Regulating Frontier Markets: Market Structure from Exchanges to Agents

3 credits · Law School

In the space of a few years, a functioning set of exchanges, dealers, custodians, clearinghouses and payment rails has been joined by a second architecture that performs the same functions in a different way: blockchains that settle without a central intermediary, prediction markets that trade contracts on commodities prices and interest rate decisions, perpetual futures that never expire and clear around the clock, and software agents that read prices, choose counterparties and authorize payments without a human in the loop. Congress, the SEC, the CFTC and the banking regulators trying to write the rules for this second architecture in real time with much of the regulation around the issues remaining unsettled and where the basic mechanics have a limited provenance and empirical history. This course is a survey course to teach students how markets work and how the law shapes them and then uses that foundation to examine the newest and least settled markets in the financial system. The course proceeds in two parts. The first builds a doctrinal core: what an exchange does, how orders are matched and prices formed, why intermediaries such as dealers, market makers, clearinghouses and custodians exist, and how law and regulation such as Securities Exchange Act, the Commodity Exchange Act and the payments and banking statutes allocate responsibility among them. Students learn about price discovery, liquidity, settlement risk, conflicts of interest, and market integrity. The second part takes this toolkit to the frontier. Students study how blockchain-based trading works, digital assets, digital money, the rise of prediction markets, perpetual futures and the migration of derivatives trading onto offshore and decentralized venues, framed by the arrival of artificial intelligence in financial services, from AI agents that trade and advise to agentic payment systems in which a model, rather than a person, initiates the transaction. Limited Enrollment. [3]