Applying Lessons from Securities Regulation to Intelligent Transportation Systems

In the 1970s, Congress authorized the Securities and Exchange Commission to “facilitate the establishment of a national market system for the trading of securities.” The SEC’s approach, in large part, was to direct the exchanges and the Financial Industry Regulatory Authority to come up with solutions themselves subject to the approval of the SEC.

One reason for this indirect form of regulation was the technological complexity of Congress’s goals and the exchanges’ greater informedness about what solutions were plausible and practical. For example, Congress wanted all exchanges to provide price and quantity information about available orders against which to trade to a centralized system; in 1975, that was a much harder problem than in today’s information technology rich world, and the exchanges were better informed and equipped to develop and test solutions.

The lesson to be learned from the history of the national market system is that where there is great technological complexity, regulators may have success delegating the details of executing on goals to the regulated bodies.

I find V2X/intelligent transportation systems reminiscent of securities in the 1970s:

• There is a big challenging goal: then, the creation of a national market system, and now, “efficient…accident free cooperative driving.”
• There is enormous technological complexity about which industry participants are better informed than regulators.
• Success requires a lot of cooperation between participants.
• Nobody really knows how to do it, so iterative and experimental problem solving is especially beneficial.

Given these similarities and the eventual success of the NMS, applying a similar approach to CAVs is appealing.

How should connected infrastructure handle personal data? What kind of information needs to be shared and in what form? Who should build “high reliability, low latency communications system[s]” needed for V2X? Should we use 5G or Cellular? How should liability be apportioned to maximize safety and innovations leading thereto? These are necessary questions to answer to create intelligent transportation systems. Delays in answering them stymie development (e.g., the 5G vs. C-V2X problem). Other than the privacy issues, the car companies have better information to answer them. Car companies’ incentives would make them move faster than NHTSA.

Certainly, there are concerns about competition, anti-consumer outcomes, etc. That is why the NMS plans were subject to the SEC’s approval. Indeed, the exchanges often failed to come to consensus, showing competitive pressures were still present.

By adopting an approach similar to securities regulation, industry can be left to what it does best—figure out how to innovate to solve clearly-defined problems—while regulators can do what they do best—define policy goals and keep private incentives in check.

As such, I believe Congress should explore further instructing NHTSA to facilitate the establishment of a national connected infrastructure system just as they instructed the SEC to “facilitate the establishment of a national market system.”

(For more about the national market system and challenges in creating it, see e.g., William Harman, The Evolution of the National Market System—An Overview.)