Markets as Monitors: A Proposal to Replace Class Actions with Exchanges as Securities Fraud Enforcers

This Article proposes the replacement of securities class actions for fraud on the market with an enforcement regime administered by the securities exchanges. It discusses the social costs of in secondary trading markets and the respective roles of compensation and deterrence in controlling those costs. The expense and ineffectiveness of securities class actions in achieving deterrence are explained. An alternative regime enforced by the exchanges is outlined, and the incentives of exchanges to enforce anti-fraud prohibitions are analyzed.