An overview of securities markets regulation around the world

Abstract

On 16 March 2008, under the supervision of the Federal Reserve of the United States, Bear Sterns, one of the largest global investment banks, signed a merger agreement with J P Morgan Chase. The Federal Reserve issued a nonrecourse loan of $30 billion to cover losses in Bear Sterns' investments in mortgage-backed securities and exotic instruments. In 2005-2007, Bear Sterns was recognized as the "most admired" securities firm in Fortune's •America's Most Admired Companies• survey. Likewise, in 2001, after a series of revelations involving irregular accounting procedures bordering on fraud, Enron filed for the largest bankruptcy in the United States. Interestingly, Enron was also voted the most admired company by Fortune three times in a row! The collapse of firms like Enron, Bear, Sterns and Co Inc. and the accounting scandals like World.com have raised serious concerns about the regulation and financial reporting norms. In this chapter, we present some principles of financial services/securities market regulation in countries around the world. This chapter has the following objectives: • Highlight the role of regulatory bodies • Present a summary of regulation in countries drawn from North America, Europe, and the Asia Pacific. Recent scandals in the United States highlight both the importance and the fallibility of the securities market intermediary institutions to which investors typically turn for protection, such as auditors, analysts, and advisory firms. The organized interaction of buyers and sellers in securities markets serves three key purposes: price discovery, liquidity provision, and reduction of search and information costs. In a world of perfectmarkets and perfect competition, there is no theoretical justification for intervention in market mechanisms - but the story is different if these conditions are violated. Reasons to justify such regulations include investor protection, enhancement of themarkets' ability to function, and safeguarding of systemic stability. Central banks have an interest in securities market regulation issues, particularly because of their core task of safeguarding purchasing power and financial stability. In a "global village, " regulation is at once in a (financial centre) competitive situation, yet is increasingly being conducted in a framework of international cooperation. Rulemaking in the European Union is dedicated to the creation of a single market for financial services. This chapter discusses reasons for regulation and describes the principles, forms, and development trends of securities market regulation. It also provides an overview of securities regulation in several countries. © 2009 Springer-Verlag Berlin Heidelberg.