The New Stock Market: Law, Economics, and Policy


  • Format: PDF
  • Pages: 405
  • Published Date: 2019


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.


  • 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