Category Archives: Finance Capital

After the Launch: What Workers’ Capital Should Do About SpaceX Now

The governance option, and why it is missing here

Begin with the firm itself. The dominant theory of the corporation, descended from Berle and Means and refurbished by the agency-cost school, rests on a comforting premise: ownership and control are separate, managers are mere agents of dispersed shareholders, and any manager who misallocates capital is disciplined by the “market for corporate control.” Capital markets, on this view, are neutral plumbing that converts millions of buy-and-sell decisions into legitimate outcomes. I argued, following Christos Pitelis, that the picture is false at its foundation. There was no managerial revolution. Capitalists did not surrender control when they sold shares to outsiders; they kept it, commanding socialized labor and social resources from a minority economic stake. The firm is not plumbing. It is an island of conscious power — and once you see it that way, a problem the orthodox account cannot handle appears: legitimacy. The people on the receiving end of corporate power, workers as employees and as the ultimate owners of pension capital, will eventually want a say in whether its outcomes are legitimate. Securities law, fiduciary duty, and shareholder rights are the residue of earlier moments when they demanded one.

The orthodox defense leans on a single load-bearing assumption Pitelis called perfect substitutability: that a worker who dislikes how a company behaves can simply sell. But pension beneficiaries cannot easily sell. They have no control over, and often no knowledge of, the shares bought in their name; they cannot move fluidly between consumption and investment the way the theory requires. They are involuntary investors — hostages to the decisions controlling capitalists make about corporate profits. Their “exit” is largely a fiction, and when exit goes dark, the price signal that is supposed to discipline managers goes dark with it. Absent some other intervention, workers’ deferred wages are quietly “put” back to the capitalist class as capitalist savings — fuel for accumulation, deployed by others, in others’ interests.

What is the other intervention? I called it the governance option. A share is a bundle of rights. Hedge-fund activists care about one strand, the right to payouts; but the bundle also contains governance rights — to vote on major decisions, to obtain information, to speak at the annual meeting, and to bring derivative claims against directors who loot the company. These are an embedded option, and for decades pension funds let it lapse, delegating their votes to Wall Street managers who, dependent on corporate relationships, reliably sided with management. The option expired unexercised, like a weapon never drawn. Labor’s contribution over the last two decades has been to start exercising it: at Tesla, where the CtW Investment Group and allied funds forced board changes; at Facebook, where union-led plaintiffs sued and made Zuckerberg withdraw a plan for non-voting Class C shares. Exercised collectively and credibly, the governance option is the one tool that lets non-controlling owners push back against the private power concentrated inside the firm.

Now look at the SpaceX prospectus with that framework in hand, and you can watch each strand of the bundle being severed in advance.

The vote is decorative. Public buyers get one-vote Class A shares; Musk’s Class B shares carry ten votes each. He commands 85.1% of the votes on 42% of the economics — permanently. He can be removed only by a Class B vote he himself controls. Source: SpaceX final registration statement.

The vote is hollow: 85.1 percent of the voting power sits with the founder, locked above a majority forever. The derivative suit — the remedy by which shareholders have policed self-dealing since the nineteenth century — has been priced out of existence. SpaceX reincorporated in Texas in February 2024, days after Delaware’s Chancery Court struck down Musk’s Tesla pay package, and Texas supplies a statute requiring a 3 percent stake before a shareholder may bring a derivative claim — more than $60 billion at today’s valuation, more than any pension system on earth holds in any single stock. The rights to informationand to voice at the annual meeting are nominal in a company whose board is a closed circle of the founder’s friends and co-investors; the “controlled company” exemption strips away even the usual independent-board requirements.

In other words, the SpaceX structure does not merely exploit a lapsed governance option. It is engineered, in advance, so that there is no option left to exercise — the embedded rights emptied out before the first share changes hands. Then, with index inclusion, the last strand, exit, is severed too. This is imperfect substitutability taken to its limit: workers as maximally hostage investors, unable to refuse the purchase and unable to sell, holding a security stripped of voice and of legal remedy. Participation without consent, exposure without voice. That is not a market relationship. It is tribute.

A great company can still be a terrible security. NYU’s Aswath Damodaran — the nearest thing American finance has to a neutral arbiter — values the equity near $100 a share using assumptions he calls generous. The prospectus asserts a $28 trillion “total addressable market,” $26 trillion of it AI; he judges that figure to “border on fantasy.” Sources: Damodaran post-prospectus analysis, June 4, 2026; SpaceX prospectus.

