184 μ¢¤³£ ¬μμ¬
FELIX SALMON is Chief Financial Correspon-
dent for Axios.
The Virtue of
Monopoly
Why the Stock Market
Stopped Working
Felix Salmon
Darkness by Design: The Hidden Power in
Global Capital Markets
BY WALTER MATTLI. Princeton
University Press, 2019, 264 pp.
Y
ou’ve heard the story many
times. The stock market is
rigged. A highly secretive group
o opaque Änancial institutions is
making billions o dollars from socially
useless high-frequency trading—plac-
ing and withdrawing stock orders
hundreds o thousands o times per
second—with all those proÄts coming,
in one way or another, from the rest o
us. The biggest losers o all? Small,
mom-and-pop, or retail, investors, who
cannot hope to compete.
Perhaps the best-known proponent
o this narrative is the author and
Änancial journalist Michael Lewis. In
his 2014 book, Flash Boys, Lewis painted
the stock market as a battle in which
the good guys were losing to the bad
guys. The book sold well and even
instigated a handful o criminal investi-
gations into high-frequency traders
( ̈μ¡s), none o which bore any visible
fruit. For the truth is that even with
the rise o high-frequency trading since
the early years o this century, actual
mom-and-pop investors have never had
it so good. Armed with online accounts
oering trades for minuscule fees, they
see their transactions go through instan-
taneously, without the sorts o delays
that can allow the market to move against
them before their order is Älled. I the
stock market is broken, it’s not broken in
a way that is obvious to retail investors.
Yet Lewis was right to worry about
̈μ¡s; he just misidentiÄed their main
victims. This is the revelation at the
heart o Walter Mattli’s masterful
Darkness by Design. Great books make you
reexamine your assumptions, and this one
delivers in spades. It not only oers a
compelling critique o how the stock
market has evolved over the past 15
years; it also forces readers to reconsider
the idea that competition is good and
monopolies are bad. What has truly tilted
the playing Äeld in favor o a handful o
Änancial behemoths and ̈μ¡s, Mattli
argues, is the growing fragmentation o
stock markets, a process actively en-
couraged by misguided government
regulators. The biggest losers o that
development are not retail investors, who
tend to be fairly well-o, but pension
funds, insurance companies, and other
major institutional investors.
Those Änancial behemoths are, in
fact, the proverbial little guy. One o the
paradoxes o Änancial terminology is
that terms such as “retail investor” and
“small business owner” connote the
relatively impecunious, whereas in fact
those investors and owners are dispro-
portionately likely to be in the top one
percent o the wealth distribution. The