An economic analysis of the regulation of stock markets

Abstract

The importance of international finance in the world economy has assigned innovative, vital tasks to stock markets . Investors nowadays have realised that securitisation offers more return than any other type of investment and, as a consequence, the number of financial transactions in quoted exchanges has grown. This growing demand for securitisation has taken stock markets unaware and occasionally such markets had to adjust dramatically to these growing demands. One very important adjustment that has been evidenced in the 1980s is that regarding Regulation. Due to the numerous complexities within which the financial system operates, there has been a demand for a new regulatory body, strong enough to limit abuses, insider trading and other forms of malpractice. This dissertation is about the usefulness of regulation to monitor performance in the markets, without itself being an impediment to performance. What is important is that regulation should be sufficiently robust to achieve its aims, yet not so over-bearing as to stultify business and prevent the innovation that is so essential for competition.