Darkness by Design: The Hidden Power in Global Capital Markets

by Walter Mattli

Overview

An exposé of fragmented trading platforms, poor governance, and exploitative practices in today's capital markets

Capital markets have undergone a dramatic transformation in the past two decades. Algorithmic high-speed supercomputing has replaced traditional floor trading and human market makers, while centralized exchanges that once ensured fairness and transparency have fragmented into a dizzying array of competing exchanges and trading platforms. Darkness by Design exposes the unseen perils of market fragmentation and "dark" markets, shedding critical light on how the redistribution of power and influence has created new winners and losers in capital markets. Essential reading for anyone with money in the stock market, this compelling book challenges the conventional view of markets and reveals the troubling implications of unchecked market power for the health of the global economy and society as a whole.

Product Details

ISBN-13:	9780691216867
Publisher:	Princeton University Press
Publication date:	06/08/2021
Pages:	264
Sales rank:	928,225
Product dimensions:	6.12(w) x 9.25(h) x (d)

About the Author

Walter Mattli is professor of international political economy and a fellow of St. John's College, University of Oxford. His books include The New Global Rulers: The Privatization of Regulation in the World Economy (Princeton).

Table of Contents

Figures and Tables ix

1 Introduction 1

A Deeply Puzzling Market Transformation 7

Power Politics and Market Governance 13

2 The Puzzling Transformation of Capital Market Structure: From Gradual Concentration to Sudden Fragmentation 23

The Evolution of the Market Organization and Its Body Politic 24

The Transformation of Power Relationships among Members 30

The Impact of Power Asymmetry 43

Implications 49

Appendix 51

3 Good Governance in Centralized Markets: The Old NYSE 55

The Market Makers: Functions and Obligations 59

Market Surveillance 63

Rule Enforcement 72

Market Performance and Quality 76

Moving into the Twenty-First Century 89

4 Stratification in Modern Trading: The Haves and Have-Nots 93

Speed 94

Globalization, Financial Innovation:, and Stratification 99

5 Bad Governance in Fragmented Markets 107

Weakened Market-Making Obligations 111

Information Asymmetry: Trading Data 114

Information Asymmetry: Market Microstructure 120

Darkness 125

Failing Market Surveillance 137

Implications 146

Appendix 148

6 Conclusion: The Way Forward 155

Market Transparency 156

Leveling the Playing Field 162

Proper Accountability for Market Disruption and Bad Governance 164

Consolidation 165

Acknowledgments 171

Appendix: Market Governance: A Theoretical Background Note 175

A Political Organization Approach in Relation to Other Theories 175

Behavioral Assumption: Opportunism 181

Glossary 185

Notes 191

Bibliography 225

Index 241

What People are Saying About This

From the Publisher

"Walter Mattli's excellent book looks at the technological revolution that led to the fragmentation of today's security exchanges and trading floors. Innovations such as algorithmic trading and dark pools present significant challenges to market participants on issues ranging from efficiency and transparency to fairness and investor protection. Mattli's brilliant analysis is an eye-opener for everyone interested in the future of these markets."—Effi Benmelech, Northwestern University

"Walter Mattli takes us into a world of lit markets and dark pools, of stuffing and spoofing, and of trading speeds that make the blink of an eye seem interminable. He reveals how modern asset markets are actually governed—and how power is accumulated, used, and abused. Readers of this book will find it difficult to think about financial markets the same way ever again."—Jeffry Frieden, Harvard University

"In this masterful book, Walter Mattli delivers a tour de force that is deeply researched, crisply written, and timely. Darkness by Design is a must-read for regulators, policymakers, and anyone interested in how securities markets work."—Yesha Yadav, Vanderbilt Law School

“This important book traces how broker-dealers began to grow, converted to public companies to increase capital, gained financial and political influence, formed new coalitions that demanded changes in governance to benefit themselves, and produced the conflict-ridden, unequal system we have today. The story Mattli tells reads almost like a Shakespearean plot.”—Kenneth W. Abbott, Arizona State University

“Provocative and engaging.”—Stephen H. Haber, coauthor of Fragile by Design: The Political Origins of Banking Crises and Scarce Credit

Editorial Reviews

"There are few books on the structure and governance of equity markets, and even fewer that can be enjoyed by new and experienced readers . . . Mattli’s sets a high standard."—-David Murphy, Open Letters Review

"Mr Mattli’s book is a delightful chronicle of the changes in the way trading-related information has flowed"—-Namit Gupta, Business Standard

"What Mattli shows in his study of the New York Stock Exchange is that, prior to 1970, it is quite possible to believe that capitalists did behave with a degree of honour and regard for the public good in the way they conducted business."—-Don Flynn, Chartist

"Mattli’s book is both lucid and short, two priceless qualities in discussing market structure."—-David Morris, Financial News

From the Publisher