How did a $100 security come to be priced at $135 and trade at $175? Not through discovery. SpaceX was marked at $350 billion in December 2024; fourteen months later the figure was $1.25 trillion — a step-up built on tiny secondaries to obscure offshore vehicles, with undisclosed parties on both sides, and the $250 billion absorption of xAI, a Musk-controlled company bought by a Musk-controlled company. That this was a deal Musk negotiated, in effect, with himself is not my characterization alone; it is how independent observers described the transaction. The IPO was the first arm’s-length price test of this security in years; its buyers were not relying on price discovery but performing it, with their own money.

What independent observers said about the deal

“Musk negotiates with himself, sets the terms, and outside shareholders absorb the risk… the vehicle for value creation is not actual business performance—it’s Musk shuffling assets between entities he controls and stamping a higher valuation on the combination.”
— Fred Lambert, Electrek, May 27, 2026, on the $250B SpaceX–xAI deal

Of the earlier xAI–X combination that set the template, William Cohan asked whether “any bankers [were] hired to value the two companies and set an exchange ratio” or whether “special committees of the boards of directors [were] set up to… make sure it was fair to the non-Elon shareholders.” Bloomberg’s Matt Levine judged the valuation “not clearly validated by arm’s-length transactions with economically motivated counterparties.”
— quoted in Mike Masnick, “The X/xAI Shell Game: When Musk Merges With Himself,” Techdirt, April 7, 2025

And on what the structure leaves for outside shareholders, NYU’s Aswath Damodaran found in the prospectus “a voting share structure that locks in Elon Musk’s control of the company, since there is little that shareholders can do to restrain the company.”
— Aswath Damodaran, “Revisiting the SpaceX Valuation,” June 4, 2026

The valuation outran any independent estimate of value. The step-up rested on thin secondary trades with undisclosed counterparties and the $250B absorption of xAI — a deal independent observers described as Musk negotiating “with himself” (Electrek; Techdirt). Sources: SpaceX prospectus; reported December 2024 mark; Damodaran, June 2026.

Why “engage from the inside” cannot be the answer this time

The sophisticated counsel inside the labor-investment world says: engage. This is the first of a wave — OpenAI and Anthropic will follow — and a movement that spent four decades building credibility cannot sit out the defining transaction of the era. Better to enter in coalition, with published conditions, and fight from within, as we did at Tesla. I helped build that engagement tradition and respect its instincts. But engagement presupposes channels of influence, and this issuer has closed every one in advance. We ran the experiment: in 2016 CtW’s funds and allies, managing some $700 billion, warned Tesla’s board about the SolarCity related-party deal; in 2018 I took the floor of its annual meeting and urged shareholders to vote against Musk’s captive directors. Engagement under Delaware law, with courts and derivative suits still available, yielded redomestication to Texas and a bigger pay package. SpaceX offers strictly worse terrain — no vote that counts, no court a pension fund can afford to reach, no independent board, and now no exit. A condition-based strategy with no enforcement mechanism is not a strategy. It is a press release with a wire transfer attached.

If the governance option has been emptied inside the firm, then the response cannot be conducted inside the firm. It has to push on the boundary of the firm from outside — what Engels, in a passage I have always found startlingly contemporary, called the invading socialist society pressing inward against the wall of private appropriation. The good news is that labor has done exactly this before, and it worked.

The PetroChina campaign taught that even at the heart of the financial system, organized refusal from below can reprice a deal and rewrite a rule. The stakes now are larger — because the capital being requisitioned is labor’s own.

In 2000, a Goldman-led syndicate set out to float PetroChina on the New York Stock Exchange and hoped to raise $10 billion. The AFL-CIO, joined by human-rights and religious organizations, mounted an “alternative roadshow” that trailed the underwriters city to city, and the deal was slashed to under $3 billion. It left a regulatory residue too: in the 2001 Unger Letter, the SEC conceded for the first time that an issuer’s human-rights conduct could be material to investors — proof that the wall between “financial” and “social” information is not a fact of nature but a political settlement, open to renegotiation. That is the model, scaled up for the age of the trillion-dollar founder. Here is what it looks like now.

