While financial markets have endured the biggest impact of disruptive innovation, there’s still the absence of a rational explanation of the issue within both scholarly and policymaking circles, hence lack of effective regulations, says Professor Chris Brummer. The various channels by means of which innovation flips market practices over are part of the problem. Another problem is the common misconception that clearing procedures, broker-dealers, and other “watchmen” provide a solid foundation upon which securities regulation operates. Therefore, in twenty-first century securities markets, regulations require upgrading to be able to match the impact of invention.
Now, securities regulation is under intense pressure, thanks to the unparalleled extent of technological innovations that keep upending the very basic market frameworks behind securities markets animation. Improvements in computer processing as well as information technology has seen major financial intermediaries, such as exchanges and investment banks relegated to the side with new market players taking charge. Better equipped private entities and sites are now providing brokerage and facilitation for capital market liquidity, with public offerings playing an insignificant role, which is easy to explain against the backdrop of inconsistent reforms to capital raising regulation.
Today, these advancements are the subject of tight scrutiny, considering the worldwide financial turmoil, and with market innovation and interference gaining traction extremely fast. Today, the money raised in private venues surpasses public offerings courtesy of the fresh tools developed to match demand. For blue-chip companies’ securities, these are easily traded off exchanges at the same volumes as on the companies themselves. These disturbances continue to soar with technological innovation, and they combine to render regulators clueless regarding what must be done as they, also, try to assert their authority in the new capital markets environment. Securities regulators have reacted to such disruptions by technology in either of the two ways, according to Chris Brummer: not to do anything or embrace laughable “concessions,” such as Twitter discovery and the nod given to tweets as a means to engage investors.
To create a theoretical framework for handling disruptive technology calls for flexibility of insights to enable the accommodation and scrutiny of distinct and dynamic market environments against growing sets of regulatory responsibilities and policy objectives. In turn, it becomes vital to abandon customary conjecture regarding the way to operationalize regulatory framework.
Any highly effective securities regulation demands upgrades that accommodate the role of information technology (and virtual environments) in capital markets micro-ecosystems subject to extremely rapid change. Any such upgrades to securities rules have to address the computerized financial markets that have altered the understanding and operation of market liquidity. It’s also important to address private markets that are building an ever-growing spectrum of options for security issuances as well as trading.