ICLE White Paper Highlights Regulatory Differences Between Stock Trading and Digital Ads

PORTLAND, Ore. (April 12, 2023) – Advocates for legislation that would remake the online display-advertising market—most recently introduced by Sen. Mike Lee (R-Utah) as Advertising Middlemen Endangering Rigorous Internet Competition Accountability (AMERICA) Act—often claim the changes they seek are based on analogous rules used in the regulation of securities markets.

But a new white paper from the International Center for Law & Economics demonstrates that such analogies are based on fundamental misunderstandings of how securities regulation works and why it exists.

The AMERICA Act and Lee’s earlier Competition and Transparency in Digital Advertising Act (CTDA) both propose to bar companies that own a digital-advertising exchange with more than $20 billion in annual ad revenue from also providing services to buyers and sellers of ads, or from selling advertising space themselves. This requirement for “physical separation” could force the breakup of vertically integrated digital-advertising platforms like Google.

The bills also would impose fiduciary-like duties on those who buy and sell online ads for others, which has been compared to “best interests” standards imposed on stockbrokers.

But according to the paper’s author, ICLE Academic Affiliate M. Todd Henderson of the University of Chicago, there isn’t an analogous requirement for physical separation in securities law. Many stockbrokers also own exchanges where stocks are traded.

Moreover, rules that stock trades be executed at the best-available price are imposed precisely because vertical integration is common. Such rules nonetheless do not significantly limit trading behavior, Henderson argues, and could not be imported to the “adtech” market without erecting a massive regulatory bureaucracy to police them.

“Whatever the facts on the ground in stock markets, any analogy to them is misplaced, because it fails to appreciate the purpose of stock-market regulation,” Henderson writes. “The sale of stocks is regulated in the way that it is because of the centrality of stocks to the savings and investments of everyday Americans, as well as the various vital roles stocks and stock markets play in the capitalist economy.”

“Stock-market regulation protects the nerve center of the economy. Ads are not stocks, and any claim that they should be regulated as stocks is deeply misleading,” he added.

The full paper can be downloaded here