On Derivatives Markets and Social Welfare: A Theory of Empty Voting and Hidden Ownership represents a compelling addition to the still burgeoning discussion of the bifurcation of voting rights and ownership interests. The practice of decoupling the long-fused voting rights of shareholders from their underlying economic interests has become all too common with the explosive growth of financial derivatives. Decoupling challenges assumptions embedded in our capital markets, tests our system of corporate governance, and strains a regulatory regime based on disclosure.
This short Response attempts to persuade the reader that decoupling is, by its very nature, more upsetting to the natural order than the authors concede. And, its persistence threatens the predictability and stability of the overall market. Regardless of whether a “core outcome model” suggested by the authors becomes generally accepted, any desirable regulatory framework must begin with an ironclad mandate for full and fair disclosure not easily side-stepped by derivatives. In addition, focus on a desirable explanatory model should not siphon attention from efforts underway to improve the quality and depth of the information available to market participants.