Financial Markets:
International Context
Dr Richard Fairchild,
mnsrf@bath.ac.uk
1
Objectives of Course
• To give students an introduction to
International Financial Markets.
• The purpose of Financial Markets.
• The issues involved.
• The Key Players.
• The regulatory Bodies.
• The impact of the emerging markets.
2
In Summary;
• Two main aims:
• How Financial Markets work globally.
• To what extent should they be regulated,
and by whom?
3
Recommended Textbook
• An Introduction to Global Financial
Markets
• By Stephen Valdez
4
Course Structure
•
•
•
•
•
•
•
•
Raising Capital: Debt and Equity.
Banking/ The role of the Central Bank.
Investment banks and Regulation.
Bond Markets.
Stock Exchanges and Regulation.
International Trade and Markets.
Investor Protection around the World.
Hedge Funds, Private Equity, venture capital and
regulation.
• Role of Regulatory Authorities (FSA)
• Derivatives.
• New Tiger Economies.
5
Lecture 1:
Raising Capital: Debt and Equity
(Valdez: Ch 1)
• What
is the purpose of the Financial Markets?
•Raising Capital: matching lenders and borrowers.
•Intermediaries (eg Banks): Depositors => borrowers.
•Stock Markets.
•=> Companies issue shares to investors.
•Shares freely bought and sold in the market.
6
Who are the Borrowers?
•
•
•
•
Individuals (eg bank loans, mortgages).
Companies (for growth and expansion).
Governments: PSBR.
Others (local authorities,municipalities,
counties, federal states)
7
Who are the lenders?
• Individuals (eg savings in banks; pension
fund contributions; investors in
equity/shares)
• Companies (lending in short-term markets:
money markets).
8
Individuals’ Lending (investing)
decision
• Portfolio analysis; Individuals allocate their
wealth across equity and bonds.
• We will examine this in more detail in later
courses!
9
Companies’ Methods of Financing.
•
•
•
•
•
Borrowing from Banks (Bank Loans).
Issuing Bonds.
Issuing Equity (shares).
Primary Market.
Secondary Market.
10
Providers of capital to firms:
Expected returns and Investor
Rights.
• Banks and bondholders: First claimants,
generally fixed returns required (interest).
If not paid, these holders have strong
rights (eg liquidation, bankruptcy).
• Equity-holders: Returns are risky! Very few
rights (but voting): Capital gains and
dividends. Shareholder is part-owner of
the business.
11
Financial Markets as a clearing
mechanism
• Investors (lenders) decide how to allocate
their wealth across securities (financial
instruments such as shares and bonds).
• Companies (borrowers) decide how to
finance expansion/growth/new projects by
issuing shares and bonds.
12
Firm’s financing decision.
• Leverage: The amount a firm borrows in
relation to equity.
• In principal, nothing wrong with borrowing.
• Enables firm to invest and grow.
• However, too much borrowing =>
problems? Credit ratings.
• Stock Market Analysts look at firm’s
gearing ratio.
13
Risk and return (not in text book)
• The higher the risk, the more return
lenders/investors require as
compensation.
• Therefore, safe bonds have lower required
return (interest rate) than risky equity
(volatile capital gains and dividends).
14
Firm’s financing mix.
•
Equity-holders’ required
return
Equity-holders’ required return
Risky Debt
Lender’s Required return
on safe bonds
D/E
D/E
We will revisit these diagrams in later courses!
Downgraded
Credit rating
15
Market Failure/regulation.
• So, financial markets provide an efficient
mechanism for equating supply and
demand of financing? => economy
maximising growth potential? => fair
allocation of wealth? => correct incentives
for investors to provide finance?
• Not necessarily!
16
Market failure.
•
•
•
•
•
•
•
Moral Hazard problems.
Adverse selection problems.
Credit constraints.
Credit cycles.
Credit chains/contagion.
Bank runs.
Inefficient capital markets.
17
Moral Hazard
• Managerial self-interest/diversion/stealing
of funds.
• Shirking behaviour.
• Fraud (eg Enron, Parmalat etc).
• Role of regulatory authorities (eg FSA).
18
Adverse Selection.
• Unobservable poor quality management/
Incompetence!
• => Credit constraints.
Bank
Lending
Rate.
Rate if Bank
can observe
qualities.
Pooling Rate
Increasing Risk of borrowers.
