The new investor

UCLA Law Review

Volumn 60, Issue 3, 2013, Pages 678-735

  Lin, Tom C W ^a  

^a UNIVERSITY OF FLORIDA   (United States)

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EID: 84875820835     PISSN: 00415650     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (435)

1. The human investor has long been the main character of modem financial regulation. See, e.g., H. R. REP. NO. 73-1383, pt. 2, at 5 (1934) (focusing on investor protection during the enactment of the Securities Exchange Act of 1934);
2. H. R. REP. NO. 73-85, pt. 1, at 2 (1933) (emphasizing the protection of investors as the purpose of the Securities Act of 1933);
3. Ralph K. Winter, On "Protecting the Ordinary Investor", 63 WASH. L. REV. 881, 882-83 (1988) (noting that safeguarding investors is a primary goal of securities regulation).
4. Graham Bowdey, Dow Falls 1, 000, Then Rebounds, Shaking Market, N. Y. TIMES, May 7, 2010, at A1.
5. Graham Bowley, Lone Sale of $4.1 Billion in Contracts Led to 'Flash Crash' in May, N. Y. TIMES, Oct. 2, 2010, at B1.
6. See DIANA H. HOOK & JEREMY M. NORMAN, ORIGINS OF CYBERSPACE: A LIBRARY ON THE HISTORY OF COMPUTING, NETWORKING, AND TELECOMMUNICATIONS 78 (2002).
7. Norman E. Fry, Univac, in HISTORICAL DICTIONARY OF THE 1940S, at 390 (James G. Ryan & Leonard Schlup eds., 2006).
8. CARL REYNOLDS & PAUL TYMANN, SCHAUM'S OUTLINE OF PRINCIPLES OF COMPUTER SCIENCE 11 (2008).
9. PAULE. CERUZZI, AHISTORYOFMODERNCOMPUTING 110 (2d ed. 2003).
10. Time typically chooses a "Person of the Year", but in 1983 the distinction was granted to a machine for the first time. See Otto Friedrich, The Computer Moves In, TIME, Jan. 3, 1983, at 14.
11. The World Wide Web debuted on December 25, 1990. See STEPHANIE SAMMARTINO MCPHERSON, USA TODAY, TIM BERNERS-LEE: INVENTOR OF THE WORLD WIDE WEB 5 (2010).
12. FENG-HSIUNG HSU, BEHIND DEEP BLUE: BUILDING THE COMPUTER THAT DEFEATED THE WORLD CHESS CHAMPION, at ix (2002).
13. See S. CRAIG WATKINS, THE YOUNGANDTHEDIGITAL: WHAT THE MIGRATION TO SOCIAL-NETWORK SITES, GAMES, AND ANYTIME, ANYWHERE MEDIA MEANS FOR OUR FUTURE 3 (2009).
14. John Markoff, Computer Wins on Jeopardy!': Trivial, It's Not, N. Y. TIMES, Feb. 17, 2011, at A1.
15. See Andrew G. Haldane, Exec. Dir., Fin. Stability, Bank of Eng., The Race to Zero, Speech at the International Economic Association Sixteenth World Congress, Beijing, China 3 (July 8, 2011), http://www.bankofengland.co.uk/ publications/speeches/2011/speech509.pdf (discussing transformational changes in financial markets over the last century).
16. As indicia of modern finance's global nature, the U. S. Supreme Court recendy opined on a securities case involving Australian securities purchased abroad and litigated under federal law. See Morrison v. Natl Austl. Bank Ltd., 130 S. Ct. 2869 (2010);
17. seealso Stephen J. Choi & Andrew T. Guzman, Portable Reciprocity: Rethinking the International Reach of Securities Regulation, 71 S. CAL. L. REV. 903, 905-07 (1998) (noting that the "internationalization of capital markets continues at a dramatic pace" as a result of technology); (Pubitemid 128429204)
18. Merritt B. Fox, Securities Disclosure in a Globalizing Market: Who Should Regulate Whom, 95 MICH. L. REV. 2498, 2501-03 (1997).
19. See Shirley J. Ho & Sushanta K. Mallick, The Impact of Information Technology on the Banking Industry: Theory and Empirics 2 (Nov. 7, 2006) (unpublished manuscript) (describing the prominent role of computers in modern banking).
20. Charles Reich concedes a similar sentiment in his commentary of the then-transforming and transformative role of government on property, wealth, and individualism. See Charles A. Reich, The New Property, 73 YALE L. J. 733, 733 (1964) ("Inevitably, such an effort must be incomplete and tentative. But it is long past time that we began looking at the transformation taking place around us.").
21. See generally COMMODITY FUTURES TRADING COMM'N & SEC. & EXCH. COMM'N FINDINGS REGARDINGTHE MARKET EVENTS OF MAY 6, 2010, at 1(2010), available at http://www.sec.gov/news/studies/2010/marketevents-report.pdf (summarizing and evaluating the events occurring on May 6, 2010) [hereinafter CFTC & SEC FINDINGS].
22. Jonadian Zittrain suggested that the internet and its related information technology contained an inherent capacity for innovation that he called "generativity." See Jonathan L. Zittrain, The Generative Internet, 119 HARV. L. REV. 1975, 1980 (2006) ("Generativity denotes a technology's overall capacity to produce unprompted change driven by large, varied, and uncoordinated audiences.").
23. For an overview of the legal debate between rules and standards, see Colin S. Diver, The Optimal Precision of Administrative Rules, 93 YALE L. J. 65 (1984)
24. Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 DUKE L. J. 557 (1993)
25. Seana Valentine Shifrrin, Essay, Inducing Moral Deliberation: On the Occasional Virtues of Fog, 123 HARV. L. REV. 1214 (2010)
26. Kathleen M. Sullivan, The Supreme Court, 1991 Term-Foreword: The Justices of Rules and Standards, 106 HARV. L. REV. 22 (1993)
27. and Cass R. Sunstein, Problems With Rules, 83 CALIF. L. REV. 953 (1995).
28. Gordon E. Moore, Cramming More Components Onto Integrated Circuits, ELECTRONICS, Apr. 19, 1965, at 114, 114-15.
29. see NICHOLAS CARR, THE BIG SWITCH: REWIRING THE WORLD, FROM EDISON TO GOOGLE 58 (2009).
30. see NICHOLAS CARR, THE SHALLOWS: WHAT THE INTERNET IS DOING TO OUR BRAINS 83 (2011) ("[T]he price of a typical computing task has dropped by 99.9 percent since the 1960s.");
31. ORG. FOR ECON. CO-OPERATION AND DEV. (OECD), 21ST CENTURY TECHNOLOGIES: PROMISES AND PERILS OF A DYNAMIC FUTURE 9 (1998) (stating that "[f]aster, cheaper, [and] smaller" are the key objectives of the technology sector);
32. Chip Walter, Kryder's Law, SCI. AM., Aug. 2005, at 32.
33. See, e.g., How Your Nokia Smartphone Compares With PCs of the Past, CONVERSATIONS BY NOKIA (Mar. 18, 2011), http://nokiaconnects.com/2011/03/18/how- your-nokia-smartphone-compareswith-pcs-of-the-past (describing how a smartphone contains thousands of times the memory and processing power of the average 1980s computer).
34. MICHIO KAKU, PHYSICS OF THE FUTURE: HOW SCIENCE WILL SHAPE HUMAN DESTINY AND OURDAILY LIVES BYTHEYEAR 2100, at 21 (2011).
35. MAURICE ESTABROOKS, ELECTRONIC TECHNOLOGY, CORPORATE STRATEGY, AND WORLD TRANSFORMATION 2 (1995).
36. see DEBORAH MORLEY, UNDERSTANDING COMPUTERS IN A CHANGING SOCIETY 44 (4th ed. 2011).
37. See Press Release, Gartner, Inc., Gartner Says PC Shipments to Slow to 3.8 Percent Growth in 2011; Units to Increase 10.9 Percent in 2012 (Sept. 8, 2011), http://www.gartner.com/it/page.jsp?id=1786014&source=email-rt-rnc.
38. See WILLIAM POWERS, HAMLETS BLACKBERRY: BUILDING A GOOD LIFE IN THE DIGITAL AGE 14 (2010) ("For the last decade, we've worked hard to bring digital connectedness into every available corner of existence and, once it's there, to make it ever faster and more seamless.").
39. Steven Levy, The AI Revolution, WIRED Jan. 2011, at 88 (describing the rise of artificial intelligence in modern life).
40. see, e.g., STACEY L. EDGAR, MORALITY AND MACHINES: PERSPECTIVES ON COMPUTER ETHICS 1 (2003);
41. EUGENE F. PROVENZO, JR. ET AL., COMPUTERS, CURRICULUM, AND CULTURAL CHANGE: AN INTRODUCTION FOR TEACHERS 18 (2005);
42. SHERRY TURKLE, THE SECOND SELF: COMPUTERS AND THE HUMAN SPIRIT 287-88 (MIT Press 20th anniv. ed. 2005) (1984) ("[Computers and] the Internet changed every aspect of life in communications, economics, politics, and the arts. But [they] also changed how we saw ourselves and our relationships.") ;
43. Stephen Marche, Is Facebook Making Us Lonely?, ATLANTIC, May 2012, at 62 ("In a world consumed by ever more novel modes of socializing, we have less and less actual society. We live in an accelerating contradiction: the more connected we become, the lonelier we are.").
44. See CARR, supra note 24, at 6-8 (discussing how the internet affects our cognitive functions and abilities);
45. SHERRY TURKLE, ALONE TOGETHER: WHY WE EXPECT MORE FROM TECHNOLOGY AND LESS FROM EACH OTHER 279-81 (2011) (discussing how technology affects human behavior).
46. See, e.g., Quentin Hardy, Tie Matrix of Soap, FORBES, Aug. 22, 2011, at 32 (reporting on how one company utilizes supercomputer data analysis to manage its global businesses in real time);
47. Daniel Lyons, Who Needs Humans, NEWSWEEK, July 25, 2011, at 28 (discussing how robotics has changed labor force composition).
48. See, e.g., JOHN MAYNARD KEYNES, Economic Possibilities for Our Grandchildren, in ESSAYS IN PERSUASION 358, 364 (Norton Library 1963) (1931) (warning of a "new disease" of "technological unemployment", in which jobs are lost because of rapid technological progress (emphasis omitted));
49. David H. Autor et al., The Skill Content of Recent Technological Change: An Empirical Exploration, 118 Q. J. ECON. 1279 (2003) (explaining how computerization accelerates the substitution of machinery for human labor).
50. See Joseph Galante, Rise of the Orange Machines, BUS. WK., Nov. 15, 2010, at 47.
51. See Steven Levy, The Rise of the Robot Reporter, WIRED, May 2012, at 132.
52. IAN AYRES, SUPER CRUNCHERS: WHY THINKINC-BY-NUMBERS IS THE NEW WAY TO BE SMART 129 (2007).
53. See W. Brian Arthur, The Second Economy, MCKINSEY Q., Oct. 2011, at 92 (discussing how tech nology has replaced human labor with electronic and digital processes in many areas).
54. For readers in the distant future, there was a time when individuals in this country used a large bulky book printed on low-stock paper weighing multiple pounds to locate the telephone number of businesses and individuals manually. For a history of phone books, see AMMON SHEA, THE PHONE BOOK: THE CURIOUS HISTORY OF THE BOOK THAT EVERYONE USES BUT NO ONE READS (2010).
55. This increase in productivity has arguably come at some cost to individuals and society. For individuals, it could be argued that our brains have become less adept at deep thought because of increased reliance on computers. For society, it could be argued that virtual interactions and online connections have taken the place of meaningful physical interactions and real connections. See CARR, supra note 24, at 120-26 (explaining how the internet affects our cognitive functions);
56. JARON LANIER, YOU ARE NOT A GADGET: A MANIFESTO 1-14 (2010)
57. See David Pogue, New iPhone Conceals Sheer Magic, N. Y. TIMES, Oct. 12, 2011, at B1 (describing the speech recognition features of the iPhone 4S).
