A Two-Sided Loyalty?: Exploring the Boundaries of Fiduciary Duties of Market Makers

Abstract

This Article explores the boundaries of fiduciary duties of market makers established by the federal courts and evaluates these boundaries in the light of the changing economics and institutional framework of providing liquidity in securities markets and the current regulatory agenda. Given a variety of business models and trading strategies employed by these market participants in order to provide liquidity and their potentially multiple roles in securities markets, this Article identifies various factors set by the federal courts suggesting the existence of a fiduciary duty. The Article also considers whether certain practices of market makers integral to the function of providing liquidity may give rise to a fiduciary duty and examines corresponding potential consequences.

Keywords: Fiduciary Duties, Market Makers, Securities Markets

JEL Classification: G24, K22, N20