The Role and Regulation of Clearing Brokers—Revisited
Henry F. Minnerop 75(3): 2201-2246 (Summer 2020)
This article focuses on the liability of clearing brokers to introduced customers for the misconduct of their introducing firms. To delineate this liability, the article describes the distinct and separate responsibilities and functions of clearing and introducing firms in relation to transactions in introduced accounts. The article examines the key events that led Congress, in 1975, to mandate the U.S. Securities and Exchange Commission (“SEC”) to facilitate the establishment of a new and robust clearance and settlement system in the wake of the collapse of the prior, largely manual, system during the Paper Crunch crisis of the late 1960s and early 1970s as well as the resulting regulatory framework facilitated by the SEC between 1975 and 1982 that governs clearing brokers to this day.