19
Credit Cycles/chains/contagion
B
C
A
D
• Credit chains- macroeconomic cycles
amplified!
• Contagion/ bank runs (Northern Rock?).
• Systemic risk.
20
Bank Runs.
• Self-fulfilling!
• “Mary Poppins” syndrome!
21
Inefficient capital markets
• Market values often different from
fundamental values.
• => Insider trading.
• => very high volatility.
• FSA investigates abnormal share price
movements (eg Biffa recently).
22
Increasing Globalisation of
Financial Markets.
• Increases investors’ opportunities.
• Increases Firms’ financing scope (crosslisting).
• But: increase in risks
(systemic)/contagion/effect of cycles?
• Increased need for global regulation?
23
Lecture 2:
Banking System
• Central Banks: eg Federal Reserve in US;
Bundesbank in Germany
• Commercial Banks: taking deposits/lending
money.
• Investment Banks: helping corporations find
money.
• Savings Banks
• Cooperative Banks.
• .
• .
24
Bank’s Balance Sheet
•
•
•
•
•
•
•
•
Liabilities (Where the money comes from):
Shareholders’ equity/retained profit
Deposits (largest figure)
Borrowings (eg a bond issue)
Assets (how the money has been used):
Notes/coins.
Securities/ money market funds/ fixed assets
Lending (largest figure) => credit creation.
25
Creation of Credit
• Banks have great ability to create credit.
• Banking depends on confidence.
• Governments and central banks will want
to control credit creation. Why?
• Banks’ internal controls: ‘liquidity ratios’.
• External control by bank supervisors;
‘capital ratios.’
26
Money Supply
• M0, M3, M4.
• Interest rates, inflation, economic activity.
• Central Bank weapons; mandatory
reserves, interest rates, open market
operations.
27
Liquidity Ratios
• Internal control method.
• Take all deposits and lend as 3 year
personal loans? NO!!!
• LR = percentage of deposits to be held as
cash.
• Central bank can also impose this (eg
Spain).
28
Capital Ratio
• The external ratio imposed by bank
supervisors.
• Major issue in banking
• Prudence.
• Banks lend money, some people default.
• Capital is a buffer against this.
• CR = relationship between capital and
lending.
29
Capital Ratio (continued)
• Bank should not be excessively exposed
to a few key borrowers.
• Eg Johnson Matthey Bank (UK) lent 115%
of its capital to 2 key borrowers.
• 1987 Banking Act.
• Central Banks: ‘large exposure’ controls.
• Basel Committee: => uniform banking
regulation => capital ratio.
• Banks’ credit ratings.
30
Increasing capital ratio
• Find more capital (rights issue, reducing
dividends, other forms of capital).
• Reduce assets (selling off subsidiaries,
selling off loans to other banks, converting
assets into securities (securitisation).
31
Central Bank Reporting
• All banks in a country must make detailed
reports to the Central Bank.
• => liquidity.
• Large exposures.
• FX exposure.
• Capital expenditure.
• Balance sheet.
• Profit and loss.
32
Lecture 3: Role of the Central
Bank/ + Investment Banks
• History: 160 Central Banks in the World,
employing 352,000 people.
• Consider 7 Major Central Banks: China,
France, Germany, India, Japan, UK, US,
European Central Bank (ECB).
33
Central Bank Activities
•
•
•
•
•
•
•
•
Supervision of the Banking System.
Advising the Government on Monetary Policy.
Issuing Banknotes.
Banker to other banks.
Banker to the Government.
Controlling the Nation’s currency reserves.
Lender of last resort.
Liaison with international bodies.
34
Position of Central Bank.
• Last decade- a rise in power and
influence.
• Central Banks have become independent
=> ECB.
• Accountability?
• Inflation/growth/unemployment.
35
Lender of Last Resort
• Guarantee of Rescue => Moral Hazard
(imprudent behaviour by banks).
• Walter Bagehot’s quote:
• We will encounter moral hazard in many
forms in later finance courses!
36
Other banks.
• Commercial Banks: accept deposits/
make loans.
• => retail banks
• => wholesale banks.
• Investment Banks
37
Key Retail Banking Issues
• Growing Competition (growing deregulation)
• Cost Control
• Sales of Non-banking Products.
• Use of IT.
38
Growing Competition
•
•
•
•
Other Financial Institutions.
Retailers.
Insurance Companies.
In-house Corporate Facilities.