58. See, e.g., NATE SILVER, THE SIGNAL AND THE NOISE: WHY SOME PREDICTIONS FAIL-BUT SOME DONT 9-10 (2012);
59. Andrew McAfee & Erik Brynjolfsson, Big Data: The Management Revolution, HARV. BUS. REV., Oct. 2012, at 60, 62-68 (discussing Big Data's impact on corporations);
60. Ashlee Vance, The Data Knows, BUS. WK., Sept. 12, 2011, at 71 (reporting on the impact of data analysis on individual and societal behavior).
61. See Eliza Strickland, Supercomputers Predict a Stormy Hurricane Season, IEEE SPECTRUM, Jury 2011, at 11.
62. See Tom Post, Bits and the Bard, FORBES, June 27, 2011, at 46.
63. see GABRIEL B. COSTA ET AL., PRACTICING SABERMETRICS: PUTTING THE SCIENCE OF BASEBALL STATISTICS TO WORK 5-8 (2009).
64. See Julianna Goldman, The Obama Campaigns Secret Weapon: Geeks, BUS. WK., Dec. 19, 2011, at 39.
65. See Nick Paumgarten, Looking for Someone, NEW YORKER, July 4, 2011, at 36, 37-38;
66. Jenna Wortham, With an App, Your Next Date Could Be Just Around the Comer, N. Y. TIMES, Nov. 3, 2011, at A1.
67. See generally Natasha Singer, You for Sale, N. Y. TIMES, June 17, 2012, at BU1 (reporting on the development of consumer data analytics and the potential privacy and customer classification concerns that may result).
68. See Elizabeth Bumiller & Thom Shanker, War Evolves With Drones, Some Ttny As Bugs, N. Y. TIMES, June 20, 2011, at A1 (reporting on the United States's increased use of unmanned aerial drones in warfare);
69. John Markoff, War Machines: Recruiting Robots for Combat, N. Y. TIMES, Nov. 28, 2010, at A1 (discussing the impact of robotics on future warfare).
70. At the same time, certain technological advances have actually made humans more likely to perform some routine tasks. See, e.g., Craig Lambert, Our Unpaid, Extra Shadow Work, N. Y. TIMES, Oct. 30, 2011, at SR12 ("Although the automatons were supposedly going to free people by taking on life's menial, repetitive tasks, frequently, technological innovation actually offloads such jobs onto human beings.").
71. See John Markoff, Look Officer, No Hands: Google Car Drives Itself, N. Y. TIMES, Oct. 10, 2010, at A1.
72. See, e.g., Claire Cain Miller & Nick Bilton, Google's Lab of Wildest Dreams, N. Y. TIMES, Nov. 14, 2011, at A1;
73. Ashlee Vance, Merely Human? So Yesterday, N. Y. TIMES, June 13, 2011, at BU1 (reporting on futurists who envision a time when "human beings and machines will so effortlessly and elegantly merge that poor health, the ravages of old age and even death itself will all be things of the past");
74. David Weinberger, The Machine That Would Predict the Future, SCI. AM., Dec. 2011, at 52.
75. See Frank J. Fabozzi et al., High-Frequency Trading: Methodologies and Market Impact, 19 REV. FUTURES MARKETS 7, 9-10 (2011) (describing continuing changes in computerized trading in finance);
76. Michael J. McGowan, The Rise of Computerized High Frequency Trading: Use and Controversy, 2010 DUKE L. & TECH. REV., no. 16, at i, iv-vii (chronicling the history of algorithmic trading);
77. Felix Salmon & Jon Stokes, Bull vs. Bear vs. Bot, WIRED, Jan. 2011, at 91 ("Algorithms have become so ingrained in our financial system that the markets could not operate without them.").
78. See STAFF OF THE SEC, REPORT TO CONGRESS ON DECIMALIZATION 4(2012), available at http://www.sec.gov/newstudies/2012/decimalization-072012.pdf ("Prior to implementing decimal pricing in April 2001, the U. S. equity market used fractions as pricing increments, and had done so for hundreds of years.").
79. See Regulation ATS-Alternative Trading Systems, 17 C. F. R. § 242.300 (a) (2012);
80. see also EDWARD F. GREENE ET AL., U. S. REGULATION OFTHE INTERNATIONAL SECURITIES AND DERIVATIVES MARKETS § 14.10, at 10-133 (9th ed. 2009) ("In the [Reg ATS], the SEC expanded its interpretation of an 'exchange' under the Exchange Act to include a broad range of electronic trading systems-").
81. see SAL ARNUK & JOSEPH SALUZZI, BROKEN MARKETS: HOW HIGH FREQUENCY TRADING AND PREDATORY PRACTICES ON WALL STREET ARE DESTROYING INVESTOR CONFIDENCE AND YOUR PORTFOLIO 68-78 (2012);
82. BRIAN R. BROWN, CHASING THE SAME SIGNALS: HOW BLACK-BOX TRADING INFLUENCES STOCK MARKETS FROM WALL STREET TO SHANGHAI 2 (2010);
83. DAVID J. LEINWEBER, NERDS ON WALL STREET: MATH, MACHINES, AND WIRED MARKETS 31-64 (2009).
84. See, e.g., RAY KURZWEIL, THE AGE OF SPIRITUAL MACHINES: WHEN COMPUTERS EXCEED HUMAN INTELLIGENCE 70 (1999);
85. Markku Malkamäki & Jukka Topi, Future Challenges for Securities and Derivative Markets, in 3 RESEARCH IN BANKING AND FINANCE 359, 382 (Iftekhar Hasan & William C. Hunter eds., 2003) ("At the end of the 1990s, between 30% and 40% of all U. S. securities transactions were channeled through the Internet and about 15% of all the U. S. equity trades were done on-line.").
86. see also William M. Bulkeley, Computers Take On New Role as Experts in Financial Affairs, WALL ST. J., Feb. 7, 1986, at 23.
87. 17 C. F. R. § 242.601.
88. See Regulation NMS, 70 Fed. Reg. 37, 496, 37, 621-32 (June 29, 2005)
89. (codified as amended at 17 C. F. R. §§ 242.600-242.612);
90. see also Laura Nyantung Beny, U. S. Secondary Stock Markets: A Survey of Current Regulatory and Structural Issues and a Reform Proposal to Enhance Competition, 2002 COLUM. BUS. L. REV. 399, 426 ("|T]he express purpose of the NMS [is] to promote efficiency and competition across secondary markets.").
91. SCOTT PATTERSON, DARK POOLS: HIGH-SPEED TRADERS, AL BANDITS, AND THE THREAT TO THE GLOBAL FINANCIAL SYSTEM 49 (2012).
92. See, e.g., Melanie Rodier, Wall Street Firms Fine-Tune Reg NMS Compliance, Look Ahead at the Future, WALL ST. & TECH. (June 12, 2007), http://www.wallstreetandtech.conm/articles/199903415.
93. For an overview of contemporary quantitative trading and its leading players, see generally SCOTT PATTERSON, THE QUANTS: HOW A NEW BREED OF MATH WHIZZES CONQUERED WALL STREET AND NEARLY DESTROYED IT (2010).
94. FIN. CRISIS INQUIRY COMM'N, THE FINANCIAL CRISIS INQUIRY REPORT 44 (2011) (quoting Interview by Fin. Crisis Inquiry Comm'n With Scott Patterson (Aug. 12, 2010)).
95. ROBERT A. G. MONKS & ALEXANDRA REED LAJOUX, CORPORATE VALUATION FOR PORTFOLIO INVESTMENT: ANALYZING ASSETS, EARNINGS, CASH FLOW, STOCK PRICE, GOVERNANCE, AND SPECIAL SITUATIONS 229 (2011).
96. David M. Serritella, High Speed Trading Begets High Speed Regulation: SEC Response to Flash Crash, Rash, 2010 U. ILL. J. L. TECH. & POLY 433, 436 ("Automation is a crucial element in HFT [high frequency trading].").
97. Helen Coster, Search and Disrupt, FORBES, Sept 26, 2011, at 60 (profiling software that reads and summarizes federal securities filings in seconds).
98. See, e.g., Charles Duhigg, Stock Traders Find Speed Pays, in Milliseconds, N. Y. TIMES, July 24, 2009, at A1 ("[Algorithmic computer programs] can spot trends before other investors can blink, changing orders and strategies within milliseconds.").
99. See, e.g., Jerry W. Markham & Daniel J. Harty, For Whom the Bell Tolls: The Demise of Exchange Trading Floors and the Growth of ECNs, 33 J. CORP. L. 865, 866 (2008) ("Exchange trading floors are fast fading into history as the trading of stocks and derivative instruments moves to electronic communications networks (ECNs) that simply match trades by computers through algorithms.").
100. See Nathaniel Popper, Public Exchanges Duel With Newcomers Over Trade Transparency, N. Y. TIMES, June 27, 2012, at B1.
101. In re N. Y. Stock Exch. LLC, No. 3-15023, Exchange Act Release No. 67, 857 (Sept. 14, 2012), 2012 SEC LEXIS 2921, available at http:/wvw.sec.gov/ litigation/admin/2012/34-67857.pdf.
102. Ben Profess & Nathaniel Popper, Exchange Sale Reflects New Realities of Trading, N. Y. TIMES, Dec. 21, 2012, at A1.
103. See Regulation of Non-public Trading Interest, 74 Fed. Reg. 61, 208 (proposed Nov. 23, 2009)
104. (to be codified at 17 C. F. R. pt. 242);
105. Mary L. Schapiro, Chairman, U. S. Sec. & Exch. Comm'n, Statement on Dark Pool Regulation Before the Commission Open Meeting (Oct. 21, 2009) (transcript available at http://www.sec.gov/news/speech/2009/spch102109mls.htm);
106. Matthew Philips, Where Has All the Trading Gone?, BUS. WK., May 14, 2012, at 49 (reporting on the migration of trading from public exchanges to dark pools).
107. See, e.g., David R. Johnson & David Post, Law and Borders-The Rise of Law in Cyberspace, 48 STAN. L. REV. 1367, 1367 (1996);
108. Lawrence Lessig, The Law of the Horse: What Cyberlaw Might Teach, 113 HARV. L. REV. 501, 514-15 (1999).
109. Nelson D. Schwartz & Louise Story, Surge of Computer Selling After Apparent Trading Glitch Sends Stocks Plunging, N. Y. TIMES, May 7, 2010, at B7.
110. See, e.g, GARY B. GORTON, SLAPPED BY THE INVISIBLE HAND: THE PANIC OF 2007, at 6-8 (2010) (noting the growing importance of the shadow banking system in modern finance);
111. DAVID SKEEL, THE NEW FINANCIAL DEAL: UNDERSTANDING THE DODD-FRANK ACT AND ITS (UNINTENDED) CONSEQUENCES 62 (2011) (discussing deregulation, financial innovation, and the birth of shadow banking);
112. Andrew W. Lo, Regulatory Reform in the Wake of the Financial Crisis of 2007-2008, 1 J. FIN. ECON. POLY 4, 14-18 (2009) (summarizing the reach of the shadow banking system).
113. See IRENE ALDRIDGE, HIGH-FREQUENCY TRADING: A PRACTICAL GUIDE TO ALGORITHMIC STRATEGIES AND TRADING SYSTEMS 1 (2010);
114. see also Concept Release on Equity Market Structure, Exchange Act Release No. 34-61, 358, 75 Fed. Reg. 3594, 3598 (proposed Jan. 21, 2010)
115. (to be codified at 17 C. F. R. pt. 242).
116. See Eric Dash & Christine Hauser, As Dizzying Week Ends on Wall St., Dangers Linger, N. Y. TIMES, Aug. 13, 2011, at A1.