An agenda for the post-IPO fight

1. Move the fight to the index layer—the new frontier of the exit problem.

This is where the forced-investment fight will be won or lost, and it is the most urgent item on the clock. The mechanism that strips workers of exit is no longer the trading desk; it is the index committee. Reuters reported that SpaceX made fast-track inclusion a condition of listing, and Nasdaq rewrote its rules so a mega-listing can enter the Nasdaq-100 in fifteen days instead of months. Labor should contest fast-track inclusion directly and press the broader principle the moment demands: that benchmark providers adopt governance standards excluding — or weighting down — securities with no meaningful vote and founder lock-in, as index families have restricted multi-class structures before. And trustees should reassert that they never delegated their fiduciary judgment to an index committee’s rulebook. “The index made us buy it” is an abdication, not a defense.

Conscription, then exit. Index funds are forced in just as insider lockups begin to release. Insiders who put less than $11 billion of equity into the company over its lifetime sell into the enthusiasm of the people who cheer the rockets. Sources: Reuters; market lockup estimates; SpaceX prospectus.

2. Rebuild the governance option through law and disclosure, not boardroom diplomacy.

If the rights inside the share have been emptied, refill them from outside the firm, through the regulatory and legal channels engagement bypasses. That means a coordinated wave of SEC comment letters pressing the questions the prospectus finesses: the roughly $205 billion of goodwill atop a subsidiary whose eleven co-founders have all departed; the Starlink unit economics that fell from $99 to $66 in monthly revenue per subscriber while the valuation tripled; the $28 trillion addressable-market claim. It means building, on the PetroChina/Unger foundation, the materiality case that governance and labor conduct are financial facts, not soft “social” ones. And it means treating the Texas 3-percent derivative threshold as a target for litigation and legislative reform — a remedy priced out of existence, not constitutionally abolished.

3. Reclaim the option from the intermediaries who keep “putting” it back to management.

The governance option lapses because pension funds delegate their votes and stewardship to Wall Street managers whose business depends on cordial relations with the very insiders they are meant to police. The largest index providers will be among the biggest holders of SPCX, and their voting policies will matter more than any single fund’s. Labor’s task is to build independent stewardship capacity — in-house proxy voting, shared voting platforms among allied funds, public guidelines that refuse to rubber-stamp controlled-company structures — so the option is exercised by the beneficiaries’ representatives rather than surrendered on their behalf. An option never exercised loses its credibility, like a weapon never drawn; a credible threat changes behavior before it is used.

4. Unite the two roles: workers as owners and workers as employees.

SpaceX is not merely an overpriced, unaccountable security. It is the company that sued to have the National Labor Relations Board declared unconstitutional after firing workers who criticized Musk — and won by attrition this February, when a hollowed-out Board abandoned its case. Reuters has documented more than 600 worker injuries at its facilities, including amputations and a death. The proposition put to a union trustee is therefore obscene on its face: hand the deferred wages of union members, at a 35-to-75 percent premium to fair value, to a company dismantling the legal regime under which those same members organized — in exchange for a share with no vote, no court, and no board. The old worry that prudence and solidarity might conflict dissolves here; they point the same way. Owner-side and worker-side institutions should run this as one campaign, not two.

5. Refuse loudly, on the record, and be candid with beneficiaries about why.

Finally, the alternative roadshow for the age of the trillion-dollar founder: a documented, public, rigorous refusal. Restricted lists. Written-justification requirements for any manager who wants in over a fund’s own benchmark. And honest communication with the teachers, firefighters, and nurses whose savings are at stake — not squeamishness about rockets, but a refusal to let workers’ own capital finance a structure built to be unaccountable to them in both of their roles. The objection was never that the rockets do not fly. Launch margins near 67 percent and Starlink subscribers doubling to 10.3 million are real. A great company can still be a terrible security, and an unaccountable one can still be a political defeat.

Step back and the historical shape comes into view. The postwar settlement bought social legitimacy with institutions — bargaining, social insurance, enforceable rights — that gave the working class procedural standing. The neoliberal era stripped those away and offered a substitute: the worker as shareholder, the pension fund as each citizen’s stake in capitalism’s success. The SpaceX offering abolishes even that bargain’s formal terms — no meaningful vote, no court, no independent board, and now, through index capture, no exit and no entry decision either. A system that must conscript its own working class’s savings while litigating to dissolve that class’s last statutory protections is not generating legitimacy. It is running down reserves accumulated in an earlier age, and the deficit is compounding.

