Jobs Or Bucket Shops?

Last week, New York Times columnist Gail Collins wrote this Op-Ed piece criticizing the Jumpstart Our Business Startups (aka JOBS) Act (H.R. 3606).  Dave Lynn provided a good summary of the bill in this posting on blog.

In criticizing the JOBS Act, Ms. Collins remarked "You could also call it the Just Open Bucket Shops Act."  But what exactly is a "bucket shop" and why would it be bad to open one? 

Here in California its been a felony for more than half a century to either make a bucketing contract or to keep a bucket shop.  Cal. Corp. Code § 29100.  See Daugherty v. Riley, 1 Cal.2d 298 (1934) (describing the Commissioner of Corporations' authority under the Bucket Shop Act of 1923).  Although many people equate bucket shops with boiler rooms, they are not the same.  "Bucketing" refers to the practice of making contracts that are based on changes in the prices of securities or commodities.  Bucketing occurs, for example when parties enter into a contract with respect to the purchase or sale of securities or commodities that is settled based on publicly quoted prices but without a bona fide purchase or sale of the securities or commodities.  Cal. Corp. Code § 29008(a).  

Although the Commodity Exchange Act and the Securities Exchange Act of 1934 preempted California's bucket shop law to some extent, the scope of preemption may have been diminished to some degree by the Dodd-Frank Act.  See Does the Dodd-Frank Act Revive the CA Bucket Shop Law?