39
Bank Lending
•
•
•
•
•
•
•
•
•
•
Uncommitted facilities: =>
Overdrafts.
Lines of Credit.
Bankers’ Acceptances.
Committed Facilities=>
Term Loans.
Standby Credit.
Revolving Credit.
Project Finance (eg Eurotunnel).
Syndicated Facilities.
40
Investment Banks.
• Accepting
• Corporate Finance (new issuesequity/bonds, rights issues, M and A,
Research).
• Securities Trading
• Investment Management
• Loan Arrangement
• Foreign Exchange
41
Investment Banks-Corporate
Finance Role
• New Issues: Equity/bonds (pricing, selling
to investors, underwriting, general advice
regarding regulations). Close liaison with
layers and accountants.
• Rights Issues: Priced/underwritten.
• Mergers and Acquisitions (help bidders
with price, timing, tactics. Help target
defend).
• Research: reputation important.
42
Banking regulation.
• Commercial Banks risk depositors’ money if they
invest in stock market.
• US Wall Street Crash 1929: Glass-Steagall Act
1933: deposit protection scheme => Federal
Reserve Bank greater powers of supervision.
• Separated commercial and investment banking.
• Glass-Steagall act repealed in November 1999.
• Research Question: Role of the Treasury?
43
Research Question.
• Discuss the dangers in Commercial Banks
undertaking securities trading. Should the
activities of commercial banks and
investment banks be separated?
44
Lecture 4/5/6: Securities Markets.
•
•
•
•
•
•
Money and Bond Markets.
Stock Exchanges.
Regulation of Stock markets.
Cross-listing.
Investor Protection around the World.
Hedge Funds and Private Equity.
45
Lecture 4: Money and Bond
Markets.
• Rate of Interest = price of money.
• Risk => lender expects a greater reward
for higher risk.
• OECD countries or US government:
• => lowest rate of interest applies to
government transactions (safest!).
• Govt rate is benchmark for other rates.
• US corporate may borrow at ‘Treasuries
plus 1%’.
46
Maturity and the yield curve
•
r
Time (months)
But may be downward-sloping!
Expectations.
Liquidity.
Supply and demand.
47
Bond Yields
•
•
•
•
•
•
Yield
Par Values
Coupon
Gross redemption yield
Accrued Interest.
Volatility.
48
Credit Ratings
• Creditworthiness => Rate of Interest
• Credit-rating Agencies.
• AAA, AA, A, BBB, BB, B, CCC, CC, C, C1,
D.
• Junk Bonds.
49
Who Controls the Raters?
• Imperfect Information.
• Incentive for company to pay agency for
full rating to get a good one
• March 1996: Moody’s investigated by US
justice department
• Reputations!
• Research Question: Discuss the problems
involved in companies paying for credit
rating?
50
Domestic Money Markets
•
•
•
•
•
•
Call money.
Interbank Market (LIBOR).
Money Market Securities.
Treasury Bills.
Etc
Role of the Central Bank.
51
Domestic Bond Markets.
52
International Markets.
53
Role of the Central Bank in Money
Markets.
• Lender of Last Resort.
• Helping Commercial Banks with Liquidity
Problems.
• Discount Rate, Lombard rate, open market
operations.
54
Bond Markets.
•
•
•
•
Government Bonds.
Corporate Bonds
Debentures/convertibles.
Bond: name of the bond, nominal or par
value, redemption value, rate of interest,
redemption rate.
• Bond Maturity: short, medium, long.
55
Lecture 5: Stock Exchanges.
•
•
•
•
What is the role of a Stock Exchange?
How are Stock Markets regulated?
Cross-listing.
Investor Protection around the World.
56
Role of the Stock Market.
• To provide the regulation of company
listings.
• To provide a price formation mechanism.
• To supervise trading.
• Authorisation of members.
• Settlements of transactions.
• Publication of trade data and prices.
57
Bonds versus equities in the
market
• Equities have higher number of
transactions.
• Bonds have higher value.
• Eg: In UK, average domestic equity deal =
£50,000.
• Average Government Bond Deal = £3m.
• Which are the world’s biggest stock
exchanges? (Pg 162: Valdez: table 7.1).
• Market value? Turnover? Equity turnover?
58
Indices
59
Who Owns Shares?
•
•
•
•
•
Small Investors Versus Institutions.
Pension Funds.
Equity Investments.
Mutual Funds.
Active Versus Passive Fund Mgt.
