The Economics of Market Confidence: (Ac)Costing Securities Market Regulations

Abstract

In the field of securities market regulation, considerations of equality of information, transparent disclosure of information and shareholder rights have traditionally dominated the field. In recent times, however, regulatory reviews performed by the Corporate Law Economic Reform Program and the Office of Regulation Review have directed attention to the need for efficient securities regulations which acknowledge the cost-benefit trade-offs inherent in any regulatory structure. Notwithstanding this growing awareness of regulatory costs, there still appears to be an overwhelming tendency when considering securities regulation to equate more stringent regulations with market maturity and, in particular, improved investor confidence. This article adopts a number of economic constructs to broaden the regulatory debate and it also raises a number of concerns in relation to the existing regulatory framework and the on-going regulatory debate. The main conclusions from this analysis are that, firstly, macroeconomic performance matters more than regulatory policy when it comes to establishing market confidence and, secondly, the regulatory costs associated with securities market regulations may actually impede macroeconomic performance.