Center for Contract and Economic Organization
Center for Law and Economic Studies
It is now a trite commonplace that the advent of the Internet will in time revolutionize securities regulation. Merely the facts that the Internet has somewhere between thirty and sixty million users worldwide today (with an estimated ten to thirty million in the United States) 2 and that some 800,000 U.S. investors already have online brokerage accounts 3 establish that there is a potential global market that can be accessed at very low cost. But the magnitude of the market says little about what will be the character and effect of this approaching revolution.
Technological change is not a new phenomenon for securities markets, and, in the past, such transitions have not necessarily been benign for investors. The introduction of the telegraph and the telephone profoundly changed the character of the securities markets, increasing the speed with which information could reach the market and the accessibility of investors to issuer communications. But an indirect result was to increase the informational advantages possessed by the professional trader over the average investor. More recently, the appearance of the computer revolutionized securities markets by facilitating the application of modern financial economics to actual trading decisions and making feasible the use of complex portfolio trading strategies. Again, the individual investor seems to have been largely a bystander to this transition. Thus, that improvements in information technology can reduce costs, increase speed, and expand the audience accessible to an issuer or other provider of financial information is not a new story,4 but in the past this has not implied the advent of a kinder, gentler world for investors.
This prefatory comment is not intended to imply that pessimism is justified about the implications of the Internet, but only to suggest that significant transitions typically have both upsides and downsides. Indeed, the introduction of the Internet may have unique positive implications that distinguish it from prior technological advances. Among these possible implications, the following stand out.
John C. Coffee Jr.,
Brave New World?: The Impact(s) of the Internet on Modern Securities Regulation,
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/2118