Journal Title

Texas Law Review





First Page


Document Type

Response or Comment

Publication Information



The Chicago Board Options Exchange (“CBOE”) provided the Securities and Exchange Commission (“SEC”) with an opportunity to exercise regulatory rules to protect the public and economy. The options market was an appropriate testing ground, as options presented complex and untested risks in the broader securities market. Before the CBOE attempted to add security and balance, options existed in an unorganized and underfinanced market. The market needed to expand. However, the SEC was faced with a few problems of its own making. Rule 9b-1 undermined the SEC’s regulatory intent by providing loopholes that would leave it powerless to intervene in any necessary or meaningful way if the regulatory scheme proved ineffective. Rule 9b-2, on the other hand, failed to guarantee that the required customer disclosure was sufficient.

The SEC proposed regulations that would provide information to customers in a way that helped them make trade decisions. The disclosures required that investors be capable of evaluating the supplied information and understand the risks before the trade. In contrast, the Federal Reserve Board (“FRB”) has responded with rigid prohibitions. The FRB excluded the call from covering short trades and arbitrage maneuvers, although it has not rejected similar uses of warrants. The FRB should reconsider its ruling that calls are not securities so that the SEC may continue to develop a needed market injecting revenue into a depressed economy.

Recommended Citation

George Lee Flint, Jr., SEC and FRB Treatment of Options: An Experiment in Market Regulation (comment), 53 Tex. L. Rev. 1243 (1975).

Included in

Law Commons



To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.