117. See FRANK PARTNOY, WATT: THE ART AND SCIENCE OF DELAY 43 (2012).
118. Neil Shah, High-Speed Traders Dive Into Forex Despite Doubts, WALL ST. J., Apr. 25, 2011, http://online.wsj.com/article/ SB10001424052748704677404576284921020282968.html.
119. Graham Bowley, Fast Traders, in Spotlight, Battle Rules, N. Y. TIMES, July 18, 2011, at A1.
120. Richard Teitelbaum, Morgan Stanley Yoga-Troubadour-Crossword-Math Pro Muller Flees, BLOOMBERG MARKETS MAG., July 7, 2011, http://www.bloomberg.com/ news/2011-07-07/morgan-stanley-syoga-troubadour-crossword-mathi-pro-flees-with- 20-returns.html.
121. RISHI K. NARANG, INSIDE THE BLACK BOX: THE SIMPLE TRUTH ABOUT QUANTITATIVE TRADING 4 (2009).
122. See An Introduction to Financial Software Development, SCOTTLOGIC, http://wwvv. scottlogic.co.uk/careeis/financial-software-development (last visited Nov. 24, 2012) ("All of the large financial institutions (e.g. investment banks) have their own software development teams.").
123. See generalty Dawn Kopecki, BofA, JPMorgan Reprise Perfect Trading Records, BLOOMBERG, Nov. 9, 2010, http://www.bloombeig.com/new/2010-11-09/ jpmorgan-reprises-perfect-trading-record-asgoldman-posts-two-losing-days.html.
124. See DAVID P. STOWELL, AN INTRODUCTION TO INVESTMENT BANKS, HEDGE FUNDS, AND PRIVATE EQUITY: THE NEW PARADIGM 97-111 (2010) (discussing the prevalence ofinstitutional financial trading).
125. See Erik F. Gerding, Code, Crash, and Open Source: The Outsourcing of Financial Regulation to Risk Models and the Global Financial Crisis, 84 WASH. L. REV. 127, 130-35 (2009).
126. Aladdin Enterprise Investment System, BLACKROCK, http://www2.blackrock. com/US/brs/investmenttools/aladdin (last visited Nov. 24, 2012).
127. See Sheelah Kolhatkar & Sree Vidya Bhaktavatsalam, The Colossus of Wall Street, BUS. WK., Dec. 13, 2010, at 60, 66.
128. See, David A. Hoffman, The "Duty" to Be a Rational Shareholder, 90 MINN. L. REV. 537, 537-39 (2006) (highlighting the importance of the reasonable investor construct to federal securities law);
129. Margaret V. Sachs, Materiality and Social Change: The Case for Replacing "the Reasonable Investor" With "the Least Sophisticated Investor" in Inefficient Markets, 81 TUL. L. REV. 473, 475 (2007).
130. See, e.g., H. R. REP. NO. 73-1383, pt. 2, at 5 (1934) (discussing the need to protect individual investors in enacting the Securities Exchange Act of 1934);
131. H. R. REP. NO. 73-85, pt. 1, at 2 (1933) (highlighting protection for reasonable investors as the purpose of the Securities Act of 1933).
132. 17 C. F. R. §240.10b-5 (2012).
133. 426 U. S. 438 (1976).
134. 485 U. S. 224 (1988).
135. See Julie A. Herzog, Fraud Created the Market: An Unwise and Unwarranted Extension of Section 10 (b) and Rule 10b-5, 63 GEO. WASH. L. REV. 359, 367-70 (1995) (examining the breadth and impact of Rule 10b-5);
136. James J. Park, Rule 10b-5 and the Rise of the Unjust Enrichment Principle, 60 DUKE L. J. 345, 351-52 (2011) (highlighting the historical importance of Rule 10b-5 in preventing securities fraud).
137. See, e.g., Stefan J. Padfield, Is Puffery Material to Investors? May be We Should Ask Them, 10 U. PA. J. BUS. & EMP. L. 339, 365 (2008) (acknowledging the unsetded definition of the "reasonable investor").
138. See, e.g., Joan MacLeod Heminway, Female Investors and Securities Fraud: Is tie Reasonable Investor a Woman?, 15 WM. & MARY J. WOMEN & L. 291, 293-94 (2009).
139. See Peter H. Huang, Moody Investing and the Supreme Court: Rethinking the Materiality of Information and the Reasonableness of Investors, 13 SUP. CT. ECON. REV. 99, 100-04 (2005) (theorizing that reasonable investors invest based on altitudes and noncognitive factors beyond risk and return).
140. Compare Barbara Black & Jill I. Gross, Making It Up as They Go Along: The Role of Law in Securities Arbitration, 23 CARDOZO L. REV. 991, 1037 (2002) ("[T]odays 'reasonable investors' are expected to possess a certain level of understanding and sophistication-")
141. Carlos Rodriguez-Sickert, Homo Economics, in HANDBOOK OF ECONOMICS AND ETHICS 223, 223 (Jan Peil & Irene van Staveren eds., 2009).
142. See, e.g., Regulation NMS, 70 Fed. Reg. 37, 496, 37, 500 (June 29, 2005) ("Indeed, the core concern for the welfare of long-term investors⋯ was first expressed in the foundation documents of the Exchange Act itself.").
143. GARY S. BECKER, THE ECONOMIC APPROACH TO HUMAN BEHAVIOR 14 (1976).
144. Troy A Paredes, Blinded by the Light Information Overload and Its Consequencesfor Securities Regulation, 81 WASH. U. L. Q. 417, 418 (2003).
145. See, e.g., Tom C. W. Lin, A Behavioral Framework for Securities Risk, 34 SEATTLE U. L. REV. 325, 336 (2011) ("In practice, this assumption has produced a regulatory framework that emphasi2es more information over less information, more disclosure over better disclosure, quantity over quality.").
146. See, e.g., Drake Bennett & Carter Dougherty, She's With the Government and She's Here to Help, BUS. WK., July 11, 2011, at 58, 60-64 (chronicling efforts to establish the Consumer Financial Protection Bureau as a sentinel for protecting investors and consumers).
147. Shareholder Approval of Executive Compensation and Golden Parachute Compensation, Exchange Act Release No. 33-9178, 76 Fed. Reg. 6010, 6013 (Feb. 2, 2011)
148. (to be codified at 17 C. F. R. pts. 229, 240, 249) (granting shareholders a nonbinding vote on certain executive compensation matters).
149. See CHARLES ROXBURGH ET AL., MCKINSEY GLOBAL INST., GLOBAL CAPITAL MARKETS: ENTERING A NEW ERA 9 (2009) (charting the growth of U. S. capital markets);
150. Bengt Holmstrom & Steven N. Kaplan, The State of U. S. Corporate Governance: What's Right and What's Wrong?, J. APPLIED CORP. FIN., Spring 2003, at 8, 8-11 ("Despite the alleged flaws in its governance system, the U. S. economy has performed very well, both on an absolute basis and particularly relative to other countries. U. S. productivity gains in the past decade have been exceptional, and the U. S. stock market has consistently outperformed other world indices over the last two decades-").
151. See OFFICE OF MGMT. & BUDGET, BUDGET OF THE UNITED STATES GOVERNMENT, FISCAL YEAR 2006, at 20-21 (2005) (detailing the rise of the U. S. gross domestic product since 1940).
152. See David Brooks, The Unexamined Society, N. Y. TIMES, July 8, 2011, at A23 ("[T]oday we are in the middle of a golden age of behavioral research. Thousands of researchers are studying the way actual behavior differs from the way we assume people behave.");
153. see also BEHAVIORAL LAW & ECONOMICS (Cass R. Sunstein ed., 2000).
154. A pillar of the influential field of behavioral economics is built on challenging the rational actor assumption of neoclassical economics. See, e.g., Christine Jolls et al., A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471 (1998); (Pubitemid 128421723)
155. Richard A. Posner, Rational Choice, Behavioral Economics, and the Law, 50 STAN. L. REV. 1551 (1998). (Pubitemid 128421724)
156. See David L. Faigman, To Have and Have Not: Assessing the Value of Social Science to the Law as Science and Policy, 38 EMORY L. J. 1005, 1047 n. 151 (1989) ("[E]conomists who assume that people are "rational" decisionmakers have articulated highly sophisticated models that purport to make predictions of great exactitude. In the real world, of course, people are not rational decisionmakers, and the economists' models suffer accordingly.");
157. See Jeffrey J. Rachlinksi, Misunderstanding Ability, Misallocating Responsibility, in THINKING AND SEEING: VISUAL METACOGNTTION IN ADULTS AND CHILDREN 251, 252 (Daniel T. Levin ed., 2004) (comparing the reasonable person to "a kind of superhero" because of her superior cognitive abilities relative to lay people);
158. Erwann Michel-Kerjan & Paul Slovic, An Idea Whose Time Has Come, in THE IRRATIONAL ECONOMIST: MAKING DECISIONS IN A DANGEROUS WORLD 1, 3-7 (Erwann Michel-Kerjan & Paul Slovic eds., 2010).
159. See, e.g., DANIEL KAHNEMAN, THINKING, FAST AND SLOW 377-85 (2011);
160. Paul J. H. Schoemaker, A Two-Edged Sword-Implications of Decision Psychology for Decision Analysis, in THE IRRATIONAL ECONOMIST, supra note 135, at 53, 57-59.
161. See DAN ARIELY, PREDICTABLY IRRATIONAL: THE HIDDEN FORCES THAT SHAPE OUR DECISIONS 239 (2008) ("Our irrational behaviors are neither random nor senseless-they are systematic and predictable.");
162. Stephen J. Choi & A. C. Pritchard, Behavioral Economics and the SEC, 56 STAN. L. REV. 1, 2 (2003) (These [cognitive] biases are not merely isolated quirks, rather, they are consistent, deep-rooted, and systematic behavioral patterns.");
163. See Margit E. Oswald & Stefan Grosjean, Confirmation Bias, in COGNITIVE ILLUSIONS: A HANDBOOK ON FALLACIES AND BIASES IN THINKING, JUDGEMENT AND MEMORY 79 (Rudiger F. Pohl ed., 2004) (explaining the confirmation bias);
164. William Samuelson & Richard Zeckhauser, Status Quo Bias in Decision Making, 1 J. RISK & UNCERTAINTY 7, 7-10 (1988) (discussing the status quo bias);
165. Amos Tversky & Daniel Kahneman, Loss Aversion in Riskless Choice: A Reference-Dependent Model, 106 Q. J. ECON. 1039, 1040-42 (1991) (studying the loss aversion bias).
166. See, e.g., ROY F. BAUMEISTER & BRAD J. BUSHMAN, SOCIAL PSYCHOLOGY AND HUMAN NATURE 161 (2008) ("Mental shortcuts, [or] heuristics, provide quick estimates (though sometimes inaccurate ones) for decisions about uncertain events." (emphasis omitted));
167. Abhijit V. Banerjee, A Simple Model of Herd Behavior, 107 Q. J. ECON. 797, 798-800 (1992) (discussing the heuristics of herd behavior);
168. Amos Tversky & Daniel Kahneman, Judgment Under Uncertainty: Heuristics and Biases, 185 SCIENCE 1124, 1128-29 (1974) (discussing the anchoring heuristic).
169. See Amos Tversky & Daniel Kahneman, The Framing of Decisions and the Psychology of Choice, 211 SCIENCE 453, 454-57 (1981) (describing the concept of "framing").
170. See Robert J. Shiller, Measuring Bubble Expectations and Investor Confidence, 1 J. PSYCHOL. & FIN. MARKETS 49, 50-52 (2000) (studying the impact of investor overconfidence on stock markets).
171. See David A. Armor & Shelley E. Taylor, When Predictions Fail-The Dilemma of Unrealistic Optimism, in HEURISTICS AND BIASES: THE PSYCHOLOGY OF INTUITIVE JUDGMENT 334, 334 (Thomas Gilovich et al eds., 2002) (addressing the cognitive bias of overoptimism);
172. See JASON ZWEIG, YOUR MONEY AND YOUR BRAIN: HOW THE NEW SCIENCE OF NEUROECONOMCS CAN HELP MAKE YOU RICH 8 (2007) ("During 1998 and 1999, one group of stocks outperformed the rest of the technology industry by a scorching 63 percentage points-merely by changing their official corporate names to include.com,.net, or Internet!').
