Economics - Regulation Flashcards
Informational frictions
market inefficiencies that lead to sub-optimal outcomes. They include lack of access to information and inadequate information
adverse selection
private information in the hands of some, but not all, market participants that allows the holder of that information to gain at the expense of others
moral hazard
incentive conflicts that arise from the delegation of decision making to agents or from contracts that will affect the behavior of one party to the contract to the detriment of the other party
Markets in Financial Instruments Directive II (MiFID II)
From Europe
focuses on improving transparency in financial markets, including in fixed income, derivatives, and other over-the-counter markets in which prices and volumes were not previously publicly disclosed
Prudential supervision
regulation and monitoring of the safety and soundness of financial institutions in order to promote financial stability, reduce system-wide risks, and protect customers of financial institutions
part of prudential regulation
Types of rules
laws enacted by legislative bodies (statutes - directives),
rules issued by government agencies or other regulators (administrative regulations or administrative law - regulations), and
interpretations of courts (judicial law - decisions).
Independent regulators
Regulators recognized and granted authority by a government body or agency. They are not government agencies per se and typically do not rely on government funding.
e.g. U.K. FCA
Self regulatory bodies
Private, non-governmental organizations that both represent and regulate their members. Some self-regulating organizations are also independent regulators.
Entry requirements may be imposed.
Subjected to pressure from members.
self-regulating organizations (SROs)
Self-regulating bodies that are given recognition and authority, including enforcement power, by a government body or agency.
Funded independently. e.g. FINRA
Substantive law
The body of law that focuses on the rights and responsibilities of entities and relationships among entities.
Procedural law
The body of law that focuses on the protection and enforcement of the substantive laws.
Regulatory capture
Theory that regulation often arises to enhance the interests of the regulated.
Regulatory competition
Regulators may compete to provide a regulatory environment designed to attract certain entities.
Regulatory arbitrage
Entities identify and use some aspect of regulations that allows them to exploit differences in economic substance and regulatory interpretation or in foreign and domestic regulatory regimes to their (the entities’) advantage.
Typical legal framework
Company Law
Taxation Laws
Competition Law
Banking Law
Dispute Resolution System
