Financial Market Transactions Research Articles

The role of European banking legislation for financial stability

In recent decades, financial institutions, including banks, insurers, pension funds and investment firms, have faced increasing regulatory changes, particularly within the European Union. Recent global events have further modified the financial regulatory framework of the European Union, and some changes also bring risks, requiring new supervisory tools. This article provides an overview of the changes, focusing on European banking and financial law, which is at the heart of three main economic topics: the financial market, financial-banking institutions and cross-border financial transactions. The dynamic nature of these regulations underlines the need for continuous adaptation in the industry. This article serves as an introduction to current developments for understanding the wider context of European financial law and its implications for stakeholders.

Faking trade for capital control evasion: Evidence from dual exchange rate arbitrage in China

Capital controls prohibit the standard financial market transactions for foreign exchange arbitrage. However, this paper provides novel evidence that firms manipulate international trade data to arbitrage across foreign exchange markets in mainland China and Hong Kong. We develop a model showing that international trade data overreporting is positively (negatively) correlated with the exchange rate spread when the spread is positive (negative) if firms fake trade data to engage in foreign exchange arbitrage, and such correlations are more pronounced for products with a low risk of being detected. The above theoretical predictions are supported by the empirical results from threshold regressions using the aggregate time series data and Benford's law using the disaggregated firm-product trade data between mainland China and Hong Kong. Our findings highlight the challenges to implementing capital controls and may help improve the effectiveness of such policies.

Financial markets regulation: political accountability challenged

PurposeThis paper aims to conceptualize and empirically illustrate the challenges that financial market regulation presents to politicians and the organization tasked with specifying regulations and supervising their implementation in the interest of users and consumers of financial instruments. It analyses the problem from the viewpoint of the governor's dilemma and the control/competence conflict, the linked problem of the rent-seeking of agents/intermediators and consumers of financial instruments. Political accountability problems are enhanced by the materiality of the technologies used, i.e. algo trading.Design/methodology/approachThe paper theoretically conceptualizes and empirically illustrates the argument.FindingsThe paper finds that regulators of digitalized financial markets are faced with considerable problems and depend on private agents when regulating financial transactions. However, the new technological instruments also offer new possibilities for securing compliance.Research limitations/implicationsFurther research should focus more in-depth on the cooperation between public and private actors in the specification and implementation of regulatory details. It should further investigate the conditions which allow regulators to use RegTech in the surveillance of financial firms.Practical implicationsSince financial market transactions are opaque for most users, the creation of more transparency is crucial to hold regulators accountable in their activity of surveillance of financial firms. New algorithm-based technologies may lend important support in doing so.Originality/valueBy linking the different analytical perspectives, i.e. the governor's dilemma vis-à-vis the intermediator or agent and the possible rent-seeking of intermediators, under the condition of a highly developed technology of financial transactions as well as the market structure, the paper offers new insights into the limits as well as new opportunities of regulating financial markets allowing for political accountability of regulators and financial firms.

Empirical mode decomposition using deep learning model for financial market forecasting.

Financial market forecasting is an essential component of financial systems; however, predicting financial market trends is a challenging job due to noisy and non-stationary information. Deep learning is renowned for bringing out excellent abstract features from the huge volume of raw data without depending on prior knowledge, which is potentially fascinating in forecasting financial transactions. This article aims to propose a deep learning model that autonomously mines the statistical rules of data and guides the financial market transactions based on empirical mode decomposition (EMD) with back-propagation neural networks (BPNN). Through the characteristic time scale of data, the intrinsic wave pattern was obtained and then decomposed. Financial market transaction data were analyzed, optimized using PSO, and predicted. Combining the nonlinear and non-stationary financial time series can improve prediction accuracy. The predictive model of deep learning, based on the analysis of the massive financial trading data, can forecast the future trend of financial market price, forming a trading signal when particular confidence is satisfied. The empirical results show that the EMD-based deep learning model has an excellent predicting performance.

La sécurité sur les marchés financiers de l’espace OHADA

Abstract The growth of the Member States of OHADA would be difficult if security was not a guiding principle in their financial markets. And so, the CEMAC and UEMOA authorities have taken measures to prevent and address the risks of financial market transactions, namely abuse and default. Thus, on the preventive side, controls are instituted to prevent abuses as well as a guarantee of the default. On the curative side, proceedings and indemnities are provided in case of abuse and, outcome of position and compensation for the victims to provide a guarantee against default.

