Transparency and Fragmentation Financial Market Regulation in a Dynamic Environment

by Board, John; Sutcliffe, Charles; Wells, Stephen

• ISBN13: 9780333986349
• ISBN10: 0333986342
• Format: Hardcover
• Copyright: 2002-10-04
• Publisher: Palgrave Macmillan

Summary

This is the first major treatment of the effects of increased transparency on financial markets: an important and highly controversial issue for both traders and regulators. Focussing on three main themes - market transparency, the consolidation-fragmentation of trading systems, and the scope of regulation (i.e. which markets, and which traders within those markets, should be subject to regulation), the book highlights the importance of these issues to all markets throughout the world. The authors draws on research from eight UK-based investment exchanges, Deutsche Borse in Frankfurt, and documentary evidence from the US markets and their regulators.

Author Biography

John Board is Reader in Accounting and Finance at the London School of Economics and Political Science.

Charles Sutcliffe is in the Division of Accounting and Finance at the School of Management, University of Southampton.

Stephen Wells is Research Fellow, Financial Markets Group, London School of Economics and Political Science.

Table of Contents

List of Figures and Tables	x
Foreword	xi
Michael Foot
Acknowledgements	xiii
List of Abbreviations	xiv
Executive Summary and Policy Implications	1	(4)
Fragmentation	1	(1)
Best execution	2	(1)
Market access	2	(1)
Manipulation	2	(1)
Transparency	3	(1)
The future	3	(2)
Introduction and Overview	5	(28)
Introduction and scope of UK market regulation	5	(3)
Fragmentation, convergence and divergence	8	(4)
Regulatory options in diffuse markets	12	(9)
Regulatory issues in fragmented markets	21	(4)
Transparency	25	(2)
OTC markets	27	(6)
The Recognised Investment Exchanges	33	(18)
Critical features of orderly markets	34	(2)
RIE structures	36	(1)
ATSs	36	(1)
Summary and analysis of RIE results	37	(9)
Conclusions for UK RIEs	46	(5)
Fragmentation and Consolidation	51	(50)
Introduction	51	(1)
Securities market structure	52	(9)
Fragmentation	61	(3)
Forces for the consolidation of markets	64	(10)
Forces against market consolidation	74	(5)
Effects of fragmentation	79	(22)
Evidence on Trading Mechanisms	101	(40)
Owain ap Gwilym
Trading mechanisms	102	(14)
Spreads	116	(12)
Cross-listing	128	(13)
Policy Responses to Fragmentation	141	(38)
Recapitulation	141	(4)
Policy responses to fragmentation	145	(21)
Conclusions	166	(13)
Theory and Results on Transparency	179	(28)
Introduction	179	(1)
Market microstructure and natural transparency	180	(2)
Theoretical models	182	(5)
Empirical evidence from the London Stock Exchange	187	(11)
Empirical evidence from non-UK equity markets	198	(4)
Experimental evidence	202	(2)
Evidence from non-equity markets	204	(3)
The Regulation of Transparency	207	(33)
The policy dimensions of transparency	209	(2)
Alleged benefits of increased transparency	211	(3)
Alleged costs of increased transparency	214	(4)
Access and transparency	218	(5)
The interaction between OTC markets and exchanges	223	(2)
Cost-benefit analysis of transparency	225	(2)
Empirical evidence -- demonstrable harm?	227	(1)
Summarising the arguments	228	(2)
Policy formulation	230	(10)
Over the Counter (OTC) Markets	240	(14)
Background on OTC markets	240	(2)
The size of OTC markets	242	(1)
The interaction between exchanges and OTC markets	242	(1)
Consequences of OTC markets and exchanges forming a single market	243	(2)
OTC markets and trade reporting	245	(2)
OTC markets and regulation	247	(3)
Policies on trade reporting and transparency	250	(4)
A New Regulatory Framework	254	(8)
Investor protection	254	(1)
Barriers to entry	255	(1)
Implementing transparency	256	(2)
Regulation of OTC trading	258	(1)
Summary of the regime	259	(3)
The Evolving Regulation of Financial Networks	262	(17)
James J. Angel
Introduction	262	(1)
Trends in the financial markets	263	(5)
Why do we have stock exchanges in the first place? Stock markets as financial networks	268	(3)
Implications for the evolution of financial regulation	271	(6)
Summary	277	(2)
References	279	(14)
Index	293