Public agencies outsource a wide variety of tasks to non-state actors, or what can be referred to as regulatory intermediaries. In certain circumstances, these agencies may seek to disempower those regulatory intermediaries by reclaiming, duplicating, or transferring the outsourced task. When will these disempowerment attempts be successful? This article presents the Market Structure Hypothesis, which contends that the level of competition between regulatory intermediaries will, all things equal, determine whether disempowerment attempts succeed. To test this hypothesis, this article examines the U.S. Securities and Exchange Commission’s (SEC) attempts to acquire the independent capacity to conduct nationwide trade surveillance in the 1980s (Market Oversight Surveillance System) and 2010s (Consolidated Audit Trail). Evidence derives from archival materials, a Freedom of Information Act Request, and 60 interviews in Oxford, London, Toronto, New York City, and Washington, D.C. The empirical results corroborate the hypothesis’ expectations, contributing to our understanding of public-private partnerships and shedding new empirical light on an understudied topic of securities regulation.
2019
Publication: Global Algorithmic Capital Markets (Oxford University Press, ed. Walter Mattli)
This chapter traces how technological changes have affected the structure and operation of currency markets, and examines the issues associated with these developments. These changes have caused significant concern within the industry and raise complicated questions about whether additional regulation is necessary. Nevertheless, they have received relatively little theoretical or empirical attention in comparison to similar developments in equities markets. To address this gap, the chapter outlines the primary market structural issues in foreign exchange markets, including potentially abusive trading techniques, last look, and perverse incentives to monetize access to speed and information. Further, the chapter provides an example of a high frequency latency arbitrage opportunity and discusses the potential mitigating impact of a randomized delay mechanism. This is followed by an analysis of recent regulatory efforts to address these issues in the UK, the EU, and the US, in addition to a review of industry-led initiatives to establish best practices for algorithmic traders and venue operators. The chapter concludes by discussing key questions and constraints for future research.
2019
Publication: The Review of International Organizations (V. 14, Issue 1)
Since 1945 the number of multilateral development banks (MDBs) has increased at a linear rate, with approximately one new MDB created every three years. The proliferation of MDBs has resulted in an inefficient duplication of international institutions with overlapping functions. Further, this trend contradicts our existing understanding of why states create countervailing international organizations. This article proposes a novel, two-step theoretical model of institutional change and creation in an attempt to explain this empirical puzzle. Utilizing the complementarities of rational-choice and historical institutionalism, the model demonstrates that the rational actions of states in the past can lead to seemingly irrational institutional change in the future. This process results in the repetitive creation of countervailing MDBs designed to solve the same functional problems. To evaluate the model’s hypotheses, three case studies are undertaken, employing archival material, internal documents, and 48 interviews conducted by the author in London, Washington, D.C. and Manila, Philippines. The empirical results are of direct interest to policy-makers currently negotiating the structure of new MDBs in Asia and Latin America.
Good leadership in international organizations is necessary, but not sufficient, for their success. Structures supporting leadership vary enormously across global agencies. This report highlights some of the best practices across 11 organizations that facilitate good leadership. It also underscores that international institutions could learn from each other’s practices across seven domains: (1) selecting and re-electing leadership on merit, (2) managing performance, (3) setting and evaluating ethical standards, (4) developing and retaining talent, (5) setting strategic priorities, (6) engaging with a wide range of stakeholders, and (7) evaluating independently and effectively.
Publication: The Oxford Handbook of Institutions of International Economic Governance and Market Regulation (Oxford University Press, eds. Eric Brousseau, Jean-Michel Glachant, and Jérôme Sgard)
Co-author: Walter Mattli (University of Oxford)
Advances in telecommunication technology in the 19th century encouraged greater centralization of liquidity on single, dominant exchanges in most major industrialized countries. Electronic trading, in contrast, has precipitated increased market fragmentation, creating a host of new regulatory dilemmas. In an attempt to understand this phenomenon, this chapter proposes a two-stage process of market structural development in response to electronic trading. This process is then examined in equities and foreign exchange markets. Despite significant differences between these two asset classes, we find that they have exhibited a remarkably similar pattern of disintermediation followed by re-intermediation. This analysis is followed by a survey of recent regulatory approaches to mitigate the negative externalities associated with electronic trading. We conclude with a brief discussion on the future of market fragmentation and centralization in global capital markets.
In Progress
Regulatory Intermediation and International Cooperation: The Case of Transnational Market Abuse
Presentations: European Political Science Association Annual Meeting (Belfast)
Regulators often outsource tasks to private firms, or what can be referred to as regulatory intermediaries. How does this impact the form of international cooperation national regulators utilize to address transnational problems? This paper constructs a novel explanatory framework contending that regulators’ previous decision to outsource tasks to regulatory intermediaries impacts their future capacity to engage in certain forms of cooperation. The initial outsourcing decision makes the regulator dependent on their intermediaries for information. Therefore, they will have to reverse this dependency if they desire to engage in certain forms of cooperation that require the direct exchange of data. This process is conceptualized as a sequential two-level game, involving regulators versus intermediaries (domestic game) followed by regulators versus regulators (international game). The framework is applied to explain why national securities regulators engage in various forms of cooperation to identify transnational market abuse. Four case studies are undertaken, employing evidence collected from the archives of the New York Stock Exchange; new government documents obtained via a Freedom of Information Act Request; and 75 interviews in London, Oxford, Toronto, New York, Washington, D.C., The Hague, and Amsterdam. The empirical results corroborate the framework’s expectations, demonstrating how public-private partnerships can inadvertently undermine effective regulatory cooperation.
