Deja Vu All Over Again: The SEC’s Return to Agency Theory in Regulating Broker-Dealers

Monday, January 1st, 1990 at 12:00 am by Randall W. Quinn
Randall W. Quinn, Deja Vu All Over Again: The SEC’s Return to Agency Theory in Regulating Broker-Dealers, 1990 Colum. Bus. L. Rev. 61

In a recent decision, the Securities and Exchange Commission (“Commission”‘) surprised the securities industry by applying “good old fashioned agency law”‘ to a dispute between a customer and his broker-dealer regarding the appropriate method of handling a limit order in the over-the-counter (“OTC”‘) market. The Commission held that a broker-dealer, by accepting a customer’s order to sell stock at or above a specified price, became its agent and thus had to inform the customer of a potential conflict of interest — that the broker-dealer might sell for its own account at the same, or a higher, price than the price sought by the customer. Until this case, no regulatory proceeding had questioned this practice, which the broker-dealer insisted was business as usual. The question finally was posed in a case brought not by the regulators but by William Manning, a disappointed customer.

Author Information

Staff Attorney, Office of the General Counsel, Securities and Exchange Commission.