The price is set; the stock has popped; the index will do the rest. None of that settles the question the workers’-capital movement has always posed — whether the class that produces society’s resources will have any say in how they are deployed. The governance option has been emptied inside this firm. So it must be exercised against the structure from outside: at the index committee, at the SEC, in the legislature, and in public. The point was never to catch the biggest deal in history. The point is to contest it.

Stephen F. Diamond is a corporate and securities law scholar who has advised union pension funds for three decades, including the AFL-CIO’s PetroChina IPO campaign (2000) and the CtW Investment Group’s engagements with Tesla’s board (2016–18). The argument here develops the framework of his article “Exercising the ‘governance option’: labour’s new push to reshape financial capitalism,” Cambridge Journal of Economics 43, no. 4 (2019): 891–916. Valuation figures draw on Aswath Damodaran’s June 2026 analysis and the SpaceX registration statement; first-day trading, lockup, and index-timing figures reflect reporting as of June 22, 2026.

A Powerpoint summary of this post can be found here: Should Workers Capital Buy Into the SpaceX IPO (deck).

Bursting the blockchain bubble

The massive hype surrounding the crypto world is unlike anything I have witnessed over three decades in and studying the financial markets. This includes my direct participation in the securities markets while the dotcom boom raged and collapsed. Crypto far exceeds that excess. There are billions of dollars and hundreds of thousands – if not millions – of people now being sucked into the vortex of this very odd world.

What makes it so dangerous is the ability of this whirlwind to enable people “just switch off their brains and stop thinking,” as Martin Walker, recently testified to a Parliamentary Committee. In fact, it was impressive how the members of that Parliamentary Committee were unwilling to accept the simple facts that Walker tried to share with them. Evidence, clearly, of the impact of crypto hype.

Further evidence of the problem was found recently when Professor Nouriel Roubini, an economist famous for having foretold the collapse of the credit markets in 2008, testified to a Senate Committee about his longstanding view that “cyrpto is the mother of all scams and (now busted) bubbles while blockchain is the most over-hyped technology ever, no better than a spreadsheet/database.” Roubini was then made the subject of a twitter attack that appeared to be something on the scale of what the Russians did to Hillary Clinton, including rampant use of anti-semitic comments and tropes.

As a securities lawyer and legal scholar who has spent the last decade studying the decentralization of the stock markets, I have a particular interest in the bitcoin/crypto/ICO space. It is clear to me that the very same radical ideology that somehow convinced the SEC to condone the destruction of a stable stock market has now migrated towards the heart of our financial system, namely the institutions of money, banking, and payment systems. And since I also train future securities lawyers as a law professor I have a particular concern about the way that crypto has taken on momentum in the legal, banking and tech startup world where I work and study.

I plan to post information on my blog about research and events that are helping to burst the bubble that this ideological assault on our financial system represents. The principle that will guide this effort is a simple one, borrowed from the crusading progessive lawyer and future Supreme Court Justice Louis Brandeis, who wrote in his famous 1913 text, Other People’s Money and How the Bankers Use It, that “sunshine is the best disinfectant.”

Don’t blame Bernie – of course the banks can be broken up

In a recent interview, a very confused New York Daily News reporter continually mixed up the Treasury Department and the Federal Reserve in the face of a very straightforward statement of presidential candidate Bernie Sanders that Congress can give the President power to impose changes on the structure of the financial system “under Dodd Frank.”

Well, the Treasury is an agency of the executive branch while the Federal Reserve is an independent hybrid public-private entity. The former is an extension of the power of the President while the latter has autonomy that limits, understandably, Presidential influence. Apparently in the minds of financial journalists the two entities can be conflated without consequence.

Sure enough Secretary Clinton jumped on the bandwagon and slyly and indirectly suggested on Morning Joe that Bernie Sanders does not “seem” to know enough about how the economy works to be qualified as president.

Now that we have cleared up the fact that it was the Daily News reporter who was confused not Sanders, let’s focus on the agency that a President does control, the Treasury. When Sanders said he wanted to use Dodd-Frank to break up the big banks one could consider that from two angles. First, does the current language of that law enable the federal government to break up the banks; and second, could Dodd-Frank be amended to give the federal government the power it needs to break up the banks. Since Sanders talked about going to Congress to empower the government to break up the banks it seems reasonable to conclude he means the latter, second method.* But he is taking the view that any such amendment would be consistent with Dodd-Frank, a necessary extension consistent with the spirit of what Congress intended to do.