173. See, e.g., Oren Bar-Gill, The Law, Economics and Psychology of Subprime Mortgage Contracts, 94 CORNELL L. REV. 1073, 1081-82 (2009) (speculating on the irrationality of lenders, borrowers, and homeowners in the years prior to the financial crisis).
174. see STAFF OF S. PERMANENT SUBCOMM. ON INVESTIGATIONS, 112TH CONG., WALL STREET AND THE FINANCIAL CRISIS: ANATOMY OF A FINANCIAL COLLAPSE 48-51 (2011) [hereinafter LEVIN-COBURN REPORT] (reporting on bad lending process that led to the financial crisis);
175. Gerald H. Lander et al., Subprime Mortgage Tremors: An International Issue, 15 INT'L ADVANCES ECON. RES. 1, 4 (2009) ("Numerous borrowers say they didn't understand the loan structure and the escalating payments; in many cases, they couldn't afford them.");
176. Tom C. W. Lin, Too Big to Fail, Too Blind to See, 80 MISS. L. J. 355, 367-71 (2010) (critiquing the rational actor model in connection with the financial crisis of 2008).
177. See, e.g., The Financial Crisis and the Role of Federal Regulators: Hearing Before the H. Comm. on Oversight and Gov't Reform, 110th Cong. 46 (2008) (statement of Alan Greenspan, Former Chairman of the Fed Reserve Board) (acknowledging that he "found a flaw in the [neoclassical] model that⋯ defines how the world works");
178. Richard A. Posner, How I Became a Keynesian, NEW REPUBLIC, Sept 23, 2009, at 34.
179. See, e.g., Richard A. Posner, The Rise and Fall of Administrative Law, 72 CHI.-KENT L. REV. 953, 958 (1997);
180. Guhan Subramanian, Fixing Freezeouts, 115 YALE L. J. 2, 37 n. 149 (2005);
181. See, e.g., Ron Lieber, Consumer Watchdog Is All Ears for Ideas, N. Y. TIMES, July 16, 2011, at B1.
182. See, e.g, Basic Inc. v. Levinson, 485 U. S. 224, 231-32 (1987).
183. See, e.g., RAY KURZWEIL, THE SINGULARITY IS NEAR: WHEN HUMANS TRANSCEND BIOLOGY 1-5 (2005) (discussing the ability of humans to expand their limitations through science and technology).
184. See Patricia Sánchez Abril, The Evolution of Business Celebrity in American Law and Society, 48 AM. BUS. L. J. 177, 178 (2011) ("Over the past half-century, digital communications, globalization, massmarket media and advertising, and a heightened public interest in business matters have conspired to shine a brighter spotlight on business leaders as stars.");
185. Tom C. W. Lin, Undressing the CEO: Disclosing Private, Material Matters of Public Company Executives, 11 U. PA. J. BUS. L. 383, 389-92 (2009) (discussing the increase in media for business information).
186. See KEN AULETTA, GOOGLED: THE END OF THE WORLD AS WE KNOW IT 15 (2009) ("It took telephones seventy-one years to penetrate 50 percent of American homes, electricity fifty-two years, and TV three decades. The Internet reached more than 50 percent of Americans in a mere decade[, and]⋯ Facebook built up a community of two hundred million users in just five years.").
187. See LABOR STATISTICS BUREAU, CAREER GUIDE TO INDUSTRIES 2008-2009, at 188 (2008) (The securities industry is continuously changing because of improvements in technology-").
188. See Graham Bowley, The New Speed of Money, N. Y. TIMES, Jan. 2, 2011, at BU1 (reporting on the astounding velocity of modern finance).
189. See IAN AYRES & BARRY NALEBUFF, LIFECYCLE INVESTING: A NEW, SAFE, AND AUDACIOUS WAY TO IMPROVE THE PERFORMANCE OF YOUR RETIREMENT PORTFOLIO 1-3 (2010) (analyzing the importance of asset and time diversification in investing);
190. GARY BELSKY & THOMAS GILOVICH, WHY SMART PEOPLE MAKE BIG MONEY MISTAKES-AND HOW TO CORRECT THEM: LESSONS FROM THE NEW SCIENCE OF BEHAVIORAL ECONOMICS 250-51 (2010) (highlighting the benefits of diversification in investments).
191. But see GERALD M. LOEB, THE BATTLE FOR INVESTMENT SURVIVAL 103-04 (John Wiley & Sons 2007) (1935) (espousing the virtues of concentrated investments over diversified investments).
192. See, e.g., Houman B. Shadab, Fending for Themselves: Creatinga U. S. Hedge Fund Market for Retail Investors, 11 N. Y. U. J. LEGIS. & PUB. POLY 251, 277 (2008) ("Finally, with the development of sophisticated at-home trading took and publicly registered exchange traded funds (ETFs), retail investors can implement hedge fund trading strategies on their own, at low cost").
193. See generally RICHARD H. THALER & CASS R. SUNSTEIN, NUDGE: IMPROVING DECISIONS ABOUT HEALTH, WEALTH, AND HAPPINESS (2009) (discussing many circumstances in which individuals and institutions can create choice architectures that better protect them from their cognitive limitations);
194. Cass R. Sunstein & Richard H. Thaler, Libertarian Paternalism Is Not an Oxymoron, 70 U. CHI. L. REV. 1159 (2003) (finding that individuals are slow to join 401 (k) plans that offer more choices because they are prone to procrastination).
195. Donald C. Langevoort, Selling Hope, Selling Risk Some Lessons for Law From Behavioral'Economies About Stockbrokers and Sophisticated Customers, 84 CALIF. L. REV. 627, 635 (1996); (Pubitemid 126406829)
196. Troy A. Paredes, On the Decision to Regulate Hedge Funds: The SEC's Regulatory Philosophy, Style, and Mission, 2006 U. ILL. L. REV. 975, 1026 (espousing default rules to enhance financial regulation);
197. David H. Freedman, The Perfected Self, ATLANTIC, June 2012, at 42.
198. See, e.g., Tom C. W. Lin, The Corporate Governance of Iconic Executives, 87 NOTRE DAME L. REV. 351, 73-76 (2011) (describing the perils of overconfidence in business decisions).
199. See Joe Nocera, Risk Management, N. Y. TIMES MAG., Jan. 4, 2009, at 24 (discussing the wide use of the Value at Risk model by investment banks to manage risk).
200. See ANN C. LOGUE, DAY TRADING FOR DUMMIES 195 (2d ed. 2011) (describing the numerous investment tools and services available to clients of Charles Schwab);
201. E-trade, E-trade Baby Girlfriend Super Bowl Commercial 2010, YOUTUBE (Feb. 7, 2010), http://www.youtute.com/watch? v=tbLT17egwlU.
202. See Sharon Begley With Jean Chatzky, Stop! You Can't Afford It, NEWSWEEK, Nov. 7 & 14, 2011, at 50.
203. Cass R. Sunstein, Essay, Empirically Informed Regulation, 78 U. CHI. L. REV. 1349, 1410-11 (2011) (discussing the use of empirical findings about human behavior in crafting better regulations).
204. See, e.g., EMANUEL DERMAN & PAUL WILMOTT, THE FINANCIAL MODELERS' MANIFESTO 1(2009), available at http://papers.ssm.co,/s13/papers.cfm?abstract- id=1324878 ("Our experience in the financial arena has taught us to be very humble in applying mathematics to markets, and to be extremely wary of ambitious theories, which are in the end trying to model human behavior. We like simplicity, but we like to remember that it is our models that are simple, not the world.").
205. See, e.g., LEONARD MLODINOW, THE DRUNKARD'S WALK: HOW RANDOMNESS RULES OUR LIVES 216-18 (2008) (expounding on the role of randomness in life and markets).
206. NASSIM NICHOLAS TALEB, THE BLACK SWAN: THE IMPACT OF THE HIGHLY IMPROBABLE 1 (2d ed. 2010) (introducing the term "antilibrary" as a collection of knowledge that one does not yet possess).
207. The terms "known unknowns" and "unknown unknowns" were popularized by former Secretary of Defense Donald Rumsfeld. See Donald H. Rumsfeld, Sec'y of Def, Remarks at Department of Defense News Briefing (Feb. 12, 2002), available at http://www.defense.gov/rranscripts/rranscript.aspx? TranscriptID=2636.
208. See Donna J. Haraway, A Cyborg Manifesto: Science, Technology, and Socialist-Feminism in the Late Twentieth Century, in READINGS IN THE PHILOSOPHY OFTECHNOLOGY 161, 161 (David M. Kaplan ed., 2004) ("A cyborg is a cybernetic organism, a hybrid of machine and organism, a creature of social reality as well as a creature of fiction. ");
209. Peter Norberg, Trading Trust Post-aristocratic Finance in the City of Stockholm 11 (SSE/EFI Working Paper in Bus. Admin. No. 2009:8, 2009), available at http://swoba.hhs.se/hastba/papers/hastba2009-008.pdf ("Fused with algorithms, hybrid cyborg investors occupied with trading online take the place of simple human beings.").
210. See BENJAMIN GRAHAM, THE INTELLIGENT INVESTOR: A BOOK OF PRACTICAL COUNSEL (4th rev. ed. 1973) (providing a guide to becoming an intelligent investor-one that is thoughtful, rational, and value driven).
211. see also David J. Hess, On Low-Tech Cyborgs, in THE CYBORG HANDBOOK 371, 373 (Chris Hables Gray ed., 1995) ("[A]lmost everyone in urban societies could be seen as a low-tech cyborg, because they spend large parts of the day connected to machines such as cars, telephones, computers, and, of course, televisions.");
212. Amber Case, We Are All Cyborgs Now, TED. COM (Jan. 2011), http://www.ted.com/talks/amber-case-we-are-all-cyborgs-now.html.
213. See Consolidated Audit Trail, 75 Fed. Reg. 32, 556 (proposed June 8, 2010)
214. (to be codified at 17 C. F. R. pt.242).
215. See CFTC & SEC FINDINGS, supra note 19, at 6-8.
216. In September 2011, the SEC proposed additional rules to protect against crashes related to high-frequency trading. Notice of Filing of Proposed Rule Change to Update Rule 6121 (Trading Halts Due to Extraordinary Market Volatility) and Amend Rule 6440 (Trading and Quotation Halt in OTC Equity Securities), 76 Fed. Reg. 61, 429 (proposed Sept. 28, 2011).
217. See Graham Bowley, The Flash Crash, in Miniature, N. Y. TIMES, Nov. 9, 2010, at B1 (The crashes continue even as Washington regulators investigate the structure of modern markets and as a report traced the main trigger of May's big crash to a poorly timed trade by a mutual fund in Kansas.");
218. Edward E. Kaufman, Jr. & Carl M. Levin, Preventing the Next Flash Crash, N. Y. TIMES, May 6, 2011, at A27 (discussing minicrashes since the Flash Crash).
219. Matt Krantz, Mini Flash Crashes Worry Traders, USA TODAY, May 16, 2011, http://www.usa today.conVmoney/markets/2011-5-16-mini-flash-crashes-market-wony- n. htm.
220. See Michael J. de la Merced, BATS Chief on Friday's Troubles: 'My Stomach Sank', N. Y. TIMES DEALBOOK (Mar. 26, 2012, 12:11 AM), http://dealbook.nytimes. com/2012/03/26/bats-chiefon-fridays-meltdown-my-stomach-sank;
221. see also Nathaniel Popper, BATS Flaw Not So Rare, Data Shows, N. Y. TIMES, Mar. 29, 2012, at B1 (citing the erratic actions of BATS's trading platform).
