This innovative and timely book tells the story of the rise and recent fall of dominant open exchanges for equity trading, focusing on the New York Stock Exchange (NYSE). It is well told and can be strongly recommended to all readers interested in market governance. Unlike many academic tomes, it does not hedge its conclusions, arguing that rising market fragmentation and the related sharp increase in “dark” trading have been associated with a marked deterioration in the quality of market governance, benefiting insiders at the expense of institutional investors and society generally.

There is much in Mattli’s book that will send a shiver down the spines of the investing public, whose numbers and stakes in institutionally managed funds have grown sharply in recent decades. It will also appeal to those who believe that the overweening power and privileged position of the largest global banks acting as broker-dealers in these and associated markets remain fundamentally unchanged despite recent postcrisis reforms.

Mattli disputes the common claim that monopoly trading platforms are associated with rent extraction, low innovation, and inefficiency. Instead, he argues that the quasi-monopoly position attained by the NYSE for most of the twentieth century gave it strong reputational incentives to invest heavily in the provision of high-quality governance in well-lit stock markets, with clear rules and norms that were for the most part effectively enforced. Since the turn of this century, however, rising market fragmentation, with trading increasingly taking place internally within major firms or on other dark platforms, has given major broker-dealers and high-frequency trading firms strong incentives to collude in rent-seeking behavior at the expense of investors generally. Regulators, both in the United States and elsewhere, have done too little to make up for this failure of market governance; too often, governments have succumbed to pressure from the major firms that have benefited handsomely from increasingly rigged markets.

The book is more targeted toward practitioners, regulators, and policy makers than academics, who will find its theoretical framework summarized in the appendix. It posits markets as domains of power politics rather than as mechanisms for the efficient coordination of buyers and sellers. This notion will be more discomforting to mainstream economists than to political economists. The motivating idea that institutional monopolies have incentives to provide better governance than fragmented systems will be familiar to international relations scholars (hegemonic stability theory also portrays dominance as assisting in the provision of public goods). Mattli’s aim is not to provide a thorough assessment of competing theories. Instead, his intention is to trace how and why the governance of trading markets has deteriorated so sharply and then to suggest practical solutions.

What, then, is to be done? Some things will not work. More ethics education for traders and the now common but trivial fines levied on those actors caught in open breach of securities laws will continue to have little positive effect in the presence of such strong rent-seeking incentives. The issues involved are too technical and the costs insufficiently visible to overcome constraints on collective action by individual investors. Perhaps a more surprising aspect of Mattli’s story is that the large institutional investors that could represent individual wealth holder interests have not acted as an effective counterweight to the traders. This raises questions about possible collusion or conflicts of interest on this side of the market and how reforms might address them.

Less intuitively for critics of financialization and of market failure generally, Mattli argues that “failures in market governance are rarely fixed by government intervention” (p. 21). His solution is to encourage the reemergence of dominant but well-lit market platforms with stronger incentives to provide transparent, well-enforced rules guaranteeing equal treatment for investors. He accepts that government can nudge markets toward this solution, but in the end favors “market solutions to market failures” (p. 167). This is reminiscent of the Chicago School’s admonition that extensive government intervention should be avoided if markets can self-correct competitive failures—yet differs from it in advocating more centralized and dominant platforms for stock trading.

Some readers will respond that this analysis underestimates the potential for effective regulation; many may also question the scope of its applicability. To give an obvious if very different example, profitable markets emerged in the past that traded slaves and used child labor until governments in many countries criminalized such activities. In finance, others will point to cases in consumer finance, such as credit cards, where government intervention was important in discouraging card providers from selling abuses and shifting the costs of fraud onto consumers. Mattli himself points to the way in which decisions to deregulate trading markets (notably the SEC’s Regulation NFM of 2005, its tolerance of the NYSE’s 2008 decision to abolish the requirement that market makers must avoid self-dealing, and its agreement that NYSE could sell traders privileged access in 2010) played important roles in facilitating the decline of governance. But if so, did the better equilibrium of the twentieth century reflect co-governance shared between the state and market rather than “market governance”?

Moreover, how widely does the book’s general conclusion travel? In digital media and commerce platforms, major firms have already become near-monopolists in social media, internet searches, and online goods trade. Google, for example, extracts unrecompensed value from consumers by selling information extracted from their emails and searches to advertisers (see Fiona Scott Morton, Pascal Bouvier, Ariel Ezrachi, Bruno Jullien, Roberta Katz, Gene Kimmelman, A. Douglas Melamed, and Jamie Morgenstern, “Committee for the Study of Digital Platforms Market Structure and Antitrust Subcommittee Report,” 2019, p. 16.). There is growing evidence that these large dominant firms have deployed a variety of strategies, including hundreds of acquisitions in recent years, that have mainly served to widen the size of innovation “kill zones” (p. 56.). In much of the United States, effective geographic monopolies exist in the provision of high-speed internet services, probably to the detriment of consumers. These look like cases of poor co-governance associated with dominant platforms. As the Stigler Center report cited earlier argues, “Because individuals are subject to behavioral biases, consumers are vulnerable to a platform’s exploitative behavior. Additionally, when individuals are workers, as they often are in the ‘gig’ economy, these tools can be used to advantage the platform against the worker.… Digital businesses not only have more information than traditional firms, but they have more variations of products or services and the ability to control the environment and the timing of choices and offers” (p. 36). This sounds quite similar to the nefarious practices Mattli so ably describes in stock trading. But if his argument does not necessarily apply in these areas, what is it that makes platforms for stock trading different? Or might the higher-quality governance of the past be the result of something other than the reputational incentives provided by monopoly?

Mattli’s story also has implications for ongoing scholarly debates about the factors shaping political economy outcomes, although as noted earlier, these are often left implicit in his analysis. He tends to emphasize the direct action of the large broker-dealers and high-frequency traders to block or delay legislative and regulatory measures to improve market governance. This is consistent with work by other scholars, such as Pepper Culpepper’s Quiet Politics and Business Power: Corporate Control in Europe and Japan (2010), which emphasizes how business interests often win out when the political salience of policy issues is low. It also relates to the argument that mass demand for wealth protection is now high, given the risk of large shocks that threaten many households’ well-being. The losses Mattli emphasizes tend instead to be marginal (though cumulatively large), complex in nature, and (so far) largely hidden from voter outrage and thus demand for prompt government intervention. There has been no spectacular public investigations of these market abuses of the kind provided by the Pecora Commission in the US Senate in 1932–34. Why not? Mattli does not explore the role of partisan factors in Congress or how much regulators like the SEC have been restrained by ideology, partisan senior appointments, or by congressional budgetary restrictions. His account emphasizes common trends elsewhere in other major markets, though he also points to cases like Australia in 2012 and the EU in 2014 (with MiFID II) where earlier and possibly more robust action was taken. If so, there seems to be some interesting variation—despite the incentives not to disadvantage local exchanges through unilateral regulatory tightening—that could help shed light on some of these questions of enduring interest to political scientists.