Title: Risk and regulatory reforms in the securities industry: a need for a paradigm shift?

Authors: Anastassios Gentzoglanis

Addresses: Center for the Study of Regulatory Economics and Finance, University of Sherbrooke, 2500, University Bould, Sherbrooke, Quebec J1K 2R1, Canada

Abstract: The recent worldwide developments in financial markets have ignited the debate about the best approach to regulation of the securities industries. Given that systemic risk reduction is getting into the realm of objectives of the regulatory agencies, new approaches to regulation are called for. Walsh (2008) proposes an alternative mechanism, dubbed institutional-based regulation, as a means of reducing systemic risk. Anand (2009) dispels Walsh|s framework by arguing that it does not constitute a new regulatory model, but it is simply a variation of the rules-based regulation. I argue that Walsh|s model, as it stands, cannot adequately reduce systemic risk. To do so, securities regulators need to shift paradigm and adopt a new one dubbed regulation by information. Under this paradigm, regulators could reduce systemic risk by becoming |information providers| during the upward movement of the securities industries and revert back to the traditional rules- or principles-based regulation during protracted periods of equilibrium.

Keywords: risk reduction; securities industry; paradigm shifts; regulatory reforms; institutional-based regulation; rules-based regulation; regulators; regulation by information; information providers; principles-based regulation; equilibrium; financial markets; derivatives; applied financial economics; systemic risk.

DOI: 10.1504/IJFMD.2010.035769

International Journal of Financial Markets and Derivatives, 2010 Vol.1 No.4, pp.452 - 469

Published online: 03 Oct 2010 *

Full-text access for editors Access for subscribers Purchase this article Comment on this article