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1 – 3 of 3This paper aims to conceptualize and empirically illustrate the challenges that financial market regulation presents to politicians and the organization tasked with specifying…
Abstract
Purpose
This paper aims to conceptualize and empirically illustrate the challenges that financial market regulation presents to politicians and the organization tasked with specifying regulations and supervising their implementation in the interest of users and consumers of financial instruments. It analyses the problem from the viewpoint of the governor's dilemma and the control/competence conflict, the linked problem of the rent-seeking of agents/intermediators and consumers of financial instruments. Political accountability problems are enhanced by the materiality of the technologies used, i.e. algo trading.
Design/methodology/approach
The paper theoretically conceptualizes and empirically illustrates the argument.
Findings
The paper finds that regulators of digitalized financial markets are faced with considerable problems and depend on private agents when regulating financial transactions. However, the new technological instruments also offer new possibilities for securing compliance.
Research limitations/implications
Further research should focus more in-depth on the cooperation between public and private actors in the specification and implementation of regulatory details. It should further investigate the conditions which allow regulators to use RegTech in the surveillance of financial firms.
Practical implications
Since financial market transactions are opaque for most users, the creation of more transparency is crucial to hold regulators accountable in their activity of surveillance of financial firms. New algorithm-based technologies may lend important support in doing so.
Originality/value
By linking the different analytical perspectives, i.e. the governor's dilemma vis-à-vis the intermediator or agent and the possible rent-seeking of intermediators, under the condition of a highly developed technology of financial transactions as well as the market structure, the paper offers new insights into the limits as well as new opportunities of regulating financial markets allowing for political accountability of regulators and financial firms.
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In 2022, US financial regulators proposed to mandate a single central clearing mechanism for treasury bonds and repo transactions to stabilize financial markets. The systemic…
Abstract
In 2022, US financial regulators proposed to mandate a single central clearing mechanism for treasury bonds and repo transactions to stabilize financial markets. The systemic risks inherent in repo markets were first highlighted by the global financial crisis and, as a response, global financial authorities such as the Financial Stability Board (FSB) and Bank for International Settlements (BIS) have advocated for the introduction of a central counterparty (CCP). This study examines the structural characteristics of Korean repo markets and proposes the introduction of CCPs as a way to mitigate systemic risk. To this end, the author analyzes the structural differences between US and European repo markets and estimates the potential consequences of introducing CCP clearing in local repo markets. In general, CCPs offer two benefits: they can reduce required capital through netting in multilateral transactions, and they can mitigate the effects of risk transfer by isolating counterparty risk during periods of turbulence. In Korea, the latter effect is expected to play a pivotal role in mitigating potential risks.
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Franz Eduard Toerien, John H. Hall and Leon Brümmer
This study investigates whether the disclosure of derivatives is value relevant in emerging markets and evaluates the effects of the 2008/2009 global financial crisis on the value…
Abstract
Purpose
This study investigates whether the disclosure of derivatives is value relevant in emerging markets and evaluates the effects of the 2008/2009 global financial crisis on the value relevance of derivative disclosures.
Design/methodology/approach
Panel regression models using sub-samples and a crisis interaction term were applied to a sample of the 200 largest non-financial firms by market capitalization listed on the Johannesburg Stock Exchange (JSE) from 2005 to 2017 to assess the consequences of the financial crisis.
Findings
The results suggest that the disclosure of derivatives is value relevant in the hitherto understudied context of emerging markets. The 2008/2009 financial crisis had a significant impact on derivatives use and the value relevance of derivatives disclosure by JSE-listed companies.
Practical implications
Companies should reconsider both how they employ derivatives as part of their risk management practices and how they communicate derivatives use to stakeholders in the financial statements. The findings facilitate a comparative analysis across various market contexts by researchers and assist investors in better decision-making. The findings can influence regulatory practices and can help standard setters to review disclosure requirements.
Originality/value
The benefits of corporate hedging were studied from an emerging market perspective, using an original dataset and approach to investigate the effects of international financial volatility on emerging markets. The authors tested whether companies are valued differently, based on their disclosure of the use of derivatives in the financial statements, and the effect of the financial crisis on the value relevance derivatives disclosures.
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