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Darkness by Design: The Hidden Power in Global Capital Markets - Hardcover | Diverse Reads

Darkness by Design: The Hidden Power in Global Capital Markets

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An expose 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, some of which are deliberately designed to enable the transfer of wealth from the weak to the powerful. Walter Mattli traces the fall of the traditional exchange model of the NYSE, the world's leading stock market in the twentieth century, showing how it has come to be supplanted by fragmented markets whose governance is frequently set up to allow unscrupulous operators to exploit conflicts of interest at the expense of an unsuspecting public. Market makers have few obligations, market surveillance is neglected or impossible, enforcement is ineffective, and new technologies are not necessarily used to improve oversight but to offer lucrative preferential market access to select clients in ways that are often hidden. Mattli argues that power politics is central in today's fragmented markets. He sheds critical light on how the redistribution of power and influence has created new winners and losers in capital markets and lays the groundwork for sensible reforms to combat shady trading schemes and reclaim these markets for the long-term benefit of everyone. Essential reading for anyone with money in the stock market, Darkness by Design 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.

ISBN-13: 9780691180663

Media Type: Hardcover

Publisher: Princeton University Press

Publication Date: 04-02-2019

Pages: 264

Product Dimensions: 6.30(w) x 9.30(h) x 1.10(d)

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).

What People are Saying About This

From the Publisher

"Masterful. Great books make you reexamine your assumptions, and this one delivers in spades."—Felix Salmon, Foreign Affairs

"Mattli's book is a delightful chronicle of the changes in the way trading-related information has flowed, right from the days of America's first stock exchange in Philadelphia . . . to the present era of nanoseconds."—Namit Gupta, Business Standard

"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

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