In April 2019, the United States Securities and Exchange Commission (SEC) adopted a long-awaited rule addressing the standard of conduct for broker-dealers and their associated persons.1 As a matter of law, registered investment advisers are fiduciaries; brokers often (perhaps even usually) not.2 For roughly two decades, however, there has been widespread recognition that most customers and clients of those who offer investment advice do not understand the often technical legal distinctions between brokers and advisers, and express the same needs and expectations of trustworthy advice from each. In Section 913 of the Dodd–Frank Act of 2010, Congress prompted the SEC to study and recommend ways to resolve this dissonance, conferring the authority to adopt rules relating to retail customer advice to unify the standard for brokers and advisers. On the assumption that the SEC would not lower the more exacting legal standard for registered investment advisers, uniformity would mean raising the level of broker responsibility by making them fiduciaries, too.

As is well known in federal securities law scholarship, one of the major goals of law and regulation in this area is to protect retail investors. In the most basic sense, legal mandates should tell financial professionals like brokers1 to avoid practices harmful to those investors and to put the interests of investors before their own. Regulations often have to be detailed because they must address already identified harmful practices and anticipate others. Recently implemented Regulation Best Interest (Reg BI) is a good example of this kind of detailed regulation insofar as it both establishes duties of brokers to retail investors and, in particular and among other things, compels firms to disclose, mitigate, or eliminate conflicts of interest of the broker-dealer and brokers that could lead them to put their interests above those of investors.2

Delaware corporate law governs the internal affairs of most publicly traded corporations. A meaningful evaluation of the rights and protections available to retail investors must therefore consider Delaware corporate law. Doing so reveals two fundamental realities.

The Securities and Exchange Act of 1934 charged the US Securities and Exchange Commission (SEC) with regulating financial markets as “necessary or appropriate in the public interest or for the protection of investors.”1 Many came to believe this language gave the SEC too little guidance and too much discretion. In 1996, Congress directed the SEC to consider, in addition to the protection of investors, whether a proposed rule will promote “efficiency, competition, and capital formation.”2 As the SEC interpreted these words beginning in 2012, the Act requires it to incorporate economic analysis into the rulemaking process. Absent a clear statutory mandate to impose a specific rule, the analysis must justify the rule by identifying a market failure as well as the rule’s likely effect on market outcomes.3

“Best execution” is among the more quixotic duties in the canon of investor protection. As agent, a broker owes its principal a duty “to execute promptly,” “to execute in an appropriate market,” and “to obtain the best price.”1 In today’s market, the quality of retail executions is perhaps better than it has ever been: technological advances and the dismantling of barriers to competition have whittled at commissions and narrowed trading spreads.2 And yet with each controversy – such the recent GameStop affair – Congress and the Securities and Exchange Commission (SEC) inexorably air their concerns that brokers and dealers skim undeserved profits or shirk execution obligations when handling retail transactions.3

Which court has competence over investor lawsuits and which rules will the court apply to such suits? It is hard to overestimate the significance of these questions for investor protection. The enforcement of investor rights crucially depends on which court will decide and which law it will follow. Importantly, the rules regarding jurisdiction and applicable law are not uniform around the world, but differ in a variety of ways. Consequently, investors may be able to enforce their rights in different countries under diverging legal frameworks, providing them with opportunities of forum shopping and applicable law shopping. Yet the uncoordinated nature of jurisdiction rules may also lead to a situation in which no court considers itself competent, leaving the investor without a forum and any effective remedy. All the more reason to dedicate particular attention to the issues treated in this contribution.

Insider trading law in the United States differs significantly both in design and scope from insider trading law in Australia. Whereas Australian law embodies a statute that explicitly prohibits securities trading while in possession of material nonpublic information, the US’s prohibition arises under the broad antifraud provisions in the federal securities laws, as interpreted by the US Supreme Court in a series of well-known decisions. Australian insider trading law also encompasses a broader prohibition because it operates on an “information connection” rather than a “person connection” – meaning that individuals who possess information that they know, or ought reasonably to know, is both material and nonpublic are prohibited from trading or from passing the information to others who might trade. In the United States, however, securities trading or tipping while in possession of material nonpublic information is illegal only insofar as it constitutes a fraud – meaning that the trader or tipper must breach a fiduciary duty of disclosure that is owed either to the securities issuer’s shareholders or to the source of the information. An American who finds in an airplane seatback a confidential corporate memo detailing a scientific development is not prohibited under US law from purchasing stock in the breakthrough company because he lacks the fiduciary connection that would render his silence in the securities transaction deceptive. But an Australian happening upon this same information and using it for personal trading profits would be violating Australia’s express statutory prohibition, whether or not the failure to disclose facts material to the transaction also constitutes a fraud.

