This document contains notes from all the lectures for the Principles of Financial Regulation module at York Law School. This will save you time and give you an edge in an otherwise difficult module. It contains documents and diagrams taken from the lecture and of course summaries of the lectures. ...
Introductory Lecture:
8 lectures
3 seminars each 2 hours
Module is not really doctrinal.
Basel accords - main regulatory instruments for global banking regulations.
Sources:
Financial Times
The Turner Review: A regulatory response to the global banking crisis (2009)
Principles of Financial Regulation (Armour et el)
Jay Cullen, Executive compensation in Imperfect Financial Markets (Elgar 2014).
Overview of the financial system:
Banks are not intermediaries of funds.
Actors involved:
,Functions of the Financial System:
allow the pooling of financial capital to bring together small/large investors with savers
Allocate resources
Provide financial intermediation services
Monitor performance of managers
Provide essential payment infrastructure services
To manage risk and uncertainty
Not used to redistribute funds.
Govs have learned to step in and support the financial system to prevent horrendous crashes.
Intro to ‘Market Efficiency’:
Markets encourage a meeting of competitors which encourages efficiency.
‘Securities’:
Shares
Long and medium term debt securities;and
Hybrids between these two types.
Bond is a debt contact
Hybrids = convertible bonds and preference shares
,Financial Market Regulation: Theory v Practice
Designed with 4 main objectives in mind:
1. Promote market efficiency
2. Promote trust in markets
3. Promote financial stability
4. Promote competition
FCA statutory objectives under FSA 2012 s.1A - 1C:
(i) consumer protection - securing an appropriate degree of protection for consumers;
(ii)Integrity - protecting and enhancing the integrity of the UK financial system.
(iii) competition - promoting effective competition in the interests of consumers in the market.
Market Efficiency:
- Financial system ought to allocate capital and other resources to areas which will use it most
productively. To do this, the price system must be free of encumbrances:
“An “efficient” market is defined as a market where there are large numbers of rational, profit-
maximizers actively competing, with each trying to predict future market values of individual securities,
and where important current information is almost freely available to all participants.” (Fama, 1965) -
wanted mass deregulation to have information flow to it.
Traders will not want others to free-ride on their information - hide flaws etc.
Firms will not disclose too much information because they want to profit from it.
Market Efficiency is a PUBLIC GOOD.
•Explicit goal of EU securities regulation
•
–Directive 2003/71/EC (‘Prospectus Directive’), recital (10): ‘The aim of this Directive and its
implementing measures is to ensure investor protection and market efficiency’
, –Directive 2004/39/EC (‘MiFID’), recital (44): ‘... rules are needed ... to promote the efficiency of the
overall price formation process for equity instruments ...’
- Directive 2014/65/EU (MiFID II), recitals (12)-(13): ‘The purpose of this Directive is …to ensure a
high quality of execution of investor transactions and to uphold the integrity and overall efficiency of
the financial system…’
•US: National Securities Market Improvement Act 1996
•
–“Whenever ... the Commission is engaged in rulemaking and is required to consider or determine
whether an action is necessary or appropriate in the public interest, the Commission shall also consider,
in addition to the protection of investors, whether the action will promote efficiency, competition, and
capital formation.” (added to ‘33, ‘34 and ‘40 Securities Acts)
Solution to promoting efficiency - enforce disclosure
Financial Intermediaries: Stands between investors and the market to offer advice and co-ordinate
transactions.
2 primary forms of intermediaries:
Informational intermediaries - those who gather information on behalf of others (for a fee) - analysts,
investment banks, rating agencies
Managerial intermediaries - those who manage the wealth of others (for a salary).
Information is vital to the efficiency of the financial system (accurate prices) and to the management
of risk (thereby promoting financial stability)
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller jameshall2. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $10.73. You're not tied to anything after your purchase.
