The New Stock Market: Law, Economics, and Policy

by Merritt B. Fox, Lawrence Glosten, Gabriel Rauterberg

Overview

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.

Product Details

ISBN-13:	9780231543934
Publisher:	Columbia University Press
Publication date:	01/08/2019
Sold by:	Barnes & Noble
Format:	eBook
File size:	2 MB

About the Author

Merritt B. Fox is the Michael E. Patterson Professor of Law at Columbia Law School, codirector of the Program in the Law and Economics of Capital Markets, and codirector of the Center for Law and Economic Studies.

Lawrence R. Glosten is the S. Sloan Colt Professor of Banking and International Finance at Columbia Business School and codirector of the Program in the Law and Economics of Capital Markets.

Gabriel V. Rauterberg is an assistant professor of law at the University of Michigan Law School.

Merritt B. Fox is Michael E. Patterson Professor of Law and NASDAQ Professor for Law and Economics of Capital Markets. His books include Corporate Governance Lessons from Transitional Economies (Princeton University Press, 2006, co-edited with Michael Heller) and Finance and Industrial Performance in a Dynamic Economy: Theory, Practice and Policy (Columbia University Press, 1987).
Lawrence R. Glosten is S. Sloan Colt Professor of Banking and International Finance at the Columbia Business School. His work has appeared in a number of journals, including Duke Law Journal, New York Law School Law Review, European Financial Management, and Journal of Financial Markets.
Gabriel Rauterberg is assistant professor of law at the University of Michigan Law School. His work has appeared in a number of law reviews, including Duke, Michigan, and Columbia.

Table of Contents

Acknowledgments
Introduction
Part 1: Foundations
1. The Institutions and Regulation of Trading Markets
2. The Social Function of Stock Markets
3. The Economics of Trading Markets
Part 2: Trading Market Practices
4. High Frequency Trading
Part 3: Regulation of Traders
5. The Economics of Informed Trading
6. The Regulation of Informed Trading
7. Manipulation
8. Short Selling
Part 4: Regulation of Broker-Dealers
9. Broker-Dealers
10. Dark Pools
11. Maker-Taker Fees
12. Payment for Order Flow
Conclusion
Notes
Name Index
Subject Index

Editorial Reviews

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

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

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

The New Stock Market is a truly impressive achievement. It deserves an audience not only among scholars to whom its intellectual framework is already familiar but also among practitioners. Analysts, portfolio managers, risk managers, and C-suite executives who read this book will afterward stand on much firmer ground when opining on prospective securities legislation and regulation.

Enterprising Investor - Martin Fridson

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