On Derivatives Markets and Social Welfare: A Theory of Empty Voting and Hidden Ownership

Article — Volume 99, Issue 6

99 Va. L. Rev. 1103
Download PDF

In the past twenty-five years, derivatives markets have grown exponentially. Large, modern derivatives markets increasingly enable in- vestors to hold economic interests in corporations without owning voting rights, and vice versa. This leads to both empty voters—investors whose voting rights in a corporation exceed their economic interests— and hidden owners—investors whose economic interests exceed their voting rights.

We present formal analysis that shows how, when financial markets are opaque, empty voting and hidden ownership can render financial markets unpredictable, unstable, and inefficient. By contrast, we show that when financial markets are transparent, empty voting and hidden ownership have dramatically different effects: they follow predictable patterns, encourage stable outcomes, and promote efficiency. Our analysis lends insight into the operation of securities markets in general and derivatives markets in particular. It also provides a new justification for a robust mandatory disclosure regime and facilitates analysis of proposed substantive securities regulations. 

Click on a link below to access the full text of this article. These are third-party content providers and may require a separate subscription for access.

  Volume 99 / Issue 6  

On Derivatives Markets and Social Welfare: A Theory of Empty Voting and Hidden Ownership

By Jordan M. Barry, John William Hatfield, and Scott Duke Kominers
99 Va. L. Rev. 1103

Tax in the Cathedral: Property Rules, Liability Rules, and Tax

By Andrew Blair-Stanek
99 Va. L. Rev. 1169

Breaking Bankruptcy Priority: How Rent-Seeking Upends the Creditors’ Bargain

By Mark J. Roe and Frederick Tung
99 Va. L. Rev. 1235

Forgotten But Not Lost: The Original Public Meaning of Section 4 of the Fourteenth Amendment

By Stuart McCommas
99 Va. L. Rev. 1291