The New Stock Market: Law, Economics, and Policy
The U.S. stock market has been transformed over the last twenty-five years. Once a market in which human beings traded at human speeds, it is now an electronic market pervaded by algorithmic trading, conducted at speeds nearing that of light. High-frequency traders participate in a large portion of all transactions, and a significant minority of all trade occurs on alternative trading systems known as “dark pools.” These developments have been widely criticized, but there is no consensus on the best regulatory response to these dramatic changes.
The New Stock Market offers a comprehensive new look at how these markets work, how they fail, and how they should be regulated. Merritt B. Fox, Lawrence R. Glosten, and Gabriel V. Rauterberg describe stock markets’ institutions and regulatory architecture. They draw on the informational paradigm of microstructure economics to highlight the crucial role of information asymmetries and adverse selection in explaining market behavior, while examining a wide variety of developments in market practices and participants. The result is a compelling account of the stock market’s regulatory framework, fundamental institutions, and economic dynamics, combined with an assessment of its various controversies. The New Stock Market covers a wide range of issues including the practices of high-frequency traders, insider trading, manipulation, short selling, broker-dealer practices, and trading venue fees and rebates. The book illuminates both the existing regulatory structure of our equity trading markets and how we can improve it.
Economics | Finance | Law | Legal Studies
Columbia University Press
New York, NY
"In immensely readable fashion,The New Stock Market connects the fundamentals of market structure to new (and old) challenges: insider trading, market manipulation, high-frequency trading. A profoundly important look at how our stock markets have changed and the regulatory first principles necessary to keep them orderly and equitable as these changes continue."
—Donald Langevoort, Georgetown University
"Integrating the perspectives of information economics and the law for understanding markets for trading equity, this book will be of considerable interest to students of markets and the law, as well as securities lawyers, investment bankers, analysts, economists, and regulators."
—Chester Spatt, Carnegie Mellon Tepper School of Business and MIT Golub Center for Finance and Policy
"The New Stock Market achieves a difficult balance: it is accessible yet sophisticated. The mysterious new terms of market microstructure – 'high-frequency trader,' 'dark pool,' 'maker-taker' rebates, and 'internalization' – are all fluently explained, and this serves as a prelude to the authors' careful weighing of the policy choices. Few books in this area have been this lucid and this rigorous at the same time."
—John C. Coffee, Columbia University
"Equity capital markets are going through unprecedented change: new technology, new players, new venues, and new trading strategies. How can regulators respond to these developments without impeding market efficiency? These are the issues that Fox, Glosten, and Rauterberg analyze in their outstanding book, providing vital – and novel – insights and recommendations that should be welcomed by both regulators and investors. Highly recommended."
—Edward F. Greene, Cleary Gottlieb Steen & Hamilton
Program in the Law and Economics of Capital Markets
Fox, Merritt B.; Glosten, Lawrence R.; and Rauterberg, Gabriel V., "The New Stock Market: Law, Economics, and Policy" (2019). Faculty Books. 3.