222. See Nathaniel Popper, Runaway Trades Spread Turmoil Across Wall St., N. Y. TIMES, Aug. 2, 2012, at A1.
223. See David Barboza & Kevin Drew, Security Firm Sees Global Cyberspying, N. Y. TIMES, Aug. 4, 2011, at A11 ("Cybersecurity is now a major international concern, with hackers gaining access to sensitive corporate and military secrets, including intellectual property.");
224. Michael Joseph Gross, Exclusive: Operation Shady RAT-Unprecedented Cyber-espionage Campaign and Intellectual-Property Bonanza, VANITY FAIR, Aug. 2, 2011, http://www.vanityfair.com/culture/features/2011/09/operationshady-rat- 201109 (discussing the increase in cyberattacks on many prominent governmental agencies and corporations like "Sony, Fox, the British National Health Service, and the Web sites of PBS, the U. S. Senate, and the C. I A., among others").
225. See Alex Berenson, Arrest Over Software Illuminates a Secret of Wall St., N. Y. TIMES, Aug. 24, 2009, at A1 (discussing the importance of computer programs to financial institutions).
226. see Deborah Radcliff, Three Industries, Three Security Needs, COMPUTERWORLD, Nov. 29, 1999, at 38 ("Now that banks are moving to Internet-based transactions, they must also ensure the security of their Web servers and the information they store, along with providing secure transport of customer information over the Internet").
227. Cf. Michael Joseph Gross, Enter the Cyber-dragon, VANITY FAIR, Sept. 2011, http://www.vanity fair.com/culture/features/2011/09/chinese-hacking-201109 ("Hackers from many countries have been exfiltrating-that is, stealing-intellectual property from American corporations and the U. S. government on a massive scale, and Chinese hackers are among the main culprits.").
228. MARK BOVVDEN, WORM: THE FIRST DIGITAL WORLD WAR 116 (2011).
229. See Ahmed Azam, Ex-programmer Is Sentenced to 8 Years for Stealing Code From Goldman, N. Y. TIMES, Mar. 19, 2011, at B2.
230. See Nelson D. Schwartz, Facing Threat From WikiLeaks, a Bank Plays Defense, N. Y. TIMES, Jan. 3, 2011, at B1.
231. See John H. Cushman, Jr., Guarding the Numbers, N. Y. TIMES, July 17, 2012, at B1.
232. See DAVE MARCUS & RYAN SHERSTOBITOFF, MCAFEE & GUARDIAN ANALYTICS, DISSECTING OPERATION HIGH ROLLER 3(2012), available at http://ww.mcafee.com/us/resources/reports/rp-operation-high-roller.pdf
233. Nicole Perlroth, Attack on 6 Bonis Frustrate Customers, N. Y. TIMES, Oct. 1, 2012, at B1;
234. Nicole Perlroth & Quentin Hardy, Bank Hacks Were Work of Iranians, Officials Say, N. Y. TIMES, Jan. 9, 2013, at B1.
235. Sean S. Costigan, Terrorists and the Internet Crashing or Casbing In?, in TERRORNOMICS 113, 117 (Sean S. Costigan & David Gold eds., 2007).
236. See Michael Riley & Ashlee Vance, The Code War, BUS. WK, July 25, 2011, at 51, 52.
237. FIN. STABILITY OVERSIGHT COUNCIL, 2012 ANNUAL REPORT 136-37 (2012) (acknowledging the emerging threat of cyberattacks on automated trading programs).
238. See JOE KLEIN, THE NATURAL: THE MISUNDERSTOOD PRESIDENCY OF BILL CLINTON 190 (2002) ("[Following September 11, 2001,] the Treasuries Secretaries Robert Rubin and Lawrence Summers opposed cyber-warfare on grounds that it may threaten the stability of the international financial system.").
239. INTELLIGENCE & NAT'L SEC. ALLIANCE (INSA), CYBER INTELLIGENCE: SETTING THE LANDSCAPE FOR AN EMERGING DISCIPLINE 7-9 (2011);
240. cf. SEC v. Dorozhko, 574 F.3d 42, 44-51 (2d Cir. 2009) (involving hackers who traded on illicitly acquired material, nonpublic information).
241. See DMITRI ALPEROViTCH, MCAFEE, REVEALED: OPERATION SHADY RAT 7-9 (2011) (providing a complete list of the targeted countries), available at http://www.mcafee.com/us/resources/white-papers/wp-operation-shady-rat.pdf
242. See, e.g., Thomas Rid, Think Again: Cyberwar, FOREIGN POLY, Mar.-Apr. 2012, at 80, 80 ("Cyberwar is still more hype than hazard.").
243. See RICHARD A. CLARKE & ROBERT A. KNAKE, CYBER WAR: THE NEXT THREAT TO NATIONAL SECURITY AND WHAT TO DO ABOUT IT, at x-xii, 69-71 (2010);
244. Andrea Stone, Cyberspace Is the Next Battlefield: U. S., Foreign Forces Prepare for Conflict Unlike Any Before, USA TODAY, June 19, 2001, at 1A (reporting on military measures in connection with an anticipated rise in "informational warfare");
245. Misha Glenny, A Weapon We Can't Control, N. Y. TIMES, June 25, 2012, at A19 (commenting on the unforeseeable and unintended dangers of cyberweapons).
246. See Mark Landler & John Markoff, After Computer Siege in Estonia, War Fears Turn to Cyberspace, N. Y. TIMES, May 29, 2007, at A1.
247. See William J. Broad et al., Israeli Tests Called Crucial in Iran Nuclear Setback, N. Y. TIMES, Jan. 16, 2011, at A1.
248. Andrew E. Kramer & Nicole Perlroth, Expert Issues a Cyberwar Warning, N. Y. TIMES, June 3, 2012, at B1.
249. Elisabeth Bumiller & Thorn Shanker, Panetta Warns of Dire Threat of Cyberattack, N. Y. TIMES, Oct. 12, 2012, at A1.
250. Michael Riley & Ashlee Vance, Inside the Chinese Boom in Corporate Espionage, BUS. WK., Mar. 19, 2012, at 78-84.
251. CF Disclosure Guidance: Topic No. 2: Cybersecurity, SEC. GOV (Oct. 13, 2011), http://sec.gov/divisions/corpfin/guidance/cfguidance-topic2.htm.
252. see, e.g., THE WHITE HOUSE, INTERNATIONAL STRATEGY FOR CYBERSPACE: PROSPERITY, SECURITY, AND OPENNESS IN A NETWORKED WORLD (2011);
253. DEPT OF DEF., CYBERSPACE POLICY REPORT: A REPORT TO CONGRESS PURSUANT TO THE NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR2011, SECTION 934 (2011).
254. DEPT OF DEF., STRATEGY FOR OPERATING IN CYBERSPACE (2011).
255. Julian E. Barnes, Pentagon Digs in on Cyberwar Front, WALL ST. J., July 6, 2012, at A4.
256. See, e.g., NATL RESEARCH COUNCIL & NAT'L ACAD. OF ENG'G, TOWARD A SAFER AND MORE SECURE CYBERSPACE 49-50 (Seymour E. Goodman & Herbert S. Lin eds., 2007) (warning against the possibility of a "digital Pearl Harbor").
257. See, e.g., Paul Ohm, The Myth of the Supermer. Fear, Risk, and Harm Online, 41 U. C. DAVIS L. REV. 1327, 1348-62 (2008) (discussing the dangers of overreacting to online threats).
258. see also Richard A. Booth, The Uncertain Case for Regulating Program Trading, 1994 COLUM. BUS. L. REV. 1, 54-55 (arguing against regulations that would stifle the benefits of program trading during its nascent period).
259. See Derek E. Bambauer, Conundrum, 96 MINN. L. REV. 584, 598-603 (2011) (describing the various challenges of cybersecurity efforts).
260. See LAWRENCE LESSIG, THE FUTURE OF IDEAS: THE FATE OF THE COMMONS IN A CONNECTED WORLD 8-16 (2001) (arguing that misguided regulations can limit the potential of new technology);
261. See, e.g., Amir E. Khandani et al., Systemic Risk and the Refinancing Ratchet Effect 38 (MIT Sloan Sch. of Mgmt. Research Paper No. 4750-09, 2009) ("[S]ystemic risk⋯ arises when large financial losses affect important economic entities that are unprepared for and unable to withstand such losses, causing a cascade of failures and widespread loss of confidence.").
262. See, e.g., LEVIN-COBURN REPORT, supra note 147, at 15-17.
263. ANDREW ROSS SORKIN, TOO BIG TO FAIL: THE INSIDE STORY OF HOW WALL STREET AND WASHINGTON FOUGHTTO SAVE THE FINANCIAL SYSTEM FROM CRISIS-AND THEMSELVES 538-39 (2009) (opining on the difficulties in solving the problem presented by "too big to fail" institutions);
264. Brendan Greeley, The $120 Billion Not-Bailout Bailout, BUS. WK., July 9, 2012, at 11, 11 ("Five banks-JPMorgan, Bank of America, Citigroup, Wells Fargo, and Goldman Sachsheld more than $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U. S. economy, according to the Federal Reserve.").
265. See, e.g., Concept Release on Equity Market Structure, Exchange Act Release No. 34-61, 358, 75 Fed. Reg. 3594, 3605 (proposed Jan. 21, 2010)
266. (to be codified at 17 C. F. R. pt. 242) (noting the emphasis on accelerating velocities in modern equity markets);
267. Matthew Philips, Tradingatthe Speed of Light, BUS. WK., Apr. 2, 2012, at 46.
268. See David Schneider, Trading at the Speed of Light, IEEE SPECTRUM, Oct. 2011, at 11-12;
269. A. D. Wissner-Gross & C. E. Freer, Relativistic Statistical Arbitrage, 82 PHYSICAL REV. E 56, 104-1 (2010) (studying arbitrage opportunities as trading approaches the speed of light);
270. See THOMASNEAL FALKENBERRY, HIGH FREQUENCY DATA FILTERING: A REVIEW OF THE ISSUES ASSOCIATED WITH MAINTAINING AND CLEANING A HIGH FREQUENCY FINANCIAL DATABASE (2002), available at http://www.tickdata.com/pdf/Tick-Data-Filtering- White-Paper.pdf
271. See TOM CLANCY, DEBT OF HONOR 294-312 (1994). While this scenario may appear far-fetched, in the same novel Mr. Clancy also envisioned enemies of America intentionally crashing jets into strategically important buildings, which became a reality on September 11, 2001.
272. See, e.g., HOWARD DAVIES, THE FINANCIAL CRISIS: WHO IS TO BLAME? 171 (2010) ("[T]hose firms which suffered very sharp falls in their stock prices and, in some cases, went out of business identified short-selling as a powerful contributor to their problems.");
273. SEBASTIAN P. WERNER, SHORT SELLING ACTIVITIES AND CONVERTIBLE BOND ARBITRAGE: EMPIRICAL EVIDENCE FROM THE NEW YORK STOCK EXCHANGE 13 (2010) ("Short sellers had been largely blamed for me tumble in stockprices of financial institutions⋯.").
274. Nicola Clark, Rogue Trader at Société Géné rale Gets3 Years, N. Y. TIMES, Oct. 6, 2010, at B1.
275. See Julia Werdigier, Revealing Details of Rogue Trades, UBS Raises Loss Estimate to $2.3 Billion, N. Y. TIMES, Sept. 19, 2011, at B3.
276. Elizabeth Warren, Unsafe at Any Rate, DEMOCRACY J., Summer 2007, at 8.
277. Frank Partnoy, Don't Blink Snap Decisions and Securities Regulation, 77 BROOK. L. REV. 151, 155 (2011) (espousing the virtues of slower speeds in financial markets).
278. See, e.g., Notice of Filing of Proposed Rule Change to Update Rule 6121 and Amend Rule 6440, Exchange Act Release No. 34-65, 430, 76 Fed. Reg. 61, 429 (Oct. 4, 2011).
