The New Stock Market: Law, Economics, and Policy
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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.
Author’s Introduction:
This book aims to provide an accessible yet sophisticated overview of the institutions, social functions, and economics of the secondary trading market for corporate equities. This is done with the principal ambition of understanding and improving the regulation of this market. Moreover, doing so at this particular moment presents a distinct opportunity. Driven by technology, the trading of equities occurs in a fundamentally new environment relative to just twenty years ago.
As a result, the market for equities has evolved in unexpected and complex ways. The trading of any given stock is spread over dozens of different venues, rather than being largely concentrated on or within a single exchange. There are entirely new kinds of participants, such as high-frequency traders, and new institutions, such as dark pools.
Our understanding of the market now also benefits from the rapidly evolving theoretical and empirical work of microstructure economics, a field dedicated to understanding the nature of trade in financial markets, which dates back only slightly more than thirty years. Our methodology combines legal analysis and institutional description with various strands of economics—not only microstructure economics, but also financial economics more generally and the theory of the firm. What results is a functionalist explanation of how the stock market works.
This approach has advantages from both a positive and normative point of view. It allows an integrated, understandable vision of the workings of the market and of the extraordinarily complex regulatory web to which it is subject, which involves federal statutory law and administrative rulemaking, state legislation, and self-regulatory rules. It also provides a basis for policy-based critiques of regulation that relate to the most basic values at stake in these markets.
Contents:
- The Institutions and Regulation of Trading Markets
- The Social Function of Stock Markets
- The Economics of Trading Markets
- High Frequency Trading
- The Economics of Informed Trading
- The Regulation of Informed Trading
- Manipulation
- Short Selling
- Broker-Dealers
- Dark Pools
- Maker-Taker Fees
- Payment for Order Flow
The New Stock Market: Law, Economics, and Policy By Gabriel Rauterberg, Lawrence Glosten, Merritt B. Fox pdf
| Author(s) | |
|---|---|
| Format | |
| Pages | 405 |
| Publication Year | 2019 |
3 reviews for The New Stock Market: Law, Economics, and Policy
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Lorelai Ellison (verified owner) –
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.
Evan Ingram (verified owner) –
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.
Katie Knapp (verified owner) –
Michael Lewis’s Flash Boys ignited a debate in Congress, Wall Street, and Main Street. He described “rigged” markets in which computerized traders raced ahead of ordinary investors. Lewis popularized electrifying terms such as “high speed trader,” “spoofing,” “electronic front-running” and “dark pools.” But he left perplexing questions unanswered. Why were these things all happening at once? Were some bad and others good (and for whom)? What should we do in response?
Fox, Glosten, and Rauterberg have written a guide for the perplexed. Glosten is an economist, Rauterberg is a lawyer, and Fox is both. Together, they give the reader a backstage tour of the economics, laws, and institutions that make and remake the stock market.
A reader of this book gains much: a demystifying introduction to the terrain and characters of real life trading, a strong grasp of the core micro-structure economics principles that drive all trading, and careful analysis of the exciting cases and bewildering regulations that build the contemporary market.
This is a balanced and precise academic text, but it is eminently readable. Anyone familiar with Larry Harris’s field-defining book, Trading and Exchanges, will find this book a worthy contemporary companion.