Rogue brokers – securities-market professionals who defraud their clients, execute unauthorized transactions, or otherwise betray the trust necessarily reposed in them – constitute a relatively small but nonetheless persistent cohort in the securities industry. Likewise persistent is recidivism; fired by one firm, many rogues move on to join another firm in the industry. Repeated into a pattern, this sequence lessens the deterrent effect of firing on future misconduct; and prior misconduct is a good (but not perfect) predictor of future misconduct in this setting. When future misconduct occurs, it may stem from the employer’s failure to discharge its duties to supervise its personnel. Over time a distinct cohort of firms appears to welcome rogues, differentiating themselves from other firms providing comparable services to investors. Likewise, over time at least some rogues and their firms elude regulatory responses. The risk of harm that rogues create is externalized to their clients and customers, and, more indirectly, to the reputation of the securities industry as a whole1 and the credibility of its regulators.

There is a robust debate in progress between proponents of shareholder primacy, or the theory that corporations should be run for the benefit of shareholders, and proponents of stakeholder governance, or the theory that corporations should be run for additional constituencies also. Members of the academic community,1 the business world,2 and law firms3 are all participants in the conversation. This is a long-standing controversy, going back to the competing views of Professors Dodd and Berle in the 1930s.4 Corporate purpose seems to be questioned whenever loss of faith in the business community leads to clamors for reform. In the midst of the COVID-19 pandemic, there also is a loss of faith in political leadership. Our social, economic, and political problems have been laid bare by the pandemic, and so thinkers about corporate governance are renewing questions about corporate purpose and fiduciary duty.

The Investment Advisers Act of 1940 is the last of six federal securities laws passed in the wake of the 1929 stock market crash and the Great Depression. The Advisers Act (the “Act”) is of enormous importance. Approximately 14,000 investment advisers are registered with the US Securities and Exchange Commission (SEC), and another 4500, such as hedge fund and venture capital fund advisers, file reports with the SEC.1 Many of the largest investment advisers are household names, such as BlackRock, Vanguard, State Street, and Fidelity. The amount of assets under management held by SEC-registered advisers in 2020 was close to $100 trillion, an astounding figure.2 It is hard to imagine an economic sector more important to both Wall Street and Main Street.

Securities markets in predominantly Muslim countries have grown dramatically over the past twenty years. A solid percentage of these markets consists of equity offerings, with the largest markets being Saudi Arabia, Indonesia, Malaysia, and the United Arab Emirates.1 However, the fastest growing segment has been Sukuk offerings, which function much like bonds in other markets.2 Muslim jurisdictions face a unique challenge in the realm of investor protection because they typically have civil statutory regimes for securities regulation alongside Islamic ethical and legal rules that apply to investment. Secular securities regulations tend to either incorporate or reject principles refined in larger markets, particularly those of the United States, the United Kingdom, and the European Union. In countries with explicitly secular national constitutions such as Turkey and Indonesia, Islamic rules may inform investor and manager behavior, but they are not enforced by the state. However, this chapter will focus on the unique challenge most Muslim states face in applying secular investor protection rules alongside religious rules related to investment and trade.

China enacted the Chinese Trust Law in 2001 and the Measures for the Administration of Trust Companies’ Collective Trust Plans (CIT Measures) in the following year.1 This legal framework was introduced to steer trust and investment companies away from providing credits outside the state credit system in the name of so-called trust loans, and instead to operate such trust business as collective-investor trusts (CITs). Both trust and investment companies, and CITs, are regulated by the China Banking and Insurance Regulatory Commission, which replaced the China Banking Regulatory Commission (CBRC) in 2018.