Without a doubt, U.S. stock markets are tbe envy of tbe world. In contrast to markets in countries sucb as Germany, Japan, and Switzerland, which are fragmented, illiquid, and vulnerable to manipu-lation, U.S. equity markets are widely respected as heing the broadest, most active, and fairest any-wbcre. The Securities and Exchange Commission strives mightily to keep tbem that way. Thanks to tbe SEC's efforts, trading costs in the United States are half tbose of any otber market. In the twinkling of an eye. Wall Street's professionals buy and sell blocks of millions of shares. The average American, too, can trade with little fear of rigged markets or insider dealings. For Main Street companies, bowever, tbe nirvana of perfectly fair and liquid markets fostered by Wall Street's regulators bas a dark side. Unwittingly, the system nurtures market liquidity at tbe expense of good governance. Rules that protect investors and tbe integrity of stock markets also foster antagonis-tic, arm's-lengtb relationships between sharehold-ers and managers, Tbe system prevents sharehold-ers from engaging managers in candid dialogues and providing informed oversight and counsel. It en-courages capable executives to neglect their fidu-ciary duties and thus injures thc long-term inter-ests of companies and shareholders. Rules to ensure accurate and complete disclosure, the incarceration of insider traders, and the elimination of shady trad-ing practices may actually burt U.S. managers and stockholders. An Extensive Web of Regulation U.S. rules protecting investors are the most com-prehensive and well enforced in the world. The ori-gins of the system can be traced to tbe extensive losses suffered hy the puhlic during the Crash of 1929. Between September 1, 1929 and July 1, 1932, stocks listed on tbe New York Stock Exchange lost 83% of tbeir total value, and one-half of tbe $50 bil-lion in new securities that had been offered in the 1920s proved to be worthless. Tbe losses were widespread -tbe crash followed a decade during which some 20 million Americans took advantage of postwar prosperity and tried to make a killing on tbe stock market. Responding to the outrage of vot-ers. Congress passed the Securities Act of 1933 and, in 1934, passed the Securities Exchange Act and created tbe SEC. Prior to the early 1930s, the traditional response to financial panics bad been to let tbe victims bear the consequences of their greed and to prosecute frauds and cheats. Tbe new legislation was based on a different premise: the acts sought to protect in-vestors before tbey incurred losses. They did tbis in three ways: 1. To belp investors make informed trading deci-sions, tbe acts required issuers of securities to provide information about directors, officers, un-derwriters, and large shareholders-including remu-neration, the organization and financial condition of tbe corporation, and certain material contracts of the corporation. Issuers were also required to file annual and quarterly reports, following specific guidelines issued by the SEC. Over the years, tbe SEC's efforts bave substantially increased the num-ber of reports tbat companies must file. For exam-ple, companies must disclose management perks and overseas payments and provide replacement cost accounting and segment, or line-of-business, accounting. Amar Bhide is an associate professor at the Harvard Business School in Boston. Massachusetts. Formerly a vice president at E.F. Hutton, he served on the Brady Commission staff investigating the 1987 stock market crash. He published a more technical article on this top-ic last year in the Journal of Financial Economics.