60
Dealing Systems
• Order-Driven Systems.
• Quote-Driven Systems.
• Hybrid.
61
International Equity
• 1980s, 1990’s: Cross-listing of MNCs.
• => large expansion in primary issues and
secondary market trading in non-domestic
equities.
• Eg: German accounting rules not so strigent as
US:
• But Daimler-Benz listed in New York: accepted
need for greater transparency.
• French firm AXA: listed on US stock exchange in
1996.
• Research Question: Why do countries cross-list?
62
Sarbanes-Oxley (SOX)
• Following Enron: SOX makes managers
fully responsible for maintaining adequate
ICS and FR.
• Rules for audit and accounting.
• Research question: Will SOX work?
63
Miscellanous features.
•
•
•
•
•
•
•
•
•
Stock Borrowing (going short) and lending
Bought Deals/block trades.
Share buybacks.
New issues.
Rights issues.
Scrip issues and splits.
Scrip Dividends.
Second Markets: eg AIM (UK).
Over the counter.
64
EU Rules.
65
Alternative Stock Markets.
• Tradepoint (UK).
• ECNs (US).
66
Lecture 6: International Finance.
• Foreign Exchange (briefly!).
• International comparisons of investor
protection/corporate governance.
67
International Trade.
•
•
•
•
•
•
•
Foreign Exchange.
Importers/exporters.
Tourists.
Government spending abroad (eg Troops)
Speculators.
Banks and Institutions.
Looser Exchange controls => Fund managers
investing in foreign equities and bonds =>
exchange rate risk.
68
Drivers of exchange rate risk.
• PPP (Purchasing Power Parity).
• In theory, Basket of goods priced at £10 in
UK and $20 in US => exchange rate £1 =
$2. => stability of exchange rates
• But: Market imperfections/Barriers to
trade/tariffs/ERM.
• Psychology of the market: herd instinct.
• => exchange rate volatility.
69
Exchange rate Risk.
•
•
•
•
•
•
•
•
Bretton Woods 1944.
=> Exchange rate stability.
IMF 1946
The World Bank (IBRD).
IFC.
IDA.
EEMU.
Use of Options to reduce risk.
70
Investor Protection around the
World (not in textbook)
• Civil Law versus Common Law Countries.
• Bank-dominated versus Capital Marketdominated countries.
• Developed V emerging markets.
• Dispersed or concentrated ownership
structures.
• Effect on market development, capital
structure, dividend policy etc.
• La Porta et al papers
71
Research Question.
• Which type of market should lead to the
best stock market development?
• Specific example: share repurchases.
72
Investor Protection and Corporate
Governance (La Porta et al).
•
•
•
•
•
Large differences among countries in
A) ownership concentration
B) Breadth and Depth of Capital Markets
C) Dividend Policies.
D) Access of Firms to external finance.
73
Investor Protection and Corporate
Governance (continued).
• Common explanation for differences =>
• Legal Approach: How well investors
(creditors and shareholders) are protected
by law from expropriation by firms’
managers and controlling shareholders.
• Financial systems approach: Bank-centred
versus Market-centred.
• La Porta et al favour legal approach.
74
•
•
•
•
•
•
•
Legal protection of investors affects:Breadth and depth of capital markets.
Pace of new security issues.
Corporate ownership structures.
Dividend policies.
Efficiency of investment allocations.
Different patterns across countries.
75
• Why is investor protection important?
• Widespread expropriation of minority
shareholders and creditors by controlling
shareholders (insiders).
• Corporate governance = mechanisms for
outside investors to protect themselves.
76
Managerial Expropriation
•
•
•
•
•
Insiders steal the profits.
Transfer pricing.
Asset stripping.
Investor dilution.
Diversion of corporate opportunities form the
firm.
• installing unqualified family members
• Overpaying top executives (Cadbury report).
77
Legal Protection of investors
• Legal approach emphasises laws and
enforcement.
• Strong legal system => firms can raise
more funds in some countries than others.
• Investors more vulnerable to expropriation
than employees or suppliers (why?)
78
Cash flow rights versus control
rights.
• Researchers recognise that securities give
both cash-flow rights and control rights.
• Jensen and Meckling: Manager’s
incentives not to expropriate increase with
managerial equity (cash-flow rights).
• Grossman and Hart: investor power
Versus insiders (control rights)
• Both JM and GH: well-defined contracts
specifying investor rights.