I think he is right about that – Dodd Frank cannot be viewed in isolation or as a static statement by Congress. In fact, many aspects of the statute are clearly aimed at collecting information and monitoring the ongoing behavior of the financial system so that Congress can decide if further change to the financial system is necessary. This summary of the key features of Dodd-Frank authored by a major corporate law firm that advises banks makes clear the role of the statute in enabling Congress and the President to maintain ongoing live and dynamic oversight that could and should lead to further changes in banking structure.

One key feature of the Act? A Financial Stability Oversight Council (FSOC) which has several key roles including (according to that law firm): “identifying risks to U.S. financial stability that may arise from ongoing activities of large, interconnected financial companies as well as from outside the financial services marketplace, promoting market discipline by eliminating expectations of government bailouts, responding to emerging threats to financial stability.”

No wonder the authors of this report tell their banking clients in summation: “There will be much more to come once the studies mandated by the Dodd-Frank Act are completed. There also is every reason to believe that the rule-making process will be a long and winding road.”

In fact, in part, Dodd Frank did restructure the banks by implementing the so-called Volcker Rule which forbids proprietary trading by banking entities.

Recent controversies, post Dodd-Frank, suggest that such active oversight is warranted. JPMorgan, for example, had no idea that it was building up a huge bet on synthetic credit INSIDE the very part of the bank that was supposed to be reducing risk! The London Whale scandal would likely have led to a break up of the bank in a rational world and certainly should have led to the dismissal of its CEO. Arguably this was a form of proprietary trading and thus in violation of Dodd Frank (although the Volcker Rule provisions were not finally passed until after this particular scandal – just good luck?) Can anyone not believe that Sanders and the Minneapolis Fed President Neil Kashkari are raising alarms about a serious ongoing problem in the financial system?

Please note I am not taking a position here on whether all the banks should be broken up. I do think that the repeal of Glass Steagall did unleash serious problems and enabled a hidden bubble to build up inside large banks that blew up in 2007-08. For a full discussion of the normative debate about whether to break up the banks consider the comments expressed at a Brookings Institution conference by Kashkari of the Minneapolis Fed recently here.

*Given the opportunity to expand on his earlier comments to the Daily News on the Morning Joe program today (April 8) Senator Sanders confirmed that he intends to use both existing Dodd-Frank provisions and additional legislation. He pointed specifically to Section 121 of Dodd-Frank which allows the Federal Reserve with the backing of FSOC to impose structural changes on banks including restricting product offerings or terminating activities.

Putin dances to the tune of fictitious capital

Today’s Financial Times has a front page story on the newest stage of the Russian crisis. Putin’s Russia is being hit by both western sanctions as a result of its invasion of its sovereign neighbor, Ukraine, as well as by a glut in the supply of global oil.

This chart indicates the significant downward move in oil prices:

As a result, the world market is marking down the value of the Russian economy and hence the ruble is tanking in value.

In response, Putin is now forced to pump large amounts of cash into the banking system to keep key financial institutions afloat. The latest infusion amounts to close to $8 billion for three major banks. While the regime is claiming the ruble crisis is over, the FT story includes the following: “This is only the beginning,” said a senior executive at a large Russian financial institution. “Everyone is bracing for what comes after new year.”

Indeed the news about the bank infusion sent the ruble down again Friday after a rally earlier in the week. The overall damage of recent months is clear in the chart below:

Meanwhile in a recent speech Putin continued to make noise about diversifying the Russian economy which is another way of admitting that a quarter century of post-Cold War political and economic development has largely been a waste for the majority of Russians (and for much of the former eastern bloc as a whole it might as well be said, Ukraine first and foremost).

Thus, the Cold War may be over but we are far from resolving the fundamental imbalances in the global economy. These have now become so severe that countries like China and Russia are increasingly willing to confront the West with provocative actions like the Ukraine invasion and the assertion of Chinese sovereignty in the south China sea area.

It is understandable that we sympathize with the victims of this kind of aggression but pushing counties like Ukraine to choose Nato membership over genuine autonomy, which has been US policy for years, only stokes the tensions with Russia and provides Putin with political capital that he uses to shore up his own domestic position. Sanctions, too, are a dual edged sword. It is true that Russia needs the world economy but authoritarian forms of capitalism have been very stable over time. As the crisis deepens inside Russia it is just as possible that it will lead to greater centralization of power by Putin and his military and bureaucracy.