279. See, e.g., Jamie Morgan, How Reality Ate Itself: Orthodoxy, Economy and Trust, in REAL WORLD ECONOMICS: A POST-AUTISTIC ECONOMICS READER 105, 107 (Edward Fullbrook ed., 2006) (discussing policy commentary on opportunities for financial risk dispersion as a result of new technology).
280. See e.g., Robm W. Kolb, Introduction, in FINANCIAL CONTAGION: THE VIRALTHREAT TO THE WEALTH OF NATIONS, at xiii (Robert W. Kolb ed., 2011) ("Similarly, financial distress in one nation can affect another-").
281. ROBERT W. KOLB, LESSONS FROM THE FINANCIAL CRISIS: CAUSES, CONSEQUENCES, AND OUR ECONOMIC FUTURE 128 (2010) (The failure of just one large financial institution might lead to the failure of one or more other institutions that would then spread to yet more financial institutions in a contagion that was feared might end in the collapse of the entire financial system.").
282. See Kathryn Judge, Fragmentation Nodes: A Study in Financial Innovation, Complexity, and Systemic Risk, 64 STAN. L. REV. 657, 659 (2012) (arguing that new financial products bom of the shadow banking system create new sources of systemic risk).
283. See, e.g., Authority to Designate Financial Market Utilities as Systemically Important, 76 Fed. Reg. 44, 763, 44, 765 (July 27, 2011)
284. (codified at 12 C. F. R. pt. 1320 (2012)) (correlating systemic importance largely based on monetary value).
285. See ROGER LOWENSTEIN, WHEN GENIUS FAILED: THE RISE AND FALL OF LONG-TERM CAPITAL MANAGEMENT, at xviii-xx (2000).
286. see FRANK PARTNOY, INFECTIOUS GREED: HOW DECEIT AND RISK CORRUPTED THE FINANCIAL MARKETS 261 (2003).
287. See Andrew Ross Sorkin, Lehman Files for Bankruptcy; Merrill Is Sold, N. Y. TIMES, Sept. 15, 2008, at A1.
288. See Bryan Burrough, Bringing Down Bear Stearns, VANITY FAIR, Aug. 2008, http://www.vanity fair.com/politics/features/2008/08/bear-steams200808.
289. See Clive Cook, Who Lost the Euro, BUS. WK., May 28, 2012, at 9, 10-12;
290. Peter Coy, Greece: Why the Beast Is Back, BUS. WK., May 30, 2011, at 10, 10-11;
291. Carol Matlack & Jeff Black, Exit the Euro Zone? Think Before You Leap, BUS. WK., Sept. 19, 2011, at 15.
292. HANS KELSEN, COLLECTIVE SECURRITY UNDER INTERNATIONAL LAW 257 (Lawbook Exchange Ltd. 2001) (1954)
293. (quoting Franklin D. Roosevelt, Address to the Monetary and Fin. Conference, Washington, D. C. (June 29, 1944)).
294. Bernard S. Donefer. Algos Gone Wild: Risk in the World of Automated Trading Strategies, J. TRADING, Spring 2010, at 31.
295. See Concept Release on Equity Market Structure, Exchange Act Release No. 34-61, 358, 75 Fed. Reg. 3594, 3611 (proposed Jan. 21, 2010)
296. (to be codified at 17 C. F. R. pt. 242) ("[M]any proprietary firms potentially could engage in similar or connected trading strategies that, if such strategies generated significant losses at the same time, could cause many proprietary firms to become financially distressed and lead to large fluctuations in market prices.").
297. Louise Story & Graham Bowley, Market Swings Are Becoming New Standard, N. Y. TIMES, Sept. 12, 2011, at A1.
298. Jim McTague, Next Danger: 'Splash Crash" BARRON'S (May 21, 2011), http://online.barrons.com/article/SB5000142405297020386980457632739160 3772726.html (reporting on the possibility of a global "widespread and catastrophic" crash across asset classes and markets caused by high-speed trading computers).
299. Jason Zweig, Could Computers Protect the Market From Computers, WALL ST. J., May 26, 2012, at B1.
300. See INSA, supra note 225, at 6 ("National and international laws, regulations, and enforcement are still struggling to catch up to cyber activities worldwide.");
301. Lyria Bennett Moses, Recurring Dilemmas: The Law's Race to Keep Up With Technobgical Change, 2007 U. ILL. J. L TECH. & POL'Y 239, 239-41.
302. See Stephen J. Choi & Andrew T. Guzman, National Laws, International Money: Regulation in a Global Capital Market, 65 FORDHAM L. REV. 1855, 1856-57 (1997) (discussing how globalization has increased the burden of capital market regulators to maintain adequate disclosure, antifraud, and antimanipulation rules);
303. Charles K. Whitehead, Reframing Financial Regulation, 90 B. U. L. REV. 1, 2-5 (2010) (noting the lack of regulatory innovation in response to financial innovation);
304. Tara Bhupathi, Note, Technology's Latest Market Manipulator? High Frequency Trading: The Strategies, Tools, Risks, and Responses, 11 N. C. J. L. & TECH. 377, 377-78 (2010) ("Rapid technological advances have⋯ caus[ed] the legal world to either choose to judicially adapt old laws and policies to the new digital situations or to legislatively create new doctrines to deal with unforeseen challenges.").
305. see, e.g., GILLIAN TETT, FOOL'S GOLD: HOW THE BOLD DREAM OF A SMALL TRIBE AT J. P. MORGAN WAS CORRUPTED BY WALL STREET GREED AND UNLEASHED A CATASTROPHE 39-47 (2009) (discussing how the derivatives markets grew by working around existing regulations);
306. Charles W. Calomiris, Financial Innovation, Regulation, and Reform, 29 CATO J. 65, 65 (2009) (explaining how financial innovation is often bom out of "sidestepping regulatory restrictions").
307. See, e.g., Chudio Goradez-Vega, Nonbank Institutions in Finacial Sector Reform, in SEQUENCING?: FINANCIAL STRATEGIES FOR DEVELOPING COUNTRIES 127, 133 (Alison Harwood & Bruce L. R. Smith eds., 1997) (discussing how swift financial innovation is frequendy met with slow regulation).
308. See Morrison, 130 S. Ct. at 2885 ("Like the United States, foreign countries regulate their domestic securities exchanges and securities transactions occurring within their territorial jurisdiction. ").
309. See JACK GOLDSMITH & TIM WU, WHO CONTROLS THE INTERNET?: ILLUSIONS OF A BORDERLESS WORLD, at vii-viii (2006);
310. Lawrence Lessig, The Path of Cyberlaw, 104 YALE L. J. 1743, 1743-45 (1995).
311. Contra Allan R. Stein, The Unexceptional Problem of Jurisdiction in Cyberspace, 32 INT'L LAW. 1167, 1191 (1998) (arguing that jurisdictional issues relating to cyberspace are "not uniquely problematic").
312. See EEOC v. Arabian Am. Oil Co., 499 U. S. 244, 248 (1991) ("It is a longstanding principle of American law 'that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States"
313. (quoting Foley Bros., Inc. v. Filardo, 336 U. S. 281, 285 (1949))).
314. See Morrison, 130 S. Ct. at 2885 ("And the [financial] regulation of other countries often differs from ours as to what constitutes fraud, what disclosures must be made, what damages are recoverable, what discovery is available in litigation, what individual actions may be joined in a single suit, what attorney's fees are recoverable, and many omer matters.").
315. see, e.g., ALEXANDER DAVIDSON, HOW THE GLOBAL FINANCIAL MARKETS REALLY WORK: THE DEFINITIVE GUIDE TO UNDERSTANDING INTERNATIONAL INVESTMENT AND MONEY FLOWS 17-19 (2009) (discussing shadow banking and the less regulated areas of finance);
316. Robert A. Eisenbeis, Agency Problems and Goal Conflicts in Achieving Financial Stability: The Case of the EMU, in THE STRUCTURE OF FINANCIAL REGULATION 232, 235 (David G. Mayes & Geoffrey E. Wood eds., 2007) (discussing conflicting state and federal financial regulation);
317. James J. Park, The Competing Paradigms of Securities Regulation, 57 DUKE L. J. 625, 665 (2007) (discussing how regulatory competition creates regulatory-gamesmanship opportunities for industry players).
318. See Victor Fleischer, Regulatory Arbitrage, 89 TEX. L. REV. 227, 229 (2010) ("Regulatory arbitrage exploits the gap between the economic substance of a transaction and its legal or regulatory treatment, taking advantage of the legal system's intrinsically limited ability to attach formal labels that track the economics of transactions with sufficient precision. ");
319. Frank Partnoy, Financial Derivatives and the Costs of Regulatory Arbitrage, 22 J. CORP. L. 211, 227 (1997) ("Regulatory arbitrage consists of those financial transactions designed specifically to reduce costs or capture profit opportunities created by differential regulations or laws.").
320. See Jack Ewing, Global Rules for Banks Draw Near, N. Y. TIMES, Sept.11, 2010, at B1 (discussing the complexities in creating banking rules and standards across different sovereignties).
321. See James E. Kelly, Transparency and Bank Supervision, 73 ALB. L. REV. 421, 424 (2010) (highlighting regulatory gaps relating to "hedge funds; derivatives markets; off balance sheet entities; the credit ratings agencies; firms' disclosure of risk, valuation,⋯ compensation policies; [and] securitized and structured products");
322. Interview by Michael Kirk With Brooksley Bom, CFTC Chair 1996-1999 (Aug. 28, 2009) (PBS television broadcast Oct. 20, 2009), available at http://www.pbs.org/wgbh/pages/frontline/vvarning/interviews/born. html (discussing the lack of attention paid to credit default swaps and other derivatives prior to the financial crisis).
323. Frank Partnoy & David A. Skeel, Jr., The Promise and Perils of Credit Derivatives, 75 U. CIN. L. REV. 1019, 1046-47 (2007);
324. Orin S. Kerr, Applying the Fourth Amendment to the Internet: A General Approach, 62 STAN. L. REV. 1005, 1007-10 (2010);
325. John Seo, Everything Will Be Too Big to Fail, FOREIGN POLY, Sept./Oct. 2011, at 74, 75 (discussing the need for global regulations to prevent financial catastrophes in the future);
326. Bart Chilton, Comm'r, Commodities Futures Trading Comm'n, Speech to Goldman Sachs Global Commodity Conference: Stopping Stammering: Overcoming Obstacles in Financial Regulatory Reform (Mar. 28, 2011), available at http://www.cftc.gov/pressroom/speechestestimony/opachilton-43.html (railing for more international harmonization in regulating derivatives).
327. See Charles K. Whitehead, Destructive Coordination, 96 CORNELL L. REV. 323, 326 (2011) ("By promoting coordination, regulations and standards can erode key presumptions underlying financial risk management, reducing its effectiveness and magnifying the systemic impact of a downturn in the financial markets.").
328. See Frederick G. Kempin Jr., Precedent and Stare Decisis: The Critical Years, 1800 to 1850, 3 AM. J. LEGAL HIST. 28, 28 (1959) (The modem doctrine of stare decisis as applied in the United States is a general policy of all courts to adhere to the ratio decidendi of prior cases decided by the highest court in a given jurisdiction-").
329. Lawrence Lessig presciently noted in the infancy of cyberspace that this new space contained changing features that reject old modes of governance. See Lawrence Lessig, Foreword, 52 STAN. L. REV. 987, 990-95 (2000).
330. See Stuart Banner, What Causes New Securities Regulation? 300 Years of Evidence, 75 WASH. U. L. Q. 849, 850 (1997) ("[M]ost of the major instances of new securities regulation in the past three hundred years of English and American history have come right after crashes.");
331. Joseph A. Grundfest, Punctuated Equilibria in the Evolution of United States Securities Regulation, 8 STAN. J. L. BUS. & FIN. 1, 1 (2003) ("[E]very dramatic change in the structure of our securities laws has been provoked by a perceived failure in the capital markets that stimulated a regulatory response.").
