NEW YORK—  Controversy over many of the modern stock market’s practices—including high-frequency trading, electronic front-running, and the use of dark pools—is well-known, and is spawning private class action litigation, and investigations by state and federal regulators.

But despite the flood of inquiries into and around trading techniques in the modern stock market, there has been relatively little serious legal and policy analysis concerning the issues that they raise. A new paper by Columbia professors fills this gap—offering a comprehensive framework for understanding the new stock market and answering basic questions: Who benefits from the controversial practices? Who is disadvantaged because of them? Should regulators and policy makers step in?

The paper, “The New Stock Market: Sense and Nonsense,” examines eight controversial practices, critiques current proposals in reaction to these practices, and offers recommendations for moving forward.  For example, although the authors conclude that high-frequency trading does not inherently result in unfairness in the market, they lean toward relatively low-cost reforms that would eliminate certain of high frequency traders’ current advantages, such as effectively receiving quote and transaction data ahead of other market participants.

 “Our research was motivated by the wealth of misconceptions about the new stock market,” said Lawrence R. Glosten, a professor at Columbia Business School and co-author of the study. “We built a comprehensive framework to help describe how the new market operates and evaluated the financial and social costs and benefits of these practices. We conclude that while there is no emergency requiring immediate action, some reforms are clearly desirable.”

Forthcoming in the Duke Law Journal, the paper is written by Columbia Law School Professor Merritt B. Fox, Columbia Business School Professor Lawrence R. Glosten, and Gabriel Rauterberg, a scholar with the Program in the Law and Economics of Capital Markets run by both schools. The authors are also involved in a larger project—the new Special Study of the Securities Markets—a comprehensive empirical study of the securities markets that would ultimately enable stakeholders to answer policy questions, improve regulatory structures, and anticipate new market developments.

To learn more about the cutting-edge research being conducted at Columbia Business School, please visit www.gsb.columbia.edu.

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About Columbia Business School

Columbia Business School is the only world–class, Ivy League business school that delivers a learning experience where academic excellence meets with real–time exposure to the pulse of global business. Led by Dean Glenn Hubbard, the School’s transformative curriculum bridges academic theory with unparalleled exposure to real–world business practice, equipping students with an entrepreneurial mindset that allows them to recognize, capture, and create opportunity in any business environment. The thought leadership of the School’s faculty and staff, combined with the accomplishments of its distinguished alumni and position in the center of global business, means that the School’s efforts have an immediate, measurable impact on the forces shaping business every day. To learn more about Columbia Business School’s position at the very center of business, please visit www.gsb.columbia.edu.

About Columbia Law School

Columbia Law School, founded in 1858, stands at the forefront of legal education and of the law in a global society. Columbia Law School combines traditional strengths in corporate law and financial regulation, international and comparative law, property, contracts, constitutional law, and administrative law with pioneering work in intellectual property, digital technology, tax law and policy, national security, human rights, sexuality and gender, and environmental law.
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