Weissman v. NASD: Piercing the Veil of Absolute Immunity an SRO under the Securities Exchange Act of 1934
Craig J. Springer
Pursuant to the Securities Exchange Act of 1934 (Exchange Act), self regulatory organizations (SROs) receive quasi-governmental immunity. The justification for this immunity is twofold: first, to enforce the minimum financial and sales practice requirements created by Congress and the Securities and Exchange Commission and second, to denounce and publicly reprimand any violators of these requirements. An issue arises, however, when SROs forfeit their responsibility for these duties by participating in actions that are solely for their own private interests.
The National Association of Securities Dealers Automated Quotation (NASDAQ) became a privatized, for-profit company in 2002, with annual profits exceeding $365 million in 2006. With profits as excessive as these, it should be inferred that Nasdaq, Inc. has transitioned their priorities from regulation to annual gross revenue. As a result, NASDAQ, like the many other publicly traded stock exchanges, has struggled to maintain its identity as an SRO.
This comment will further explore the issue of whether SROs should still receive the protections of immunity under the Exchange Act and considers the potential legal and economic impact of the Eleventh Circuit’s decision in Weissman v. NASD, Inc. In Weissman the court decided Nasdaq should no longer receive the benefits of quasi-governmental immunity in actions where Nasdaq is acting privately. This comment takes the position that Weissman was correctly decided and analyzes the legal and economic impact this decision could have on both Nasdaq and other for-profit stock exchanges.