332. For critiques of recent crisis-driven financial regulation, see Stephen M. Bainbridge, Dodd-Frank Quack Federal Corporate Governance Round II, 95 MINN. L. REV. 1779 (2011);
333. Roberta Romano, The Sarbanes-Oxley Act and the Making of Quack Corporate Governance, 114 YALE L. J. 1521 (2005).
334. See JACK E. KIGER ET AL., ACCOUNTING PRINCIPLES 409 (1st rev. ed. 1984).
335. See Larry E. Ribstein, Bubble Laws, 40 HOUS. L. REV. 77, 83, 86 (2004).
336. See Speech by Troy A. Paredes, Comm'r, SEC: Remarks at the Symposium on Hedge Fund Regulation and Current Developments (June 8, 2011), http://www.sec.gov/news/speech/2011/spch060811tap. htm (remarking on new regulatory proposals following the Flash Crash).
337. See Edward Wyatt, Rule Allows U. S. a Close Look at Big Hedge Funds, N. Y. TIMES, Oct. 27, 2011, at B1;
338. Press Release, SEC, SEC Approves Confidential Private Fund Risk Reporting (Oct. 26, 2011), http://sec.gov/news/press/2011/2011-226.htrn.
339. Regulating cy-fi may require a pathbreaking governing model. During me infancy of the internet, Lawrence Lessig suggested that cyberspace required cyberlaw, a distinct legal field in-which technology itself would serve as a governing apparatus in addition to laws and rules. See LAWRENCE LESSIG, CODE AND OTHER LAWS OF CYBERSPACE 19-20 (1999).
340. See Nathanial Popper, As U. S. Discusses Limits on High-Speed Trading Other Nations Act, N. Y. TIMES, Sept. 27, 2012, at B1;
341. See, e.g., Henry T. C. Hu, Too Complex to Depict? Innovation, "Pure Information", and the SEC Disclosure Paradigm, 90 TEX. L. REV. 1601, 1611-12 (2012) (calling for a new "pure information" model of regulated disclosures);
342. Tom C. W. Lin, Executive Trade Secrets, 87 NOTRE DAME L. REV. 911, 919-22 (2012) (describing the current disclosure obligations of public firms).
343. See, e.g., Lawrence B. Solum, Legal Personhood for Artificial Intelligences, 70 N. C. L. REV. 1231, 1231-34 (1992) (forecasting legal challenges presented by the emergence of artificial intelligence).
344. See, e.g., Ralph D. Clifford, Intellectual Property in the Era of the Creative Computer Program: Will the True Creator Please Stand Up?, 71 TUL. L. REV. 1675, 1686 n. 73 (1997) (predicting the legal challenges posed by "autonomous and self-aware artificial intelligence");
345. See, e.g., Gabriel Hallevy, "I, Robot-I, Criminal"-When Science Fiction Becomes Reality: Legal Liability of AI Robots Committing Criminal Offenses, 22 SYRACUSE SCI. & TECH. L. REP. 1, 9 (2010) (questioning the criminal liability of artificial-intelligence robots);
346. cf. Gary Fields & John R. Emshwiller, As Federal Crime List Grows, Threshold of Guilt Declines, WALL ST. J., Sept. 27, 2011, http://online.wsj.com/ article/SB10001424053111904060604576570801651620000.htrnl (opining on the decline of mens rea in federal crimes).
347. See Andrea M. Matwyshyn, Imagining the Intangible, 34 DEL. J. CORP. L. 965, 967 (2009) (proposing new corporate fiduciary duties for an information-driven marketplace).
348. See, e.g., INSA, supra note 225, at 3-4 (proposing a public-private partnership to address cyberthreats);
349. Cyber Crime, FBI. GOV, http://www.fbi.gov/about-us/investigate/cyber (last visited Nov. 26, 2012).
350. See Regulation NMS, 70 Fed. Reg. 37, 496, 37, 500 (June 29, 2005) ("[W]hen the interests of longterm investors and short-term traders conflict⋯, the Commission believes that its clear responsibility is to uphold the interests of long-term investors. Indeed, the core concern for the welfare of long-term investors⋯ was first expressed in the foundation documents of the Exchange Act itself").
351. Some policymakers, scholars, and commentators have already begun to contemplate such questions, and the author also plans to address in greater detail these inquiries in future scholarship as these questions evolve and ripen with the maturation of cyborg finance. See FIN. STABILITY OVERSIGHT COUNCIL, supra note 224, at 136-37 (acknowledging the regulatory challenges posed by the expansive and growing electronic trading infrastructure);
352. John C. Coffee, Jr. & Hillary A. Sale, Redesigning the SEC: Does the Treasury Have a Better Idea?, 95 VA. L. REV. 707, 707-17 (2009);
353. MICHAEL LEWIS, BOOMERANG: TRAVELS IN THE NEWTHIRD WORLD 1-3, 41-45, 83-87, 133-38 (2011) (discussing the catastrophic impact of the 2008 financial crisis on various nations across the world, particularly Germany, Greece, Iceland, Ireland, and the United States).
354. See Aryeh S. Friedman, Law and the Innovative Process: Preliminary Reflections, 1986 COLUM. BUS. L. REV. 1, 2 (theorizing on the impact of technological breakthroughs on legal norms);
355. See O. W. Holmes, The Path of the Law, 10 HARV. L. REV. 457, 474-75 (1897) (highlighting the necessity of law to adapt itself to novel technology);
356. Samuel D. Warren & Louis D. Brandeis, The Right to Privacy, 4 HARV. L. REV. 193, 193 (1890) ("Political, social, and economic changes entail the recognition of new rights, and the common law, in its eternal youth, grows to meet the demands of society.").
357. Jesse Eisinger, Greater Power Over Wall Street, Left Unexamined, N. Y. TIMES DEALBOOK (May 4, 2011, 3:12 PM), http://dealbook.nytimes.com/2011/05/04/ more-power-over-wall-street-but-littlechance-to-discuss-it ("And monetary policy can be in conflict with banking regulation. ").
358. See, e.g., U. S. GOVT ACCOUNTABILITY OFFICE, GAO-11-654, SECURITIES AND EXCHANGE COMMISSION: EXISTING POST-EMPLOYMENT CONTROLS COULD BE FURTHER STRENGTHENED (2011) (studying the revolving door between the SEC and the private sector);
359. JAMES Q. WILSON ET AL., AMERICAN GOVERNMENT: INSTITUTIONS & POLICIES 279 (2010) ("Every year, hundreds of people leave important jobs in the federal government to take more lucrative positions in private industry.").
360. See James B. Stewart, As Watchdog Starves, Wall Street Is Tossed a Bone, N. Y. TIMES, July 15, 2011, at A1 (discussing successful political efforts to reduce the budgets of financial regulators like the SEC);
361. Oversight of the U. S. Securities and Exchange Commission's Operations, Activities, Challenges, and FY2012 Budget Request: Hearing Before the Subcomm. on Capital Mkts. and Gov t-Sponsored Enters, of the H. Comm. on Fin. Servs., 112th Cong. 49 (2011) (prepared statement of the SEC), available at http://www.sec.gov/news/tesnmony/2011/ts031011directors.htm ("Over the past decade, the SEC has faced significant challenges in maintaining a staffing level and budget sufficient to cany out its core mission. The SEC experienced three years of frozen or reduced budgets⋯ that forced a reduction of 10 percent of the agency's staff. Similarly, the agency's investments in new or enhanced IT systems declined about 50 percent-").
362. Admittedly, technological advances have improved the regulator's effectiveness in some respects, but, on balance, it has diluted the regulator's effectiveness as resource disparities allow industry players to outmaneuver regulators. See HENRY KAUFMAN, ON MONEY AND MARKETS: A WALL STREET MEMOIR 229 (2000) ("[R]egulatory responses to new financial methods and instruments tend to be desultory⋯. Regulators fail[] to grasp the technical complexities of these new tools, instruments, and techniques, or to comprehend their broader significance for the financial system.");
363. Michael Corkery, SEC Chairman Admits: We're Outgunned by Market Supercomputer, WALL ST. J. DEAL J. BLOG (May 11, 2010, 2:38 PM), http://blogs.wsj.com/deals/2010/05/11/sec-chairrnanadmits-were-outgunned-by- market-supercomputers.
364. See U. S. GOVT ACCOUNTABILITY OFFICE, supra note 325;
365. Edward Wyatt, Study Questions Risk of S. E. C. Revolving Door, N. Y. TIMES, Aug. 6, 2012, at B2.
366. Nathaniel Popper & Ben Profess, To Regulate High-Speed Traders, S. E. C. Turns to One of Them, N. Y. TIMES, Oct. 8, 2012, at B1.
367. Despite limited and asymmetric resources, the SEC had a series of high profile victories in 2011 and 2012 against large investment banks, hedge funds, and other better-resourced participants in the financial industry. See Devin Leonard, Outmanned, Outgunned, and on a Roll, BUS. WK., Apr. 23, 2012, at 60.
368. See 7 U. S. C. § 16 (e) (2) (2006);
369. Frontline: The Warning (PBS television broadcast Oct. 20, 2009), available at http://www.pbs.org/wgbb/pages/frondine/warning/view.
370. See, e.g., Arthur Levitt, Jr., Don't Guttie S. E. C., N. Y. TIMES, Aug. 8, 2011, at A19 (discussing the funding and political constraints on the SEC);
371. Richard Rubin, House Panel Endorses Budget Cuts at IRS, Consumer Bureau, BLOOMBERG (June 16, 2011, 12:12 PM), http://www.bloomberg.com/news/2011-06-16/ house-pand-endorses-budget-cuts-at-irs-consurner-bureau-l-html ("[Because of budget cuts], the SEC wo[n]'t be able to carry out the new responsibilities it received in the Dodd-Franklaw.").
372. See Saule T. Omarova, Wall Street as Community of Fate: Toward Financial Industry Self-Regulation, 159 U. PA. L. REV. 411, 427 (2011) (advocating for more financial self-regulation as a form of new governance);
373. see also Orly Lobel, The Renew Deal-The Fall of Regulation and the Rise of Governance in Contemporary Legal Thought, 89 MINN. L. REV. 342, 343-44 (2004) (describing a new governance model based on decentralization, localization, and collaboration).
374. LARRY TABB, TABB GRP., LLC, WRITTEN TESTIMONY TO THE US. SENATE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 2 (Sept. 20, 2012) (discussing how electronic trading creates greater efficiency and lower costs for investors).
375. See Elimination of Flash Order Exception From Rule 602 of Regulation NMS, Exchange Act Release No. 34-60, 684, 74 Fed Reg. 48, 630, 48, 633 (proposed Sept. 18, 2009)
376. (to be codified at 17 C. F. R. 242. 602), available at http://www.sec.gov/rules/proposed/2009/34-60684.pdf (discussing the dangers of "two-tiered market[s]" in finance due to resource asymmetries);
377. Jane K. Winn, Catalytic Impact of Information Technology on the New International Financial Architecture, 34 INT'L LAW. 137 (2000).
378. CAROL L. CLARK, FIN. MKTS. GRP., CHI. FED LETTER NO. 272, CONTROLLING RISK IN A LIGHTNING-SPEED TRADING ENVIRONMENT (2010), available at http://qa.chicagofed.org/digital-assets/publications/chicago-fed-letter/2010/ cflmarch2010-272.pdf.
379. See Concept Release on Equity Market Structure, Exchange Act Release No. 34-61, 358, 75 Fed. Reg. 3594, 3610 (proposed Jan. 21, 2010)
380. (to be codified at 17 C. F. R. pt. 242);
381. Matthew Baron et al., The Trading Profits of High Frequency Traders (Nov. 2012) (unpublished manuscript), available at http://conference.nber.org/confer/ /2012/MMf12/Baron-Brogaard-Kirilenko.pdf (finding that high-frequency traders profit at the expense of ordinary investors).
382. see EMANUEL DERMAN, MODELS BEHAVING BADLY: WHY CONFUSING ILLUSION WITH REALITY CAN LEAD TO DISASTER, ON WALL STREET AND IN LIFE 143-87 (2011).
