theoretical account tracking the migration of technology across multiple domains of today's securities infrastructure and argues that an array of technological innovations are facilitating what can be understood as the disintermediation of the traditional gatekeepers that regulatory authorities have relied on (and regulated) since the 1930s for investor protection and market integrity. Effective securities regulation will thus have to be upgraded to account for a computerized (and often virtual) market microstructure that is subject to accelerating change. To provide context, this Article examines two key sources of disruptive innovation: (1) the automated financial services that are transforming the meaning and operation of market liquidity; and (2) the private markets-specifically, the dark pools, electronic communication networks, 144A trading platforms, and crowdfunding websites-that are creating an ever-expanding array of alternatives for both securities issuances and trading. * Professor of Law, Georgetown University Law Center. Many thanks to Dan Gorfine, Don Langevoort, Robert Thompson, Rachel Loko, and Yesha Yadav. Ideas in this Article were presented and discussed at Georgetown's business law workshop and the Security Exchange Commission's Office of the Investor Advocate. Josh Nimmo, Scott Israelite, and Bodie Stewart provided excellent research assistance, and the Article would not have been possible without the professional assistance of Marilyn Raisch, Than Nguyen, Ester Cho, and Yelena Rodriguez. I am also indebted to the staff of various regulatory and self-regulatory agencies who, though requesting anonymity, provided invaluable perspective. 977

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