This Article analyzes the reach of a private right of action under federal securities law for violations of trading obligations and abuses of trading privileges by market makers in today's rapidly evolving securities markets. The development of the applicable case law is traced, and potential approaches to a coherent theory of a private right of action are considered. The Article also discusses the significance of the changing economics and institutional framework of providing liquidity in securities markets and related regulatory debates. * * * BROOK. J. CORP. FIN. & COM. L. [Vol. 7 trading obligations and privileges of market makers, an important part of the regulatory framework for securities markets, is established by governmental regulation, such as rules of the U.S. Securities and Exchange Commission (SEC) adopted primarily under the mandate of the Securities Exchange Act of 1934 (Exchange Act), and private regulation by trading venues in their role as self-regulatory organizations (SROs). This balance, the importance of which has been recognized by the federal courts, 2 is a tradeoff between time, information, fee, order flow allocation, and other advantages, on one hand, and compliance with various trading rules, including commitments to enter-or not to enter-into transactions under specific parameters, such as an "affirmative" obligation to maintain a proper market or a "negative" obligation to refrain from certain types of proprietary trading, on the other. 3 The nature of this balance at least partly lies in the underlying externality: "In general, liquidity provision represents a positive externality in that traders who commit capital to make markets are not fully compensated for their liquidity services. While the usual solution to this inefficiency is a Pigovian subsidy, the form that this payment should take is less clear." 4 In fact, several empirical studies suggest that the imposition of trading," see IRENE ALDRIDGE, HIGH-FREQUENCY TRADING: A PRACTICAL GUIDE TO ALGORITHMIC STRATEGIES AND TRADING SYSTEMS 23-24 (2010). 2. See, e.g., Chiarella v. United States, 445 U.S. 222, 234 (1980) ("[The U.S.] Congress[] recogni[zed] that specialists contribute to a fair and orderly marketplace at the same time they exploit the informational advantage that comes from their possession of buy and sell orders."); Clement v. SEC, 674 F.2d 641, 643 (7th Cir. 1983) ("In return for undertaking. .. special obligations to the market, market makers enjoy advantages not available to others."). 3. See, e.g., Dissemination of Quotations in NMS Securities, 17 C.F.R. § 240.602 (2012) (imposing certain trading obligations on market makers with respect to quoting); Order Approving Proposed Rule Changes by Several Self-Regulatory Organizations To Enhance the Quotation Standards for Market Makers, Exchange Act Release No. 63,255, 75 Fed. Reg. 69,484 (Nov. 5, 2010) [hereinafter SEC's Release on the Quotation Standards for Market Makers] (approving proposed rules by various trading venues on trading obligations of market makers in...