Michael Lewis is right about Wall Street and high frequency trading, Congress must act

This post is co-authored by Stephen Diamond and Jennifer Kuan. Jennifer is an economist based at the Stanford Institute for Economic Policy Research. The post is based in part on an event study we conducted on the impact of Reg. NMS. We will be presenting the paper at the meetings of both ISNIE (Duke) and SASE (Northwestern) this summer.

A firestorm erupted on Wall Street recently sparked by author Michael Lewis’ accusation that the stock markets are “rigged.” Mr. Lewis’ bases his claim on the allegedly manipulative behavior of so-called “high frequency traders,” or HFTs, in today’s financial markets.

Our own study of the changing structure of those markets over several years leads us to conclude Mr. Lewis is correct when he contends many investors trade at a disadvantage to HFTs. We found a significant widening of “spreads,” and therefore costs to investors, following rule changes by the SEC in 2007. Significant structural reform will be needed to restore transparency and fairness to our financial system.

While the issues at stake are complex, the heart of the matter is that HFTs have largely replaced stock exchange “specialists” as intermediaries between buyers and sellers of shares. HFTs trade large volumes of stock, so they claim to provide “liquidity” to the markets. This sounds reassuring to investors who think they can easily buy or sell at reliable and visible prices.

In fact, HFTs are largely free of the obligations and oversight once imposed on specialists by the New York Stock Exchange. HFTs are not mandated to maintain an orderly market like specialists and often disappear at the very moment they are so desperately needed. There is evidence this kind of behavior contributed to events like the “flash crash” of May 2010 as well as the failed IPO of Facebook in 2012.

Exchanges are now eager to profit from HFTs’ vast trading volumes so they help HFTs exploit advantages over other investors, allowing the use of complex and arguably manipulative order types as well as selling them access to data about other investors’ orders. Other enablers of HFTs include the telecommunications firms that allow the HFTs to engage in “fiber arbitrage” to gain privileged high-speed access to data and markets. HFTs use these advantages to move more quickly and flexibly than other investors and thus to trade ahead of ordinary investors at a profit.

The most important enabler, however, is the federal government itself. In 1975 Congress mandated the creation by the SEC of a “national market system.” Congress decided that if the SEC could create computer-based competition with the long dominant New York Stock Exchange’s manual trading floor then costs for the average investor would fall.

The SEC implemented a wave of new rules over the next thirty-five years that did, in fact, reduce trading costs. New electronic markets such as the Nasdaq now compete effectively with the NYSE. Smaller startup companies like Intel, Apple and Microsoft, which did not meet the stringent listing standards of the NYSE, were able to access investor capital on the Nasdaq.

But this was not enough for the SEC. Their goal was an end to the NYSE’s dominance of trading in blue chip firms listed on the NYSE. As the Charlie Sheen character Bud Fox would famously say in the film Wall Street, they were “going after the majors.” One backer of the new approach was Bernie Madoff, who led the automation of the Cincinnati Stock Exchange in the 1980s to draw trading volume away from the NYSE.

The NYSE and the large banks that dominated its board resisted these efforts for many years. But new demand for faster trades from institutional investors provided the political support the SEC needed to push through Regulation National Market System, or Reg. NMS, in 2007.

This was the straw that broke the camel’s back.

Until 2007, despite the earlier rule changes by the SEC, the NYSE still handled more than 80% of the trading volume of companies listed there. The NYSE was a monopoly but it stabilized price changes with narrow spreads using a self-regulatory framework crafted over its 200-year history.

Two features were key to that framework. First, because large underwriting firms wielded significant influence at the non-profit member-owned NYSE, they could and did impose stringent standards on firms that wanted to list their shares on the Exchange. Second, to attract investors to trade on the Exchange those same underwriters insured that floor brokers and specialists behaved fairly. The result was good quality information about listing firms as well as orderly pricing facilitated by specialists in both bull and bear markets.

But Reg. NMS uprooted that system. Brokers could now route their clients’ trades to any electronic venue even if it meant that the client did not get a better price available on the NYSE floor. As a result, the volume of NYSE shares traded off the NYSE exploded. The motivation to own the Exchange in order to attract investors with orderly prices was gone and the underwriters quickly sold the Exchange to public investors.

With stock prices no longer kept in check by the NYSE’s longstanding rules, our study found that spreads widened, volatility increased and the cost to the average investor went up. Congress had a useful idea in 1975 when it helped create a market for risky technology start-ups and other small firms. They need to step in again to deal with the unintended consequences of that important innovation.