The Baltic Securities Market: Product of Economic Innovation

Abstract

This article demonstrates the primacy of economics over law in the formation of the Baltic Securities Market [BSM]. The proposition is vindicated by historical data and factual development of the BSM. Community level legislation in the financial services area accelerated in the later 1990's and the early 21st century as the European Union set an objective of creating a vibrant single market in securities. In this respect, the development of the BSM has paralleled the evolution of Community level legislation. However, the main driver of the BSM's development has been economic survival and innovation, not revision of Community or Member State infrastructure. In the Baltic market, the national stock exchanges do not, and never have, performed the traditional macroeconomic function of financial intermediation transferring resources from surplus economic units to deficit economic units, due to the alternative of favourable bank financing. With minor exceptions, the core activity of the BSM is the fund centre primarily dominated by Baltic and Scandinavian banks. The promotion of these products raises questions of fees and returns, and reintroduces the debate of whether payment for professional management is justified given the alternative of investment in passive index funds, or managed funds with comparatively low expenses ratios. The question of whether the BSM complies with recent Community Level legislation is beyond the scope of this article, and for article's purpose, irrelevant. In terms of legal transplants, during its early development, the BSM sampled from diverse jurisdictions. With modifications, Community Level legislation is functionally equivalent to United States Securities laws as both regulatory models embrace the Efficient Capital Market Hypothesis.