Brooklyn Journal of Corporate, Financial & Commercial Law


James A. Fanto

First Page



This essay examines Professor Roberta Karmel’s scholarship on the transformation of self-regulatory organizations (SROs) and the securities market structure, a transformation that occurred at the turn of the last century. It explains how she examined the events from the perspective of a lawyer who had a rich knowledge of the history of the SROs, the securities markets, and their regulation and how she provided a practical understanding of the way these markets worked. It points out that, rather than offering an overarching theory that would explain all of these developments and that would guide regulators and legislators in SRO and securities market structure reforms, she pointed out problems and contradictions in the developments that, in her view, would have to be faced and addressed by both Congress and the SEC. The essay first sets out briefly the background to and a timeline for the SRO and securities market transformation and describes how that transformation closely intersects with Roberta’s career as a legal practitioner, a regulator, and a legal academic. It then looks at her scholarly discussion on how the self-regulatory functions of the stock exchanges became the Financial Industry Regulatory Authority (FINRA), where she raised the important question whether self-regulation by broker-dealers continued to exist post-FINRA. The essay explores a possible answer to this question, which Roberta has acknowledged, in a new form of self-regulation—the collaboration between FINRA and those officers in broker-dealers who are responsible for ensuring that they and their employees follow law and regulation, the compliance officers. It next looks at Roberta’s insights on the related subject of the transformation of the stock exchanges and its overall effects upon securities market structure, explaining how she identified for the legal academic audience the forces, including the regulatory ones, that were pushing the exchanges to become public companies and the market fragmentation that resulted from the proliferation of trading venues. It then explains that Roberta took a “wait and see” approach to problems in securities market structure, recommending that securities markets be allowed to develop with their new forms and technology before Congress and the SEC apply to them a major new regulatory framework and that the SEC regulate with a light hand, correcting market problems where necessary, while the outline of a new market structure emerged. The essay concludes by briefly looking at the current securities market from Roberta’s perspective.