79
Incomplete contracts
• But contracts incomplete.
• Therefore legal system becomes
important.
• Concentration of ownership.
• Large managerial equity holing: good
incentives due to cash-flow rights
• But entrenchment: bad (control rights).
80
Investor protection.
•
•
•
•
•
•
Equity-holder rights include:
Disclosure and accounting rules.
Receive dividends on a pro-rate basis.
Vote for directors
Shareholder meetings.
Subscribe to new issues on same terms as
insiders.
• Sue directors.
• Call extraordinary meetings.
81
Creditor Rights
• Bankruptcy and re-organisation
procedures
• Repossess assets.
• Protect seniority of claims.
• Force reorganisation.
82
Different sources of investor
protection
•
•
•
•
•
•
Company laws.
Security laws.
Bankruptcy laws.
Takeover laws.
Competition laws.
Stock exchange regulations and
accounting standards.
83
Enforcement of laws.
• In most countries, laws and regulations
enforced partly by:
• market regulators.
• Courts.
• Market participants themselves.
• Without effectively enforced rights,
financing mechanisms break down (why?)
84
• “Law and Economics” approach to
financial contracting:
• Regulation of financial markets
unnecessary. Entrepreneurs will voluntarily
commit to contracts.
• But contracts incomplete!!!
• So, law and regulation IS important.
85
Law and Finance (La Porta et al)
• Legal rules, protection of investors, origin of
these rules, and quality of enforcement in 49
countries.
• Common law countries have the strongest
protection of investors.
• French civil law countries have the weakest
protection.
• German and Scandinavian civil law countries in
the middle. Why?
• See table 1.
86
Common law versus civil law
countries.
• Civil law => greater government
intervention in economic activity/ lower
investor protection.
87
Consequences of investor
protection
• Ownership structure of firms.
• Development of financial markets.
• Allocation of real resources.
88
Investor protection and ownership
structure of firms.
• Low investor protection => large ability to
expropriate => control has enormous value.
• => leads to concentrated or dispersed
ownership of equity?
• Some researchers: poor investor protection =>
concentrated control.
• Other researchers: poor investor protection =>
dispersed control: Consider why?
• Empirically: poor investor protection =>
concentrated control (substitutes V
complements?)
89
Investor protection in East Asia:
(Claessens et al 2000)
• Apart from Japan (good investor
protection):
• Bad investor protection => large
family/state control.
• “Crony Capitalism”:
• Fundamental agency problem not between
outside investors and managers,
• But between outside investors and
controlling shareholders.
90
Corporate Ownership around the
World (La Porta et al)
• See paper.
91
Investor Protection and Corporate
valuation (La Porta et al)
• Effect of legal system and ownership
structures on corporate valuation.
• Theory and evidence.
• Higher valuation of firms in countries with
better investor protection.
• Better legal protection of outside investors
=> willing to finance firms => financial
markets broader and more valuable.
92
Legal system/ownership structure
• Managers have cashflow rights (affects
incentives) and control rights =>
expropriate large private benefits.
• Better legal protection => managers are
limited in their expropriation abilities.
• Concentrated ownership => entrenchment
• But, higher cashflow rights => less
expropriation.
93
Various tables from the paper.
94
Lecture 7; Hedge Funds, Private
Equity, and venture capital.
• Hedge Funds: Very controversial and
much-debated.
• Collapse of Long Term Capital
Management.
• Private Equity: takeover of RJR Nabisco
by KKR in the late 1980s.
• “Barbarians at the Gate”.
• Venture capital: alternative funding
mechanism for start-ups
95
Venture Capital
• New entrepreneurial start-ups: Extreme
uncertainty/high risk
• => difficult to obtain finance from banks or
the general public.
• Venture capitalists specialise in financing
such ventures => potential large capital
gains at IPO.
• VCs active investors: extreme agency
problems => BVCA.
96
Private Equity
• VCs – early stage companies.
• MBOs – highly leveraged.
• PE => high ownership stake for
management.
97
Hedge Funds.
• Actively managed investment fund
• Seeks a high absolute return (whether
markets go up or down).
• In contrast to an index tracker.
• Wide variety of complicated investment
strategies.
• Not designed for retail investor, but for
high net worth individuals or institutions.
98
Common hedge fund strategy:
• Short-selling (selling a security we do not
own => borrow the security).
• Plus high leverage (why?)
