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. One of the obstacles pertains to the diverse conduits through which new technology upsets market practices. Making matters worse, there’s a popular understanding that stable gatekeepers, for example clearing systems and broker-dealers form the backdrop for the operation of securities regulation. As such, effective regulation is required to cope with the realities the twenty-first century technology presents capital markets.
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. Thanks to superior computer power and information systems, fresh market entrants on the driving seat, Pushing vital financial brokers, for instance investment banks and exchanges, to the periphery. If the undesired outcome caused by intermittent reorganization of capital raising procedures is also factored in, it’s clear how private stakeholders and venues boasting better technology are now hosting and mediating capital market liquidity, eroding the importance of public offerings.
It has become important to closely scrutinize such developments, against the backdrop of the global financial crisis, and as the rate of innovation and disruption in markets gain tremendous speed. More capital is being acquired via private placements than public offerings, thanks to the creation of new platforms to solve demand. Even the steadiest and most profitable of securities are easily exchanged via traditional venues as much as on the firms. These interferences consistently gain prominence with technological development, and together, they confound policymakers who are unable to react accordingly as they, too, try to find their voice in the latest financial markets ecology . In response to these effects of technology, as Chris Brummer argues, securities authorities have chosen either not to interfere or adopted near “comical concessions,” for example the realization of Twitter and approval of tweets by the agency as a way to reach out to 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. The new securities regulation must account for the automated financial services, which have redefined market liquidity and changed its mode of operation. It’s also important to address private markets that are building an ever-growing spectrum of options for security issuances as well as trading.