383. ARTHUR C. CLARKE, PROFILES OFTHE FUTURE 21 n. 1 (rev. ed. 1973).
384. See Paul Krugman, How Did Economists Get It So Wrong?, N. Y. TIMES MAG., Sept. 6, 2009, at 36 ("[E]conomists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.").
385. TAL BEN-SHAHAR, HAPPIER: LEARN THE SECRETS TO DAILY JOY AND LASTING FULFILLMENT, at xi (2007) (quoting Leonardo da Vinci).
386. See PAUL SAMUELSON, FOUNDATIONS OF ECONOMIC ANALYSIS 4 (1947) (criticizing faulty economic models based on oversimplified assumptions that "[t]ake a little bad psychology, add a dash of bad philosophy and euiics, and liberal quantities of bad logic").
387. Frank Knight, a leader of the highly influential Chicago school of economics, made this distinction a central thesis of his landmark book, Risk, Uncertainty, and Profit. See FRANK H. KNIGHT, RISK, UNCERTAINTY, AND PROFIT (1921).
388. See Andrew W. Lo & Mark T. Mueller, Warning: Physics Envy May Be Hazardous to Your Wealth!, 8 J. INV. MGMT., no. 2, 2010, at 13, 15;
389. JAMES OWEN WEATHERALL, THE PHYSICS OF WALL STREET: A BRIEF HISTORY OF PREDICTING THE UNPREDICTABLE 105-29 (2013) (chronicling the rise of physics in finance).
390. See Mark Whitehouse, Economists' Grail: A Post-crash Model, WALL ST. J., Nov. 30, 2010, at A1 (reporting on the fallacies of financial models in light of the financial crisis of 2008).
391. See Scott Patterson & Tom Lauricella, Did a Big Bet Help Trigger Black Swan'Stock Swoon?, WALL ST. J., May 10, 2010, at C2 (describing the Flash Crash as a black swan event caused by computerized trading).
392. See, e.g., ANTHONY SAUNDERS & LINDA ALLEN, CREDIT RISK MANAGEMENT IN AND OUT OFTHE FINANCIAL CRISES: NEW APPROACHES TO VALUE AT RISK AND OTHER PARADIGMS 31 (2010);
393. Amir E. Khandani & Andrew W. Lo, What Happened to the Quants in August 2007?, 5 J. INV. MGMT., no. 4, 2007, at 5, 5-9;
394. See, e.g., Paul Wilmott, The Use, Misuse and Abuse of Mathematics in Finance, 358 PHIL. TRANSACTIONS ROYAL SOC'Y LONDON A 63, 63 (2000).
395. Letter From Warren Buffett, Chairman, Berkshire Hathaway, Inc., to Shareholders 15 (Feb. 27, 2009), available at http://www.berkshirehathavray.com/ letters/20081tr.pdf.
396. See TOBIAS ADRIAN & MARKUS K. BRUNNERMEIER, FED. RESERVE BANK OF N. Y., STAFF REPORT NO. 348, COVAR 1-6(2011), available at http://www.ny.frb.org/ research/staff-reports/sr348.pdf (proposing a new tool for measuring systemic risk in financial markets);
397. Andrew Lo, The Adaptive Markets Hypothesis: Market Efficiency From an Evolutionary Perspective, 30 J. PORTFOLIO MGMT. 15, 15-17 (2004) (proposing an alternative model of markets that accounts for uncertainty better than the neoclassical model's based on rational actors and efficient markets);
398. see also ABHIJIT V. BANERJEE & ESTHER DUFLO, POOR ECONOMICS: A RADICAL RETHINKING OF THE WAYTO FIGHT GLOBAL POVERTY 1-16 (2011) (discussing successful applications of behavioral economics to solve the challenges in development work with the poor).
399. See, e.g., John O. McGinnis, Accelerating AI, 104 NW. U. L. REV. COLLOQUY 366, 366 (2010) (noting the anxiety induced by improvements in artificial intelligence);
400. Andrea M. Matwyshyn, Corporate Cyborgs and Technology Risks, 11 MINN. J. L. SCI. & TECH. 573, 573 (2010).
401. See, e.g., RICHARD NISBETT & LEE ROSS, HUMAN INFERENCE: STRATEGIES AND SHORTCOMINGS OF SOCIAL JUDGMENT 141 (1980) ("Human judges make less accurate predictions than formulas do, whether they have more information than is fed into the formula or precisely the same amount of information. ").
402. See Malcolm Gladwell, The Formula, NEW YORKER, Oct. 16, 2006, at 138 (reporting on Epagogix, a company that uses software to predict the potential success of movies based on narrative elements in screenplays).
403. See CARR, supra note 24, at 223 ("[In 2009,] Edexcel, the largest educational testing firm in England, had announced it was introducing 'artificial intelligence-based, automated marking of exam essays."').
404. See Theodore W. Ruger et al., The Supreme Court Forecasting Project: Legal and Political Science Approaches to Predicting Supreme Court Decisionmaking, 104 COLUM. L. REV. 1150, 1150 (2004).
405. See Joe Dysart, A New View of Review. Predictive Coding Vows to Cut E-discovery Drudgery, A. B A. J., Oct. 1, 2011, at 26 (discussing how computers using predictive coding software are at least as efficient as humans at reviewing legal documents).
406. See Anne Eisenberg, Software That Listens for Lies, N. Y. TIMES, Dec. 4, 2011, at BU5.
407. This instinct is not unique to modernity, as people of previous eras have expressed similar trepidations about new technology and the demise of humanity. See RICHARD HOLMES, THE AGE OF WONDER: HOW THE ROMANTIC GENERATION DISCOVERED THE BEAUTY AND TERROR OF SCIENCE 94 (2008).
408. Steve Lohr, Google Schools Its Algorithm, N. Y. TIMES, Mar. 6, 2011, at WK 4 ("Computers are only as smart as their algorithms-man-made software recipes for calculation[.]").
409. Shvetank Shah et al., Good Data Won't Guarantee Good Decisions, HARV. BUS. REV., Apr. 2012, at 23.
410. See BRIAN CHRISTIAN, THE MOST HUMAN HUMAN: WHAT TALKING WITH COMPUTERS TEACHES US ABOUT WHAT IT MEANS TO BE ALIVE 5-10 (2011) (discussing the limitations of computers to have meaningful communications with humans);
411. CHRISTOPHER STEINER, AUTOMATE THIS: HOW ALGORITHMS CAME TO RULE OUR WORLD 5-6 (2012) (opining on the need for humans to manage processes run by algorithms);
412. John Markoff, How Many Computers to Identify a Cat? 16, 000, N. Y. TIMES, June 26, 2012, at B1 (reporting on efforts to create artificial intelligence that can simulate human visual recognition).
413. See, e.g., Nat Durlach et al., Source Separation, Localization, and Comprehension in Humans, Machines, and Human-Machine Systems, in SPEECH SEPARATION BY HUMANS AND MACHINES 221, 225 (Pierre Divenyi ed, 2005) (explaining how humans are needed to monitor and correct errors in machine-driven processes);
414. See STEPHEN BAKER, FINAL JEOPARDY: MAN VS. MACHINE AND THE QUEST TO KNOW EVERYTHING 148-69 (2011) (discussing the limitations of artificial intelligence).
415. NEIL POSTMAN, TECHNOPOLY: THE SURRENDER OF CULTURE TO TECHNOLOGY 71-72 (1993) (criticizing the surrender of humanity to technology);
416. Steven Schwartz et al., Clinical Expert Systems Versus Linear Models: Do We Really Have to Choose, 34 BEHAV. SCI. 305, 305-10 (1989);
417. see also DANIEL GOLEMAN, EMOTIONAL INTELLIGENCE 60-72 (1995) (explicating on the importance of emotional intelligence in human interactions);
418. Ronald H. Humphrey, The Right Way to Lead With Emotional Labor, in AFFECT AND EMOTION: NEW DIRECTIONS IN MANAGEMENT THEORY AND RESEARCH 1, 12 (Ronald H. Humphrey ed., 2008) (noting the value of employing emotions in leadership roles).
419. See, e.g., Russell B. Korobkin, Behavioral Analysis and Legal Form: Rides vs. Standards Revisited, 79 OR. L. REV. 23, 37-38 (2000);
420. Antonin Scalia, The Rule of Law as a Law of Rules, 56 U. CHI. L. REV. 1175, 1178-79 (1989).
421. Francis Fukuyama coined the term "the end of history" to describe the "end point of mankind's ideological evolution" following the triumph of Western democracy at the end of the Cold War. See FRANCIS FUKUYAMA, THE END OF HISTORY AND THE LAST MAN, at xi (2006). Given die incredible capacity of machines in finance, it may be easy to think that we, humans, are nearing our own "end of history" moment in finance, but such thoughts of our demise are greatly exaggerated.
422. See JEROME FRANK, LAW AND THE MODERN MIND 129 (2009) (The acts of human beings are not identical mathematical entities; the individual cannot be eliminated as, in algebraic equations, equal quantities on the two sides can be cancelled.").
423. Cf. Yuval Feldman & Alon Hard, Social Norms, Self-Interest and Ambiguity of Legal Norms: An Experimental Analysis of the Rule vs. Standard Dilemma, 4 REV. L. & ECON. 81, 81 (2008) (suggesting that legal standards and rules each balance one another to create more optimal decisions).
424. But cf. Loran F. Nordgren & Ap Dijksterhuis, The Devil Is in the Deliberation, 36 J. CONSUMER RES. 39, 39-46 (2009) (finding that deliberation can lead to inconsistent and suboptimal choices).
425. See Michael Foucault, Technologies of the Self, in TECHNOLOGIES OF THE SELF: A SEMINAR WITH MICHAEL FOUCAULT 16-20 (Luther H. Martin et al. eds., 1988) (referring to methods of self-improvement as "technologies of the self").
426. Popular culture's often suggests that the critical batdes of the future are ones between machines and humans. See, e.g, DANIEL H. WILSON, ROBOPOCALYPSE: A NOVEL (2011); TRANSFORMERS: DARK OF THE MOON (Paramount Pictures 2011);
427. TERMINATOR 2: JUDGMENT DAY (Carolco Pictures 1991). Despite these popular suggestions, the true contests of the future will likely be human batdes with the aid of machines.
428. See Nikhil Hutheesing, Better Trading Through Science, BLOOMBERG (Aug. 31, 2011, 11:50 AM), http://www.bloomberg.com/news/2011-08-31/better-trading- through-science.html ("Perhaps one day investors and traders will have a biometric contraption connected to their computers. It could scan the prefrontal cortex of the brain, determine testosterone levels and measure sweaty palms in microseconds before warning you not to make a trade.").
429. See, e.g., Jenny Strasburg, Computer Trading Takes Human Turn, WALL ST. J., May 22, 2012, at C1 (reporting on new efforts to better combine human financial analysis with computerized trading models).
430. FIN. CRISIS INQUIRY COMM'N, supra note 68, at xvii.
431. Lisa Guernsey, At Airport Gate, a Cyborg Unplugged, N. Y. TIMES, Mar. 14, 2002, at G4 (reporting on wearable computer systems that enhance memory, vision, and awareness);
432. Rob Walker, You Tunes, N. Y. TIMES MAG., Nov. 27, 2011, at 32 (discussing a software application intended to improve the user's musicality).
433. SAM KEEN, IN THE ABSENCE OF GOD: DWELLING IN THE PRESENCE OF THE SACRED 41 (2010) ("This is the very perfection of man, to find out his own imperfections." (quoting St. Augustine)).
434. See JARED DIAMOND, GUNS, GERMS, AND STEEL: THE FATES OF HUMAN SOCIETIES 257 (1999) (outlining how technology has fueled human evolution and progress);
435. ROGER LEWIN, HUMAN EVOLUTION 10 (2005) (explaining how tool use aided human evolution, brain expansion, and social development among early humans).