• First hedge fund: AW Jones and Co, in
1949.
• Other Hedge funds: Warren Buffet 1950s.
• George Soros Quantum Fund 1974.
99
Hedge Fund Strategies.
•
•
•
•
•
Equity Hedge Funds.
Global Asset Managers.
Relative Value Arbitrage.
Event-driven Investing.
Short sellers.
100
Should hedge funds be regulated?
•
•
•
•
•
Investor protection?
Destabilising the market?
Systemic Risk?
Inside information?
See Paper by Noyer.
101
Regulation of Hedge funds?
• Bank of England Seeks self-regulation
(voluntary code).
• FSA update of regulation of hedge funds.
102
Lecture 8: Regulatory authorities.
• Treasury.
• FSA.
• Research Question: What is the FSA’s role
in regulating financial markets?
103
FSA
• CBA of regulation (paper by Alfon and
Andrews).
• Market Cleanliness (paper by Monteiro,
Zaman, and Leitterstorf).
104
CBA
• FSA has taken over the functions of 9
existing UK financial regulators.
• FSMB.
• => CBA analysis of financial regulation.
• SIB established a CBA department in 1994
to advise on costs and benefits of
regulation of UK investment business.
• CBA => more or less regulation?
105
CBA in FSA (continued)
• CBA can improve firms’ compliance
culture.
• Enhance regulatory agencies’
accountability.
106
CBA in FSA (continued)
• Requirements of FSMB => FSA has 4
statutory objectives, and 6 other aims.
• Are the benefits proportionate to their
burden?
• Innovation.
• UK’s competitive position.
• CBA useful tool for FSA: trade-offs
between statutory objectives and
economic matters.
107
FSA’s requirements
• FSA required to publish a CBA whenever
impact of regulation likely to be high.
• FSA ‘over-complies’?
• CBA requires quantitative estimate of
costs, but not benefits.
• Qualitative Benefits can be assessed
• => Pragmatic approach to CBA.
108
Economics of Regulation
• Regulation a monopoly good supplied at
no explicit charge.
• Over-demanded? Not actually needed?
• Regulation can have significant impact on
markets and welfare.
• Eg excessive regulation in the US =>
Eurodollar market ? (Investigate!)
109
Economics of Regulation
(continued)
• Non-use of CBA can lead to unintended
bad side-effects.
• Eg: a regulator reduces the freedom of
banks in order to reduce systemic risk.
• But => lack of bank innovation and
investment.
• Option Comparison.
110
CBA
• Theoretical and practical problems.
111
FSA’s analytical CBA Framework
- six stage process
• Decide Scope and Depth of the analysis (how
many options to consider?)
• Likely effects of each option.
• Qualitatively compare the effects of each option.
• Reject inferior options.
• Estimate Costs and assess benefits of remaining
options.
• Provide an output to illustrate costs and benefits
of the options under consideration.
112
Impact Analysis
•
•
•
•
•
•
•
6 impacts:
Direct Costs.
Compliance Costs.
Quantity of Good sold.
Quality of goods offered.
Variety of products offered.
Efficiency of Competition.
113
Assessing the costs of financial
regulation.
• Direct costs.
• Compliance Costs
• Indirect costs (negative market impacts:
eg reduced competition => higher
charges, costs of imposed uniformity,
moral hazard).
• (Incremental Costs).
114
Assessing the Economic Benefits
of Financial regulation
• Correction of Informational asymmetries
between buyers and sellers.
115
Market Cleanliness
• FSA has a statutory objective to maintain
confidence in the Financial System.
• Efficient, orderly and fair markets =>
delivering value to users and providers of
financial services.
• FSA’s main aim: Reduction of market
abuse in the UK.
116
Market Cleanliness
• Extent to which informed stock price
movements are observed ahead of
significant price-sensitive announcements.
• => price movements could indicate insider
trading
• Eg BIFFA in January 2008?
117
Market Cleanliness (continued)
• Insider trading is just one form of market
abuse.
• Abuse in equity and non-equity markets?
• CBA of insider trading regulation?
• => Financial markets built on trust. Insider
trading erodes trust.
118
Market cleanliness (continued)
• FSMA (2001)
• => Civil regime for prosecuting market
abuse.
• Disclosure rules.
• FTSE350 listed companies: no change in
market cleanliness after FSMA
implemented?
119
Lecture 9:
New Tiger Economies.
120