The New Stock Market: Law, Economics, and Policy

406 Pages·2019·3.67 MB·English

by  Merritt B Fox, Lawrence Glosten, Gabriel Rauterberg

THE NEW
STOCK
Law,
Economics,
MARKET
and
Policy
Merritt B. Fox, Lawrence R. Glosten
Gabriel V. Rauterberg
&
The New STock MarkeT

The New
Stock Market
Law, Economics, and Policy
Merritt B. Fox,
Lawrence r. Glosten,
and Gabriel V. rauterberg
Columbia university Press new york
Columbia university Press
Publishers Since 1893
new york Chichester, West sussex
cup.columbia.edu
Copyright © 2019 Columbia university Press
all rights reserved
library of Congress Cataloging-in-Publication Data
names: Fox, merritt b., author. | Glosten, lawrence r. (lawrence robert),
1951– author. | rauterberg, Gabriel v., author.
title: The new stock market : law, economics, and policy /
merritt b. Fox, lawrence r. Glosten, and Gabriel v. rauterberg.
Description: 1 edition. | new york : Columbia university Press, [2018] |
includes bibliographical references and index.
identifiers: lCCn 2018021684 (print) | lCCn 2018037234 (e-book) |
isbn 9780231543934 (e-book) | isbn 9780231181969 (hardback : alk. paper)
subjects: lCsH: stock exchanges. | securities. | short selling (securities)
Classification: lCC HG4551 (e-book) | lCC HG4551 .F69 2018 (print) |
DDC 332.64/2—dc23
lC record available at https://lccn.loc.gov/2018021684
Columbia university Press books are printed on permanent
and durable acid-free paper.
Printed in the united states of america
Contents
Acknowledgments vii
Introduction 1
Part 1: Foundations
1 The Institutions and Regulation of Trading Markets 11
2 The Social Function of Stock Markets 33
3 The Economics of Trading Markets 59
Part 2: trading Market Practices
4 High Frequency Trading 95
Part 3: regulation of traders
5 The Economics of Informed Trading 131
6 The Regulation of Informed Trading 162
7 Manipulation 200
8 Short Selling 241
coNTeNTS | vi
Part 4: regulation of Broker-Dealers
9 broker-Dealers 261
10 Dark Pools 274
11 maker-taker Fees 281
12 Payment for order Flow 289
Conclusion 293
notes 299
name index 371
subject index 379
acknowledgments
We owe our gratitude to the many people who have contributed invaluably
to the development of this book. This includes first and foremost The NAS-
DAQ OMX Educational Foundation, our editor at Columbia University Press,
Bridget Flannery-McCoy, Laura Miller, Kevin Haeberle, Menesh Patel, Anne
Choike, Yuan Zou, and Polina Dovman. Academically, we owe yet more debts.
Thanks to Larry Harris, whose Trading & Exchanges, served for so long as our
touchstone for lucidly teaching about market structure, to the Fellows of the
Columbia Program in the Law and Economics of Capital Markets, and to our
colleagues at Columbia University and the University of Michigan.
Most of the chapters in this book reflect work previously published in arti-
cle form, although all have been extensively revised and much has not been
published before. Thanks to the editors of those articles and to those cited in
their acknowledgments.
Merritt Fox, Lawrence Glosten & Gabriel Rauterberg, The New Stock Market:
Sense and Nonsense, 65 Duke Law Journal 191 (2015); excerpted and revised in
Meritt B. Fox, Lawrence R Glosten, & Gabriel V. Rauterberg, High-Frequency
ackNowLedGMeNTS | viii
Trading and the New Stock Market Sense and Nonsense, 29 Journal of Applied
Corporate Finance 30 (2017).
Merritt Fox, Lawrence Glosten & Gabriel Rauterberg, Informed Trading and
Its Regulation, 43 Journal of Corporation Law 817 (2018).
Merritt Fox, Lawrence Glosten & Gabriel Rauterberg, Stock Market
Manipulation and Its Regulation, 35 Yale Journal on Regulation 67 (2018);
excerpted and revised in Global Algorithmic Capital Markets: High Frequency
Trading, Dark Pools, and Regulatory Challenges, Ch. 8 (ed. Walter Mattli: 2019).
Merritt Fox & Gabriel Rauterberg, Stock Market Futurism, 42 Journal of
Corporation Law 793 (2017) (Symposium).
Merritt Fox & Kevin S. Haeberle, Evaluating Stock-Trading Practices and
Their Regulation, 42 Journal of Corporation Law 887 (2017) (Symposium).
Merritt Fox, Lawrence Glosten & Paul Tetlock, Short Selling and the News:
A Preliminary Report on an Empirical Study, 54 New York Law School Law
Review 645 (2010).
The New STock MarkeT