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

66 Pages Posted: 23 Aug 2012 Last revised: 16 Oct 2015

Jordan M. Barry

University of San Diego School of Law

John William Hatfield

University of Texas at Austin

Scott Duke Kominers

Harvard University

Date Written: August 22, 2012


In the past twenty-five years, derivatives markets have grown exponentially. Large, modern derivatives markets increasingly enable investors 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 models that show 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.

Keywords: derivatives, disclosure, empty voting, hidden ownership, morphable ownership, corporate governance, shareholder rights and obligations, financial markets, securities laws, law and economics, competitive equilibrium, core outcome, corporate voting, shareholder voting, regulatory arbitrage, securities

JEL Classification: C71, G14, G18, G30, K22, L29

Suggested Citation

Barry, Jordan M. and Hatfield, John William and Kominers, Scott Duke, On Derivatives Markets and Social Welfare: A Theory of Empty Voting and Hidden Ownership (August 22, 2012). Virginia Law Review, Vol. 99, No. 1103, 2013; Rock Center for Corporate Governance at Stanford University Working Paper No. 122; Becker Friedman Institute for Research in Economics Working Paper No. 2012-11; Stanford Law and Economics Olin Working Paper No. 433. Available at SSRN: or

Jordan Barry (Contact Author)

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

John Hatfield

University of Texas at Austin ( email )

Austin, TX 78712
United States

Scott Kominers

Harvard University ( email )

Rock Center
Harvard Business School
Boston, MA 02163
United States


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