Currency Carry Trade by Trucks: The Curious Case of China’s Massive Imports from Itself

AbstractWith capital controls, the standard financial market transactions needed for currency carry trade are hard to implement. Using detailed trade data reported by both the mainland Chinese and Hong Kong’s governments, we present evidence that indirect currency carry trade likely takes place via round-trip reimports. We also show that greater state control in terms of more state-owned firms does not reduce such “carry trade by trucks.”

Financial Literacy in Romania: A Test of Economics and Business Students

Abstract Romania is in a rather dishonorable position from the financial literacy perspective in the European Union, ranking last among countries. To increase the level of financial education of the Romanian population, public and private institutions, organizations, and companies have recently taken the initiative in this field, mostly after 2015. Our contribution builds on these recent developments and aims at testing the level of basic financial literacy of Romanian university students, enrolled in business and economics studies, using the OECD Financial literacy test. Data was collected through an online survey on a voluntary basis, and the responses were analyzed using statistical indicators. Results indicate a rather high level of financial literacy among students, but also significant differences among respondents that may be explained by several demographic characteristics and specific attributes. The most important characteristics that influence the degree of financial literacy of students are age, students’ cycle of studies, the way the students live, property ownership and students’ involvement in financial market transactions and contracts. We stress towards the need to act through concrete measures to improve young people financial literacy, as a necessary condition to navigate in an increasingly complex environment, where finance plays an essential role.

Mediacja jako sposób ochrony praw konsumenckich we Francji

Przedmiot badań: Artykuł dotyczy zjawiska mediacji we francuskim porządku prawnym. Opisuje typy mediacji, nadzór nad transakcjami na rynku finansowym we Francji i współpracę między organami nadzoru nad rynkiem. Przedmiotem szczególnego zainteresowania jest mediacja na rynku finansowym rozumiana jako narzędzie ochrony praw, jak również jako proces społeczny.
 Cel badawczy: Analiza zagranicznych przepisów dotyczących funkcjonowania mediacji na rynku finansowym ma wskazać, jak należy w warunkach coraz większych zagrożeń odnosić się do mediacji sektorowej i wyspecjalizowanej. Zrozumienie rozwiązań francuskich pozwoli na lepsze poznanie możliwości polskiego prawa w zakresie mediacji na rynku finansowym. Jest także źródłem pytań, refleksji i otwarcia się na nowe rozwiązania.
 Metoda badawcza: W artykule wykorzystano metody historyczną i dogmatyczną. Analiza prowadzona jest w porządku chronologicznym.1
 Wyniki: Mediacja jest zjawiskiem społecznym. Na rynku finansowym we Francji podlega kilku zasadniczym przepisom kodeksowym, chociaż jej wprowadzanie do praktyki raczej wyprzedzało proces regulacyjny. Obecnie mamy do czynienia z regulacją i nadzorem mającymi przeciwdziałać negatywnym zjawiskom na rynku finansowym. Mediacja jest jednym ze sposobów, które mogą służyć do ochrony konsumenta na rynku finansowym

Financial Variables, Market Transactions, and Expectations as Functions of Risk

This paper develops methods and a framework of financial market theory. We model financial markets as a system of agents which perform market transactions with other agents under the action of numerous expectations. Agents’ expectations are formed of economic and financial variables, market transactions, the expectations of other agents, and other factors that impact financial markets. We use the risk ratings of agents as their coordinates and approximate a description of financial variables, market transactions, and expectations of numerous separate agents by density functions of aggregated agents in the economic domain. The motion of separate agents in the economic domain due to a change of agents’ risk rating produces collective financial flows of variables, transactions, and expectations. We derive equations on collective financial variables, market transactions, expectations, and their flows in the economic domain. These flows define the evolution of financial markets. As an example, we present a simple model with linear dependence between disturbances of volume and the cost of transactions on one hand, and disturbances of expectations that determine transactions on the other hand. Our model describes harmonique oscillations of these disturbances with numerous frequencies and allows an explicit form for fluctuations of price and return to be derived. These relations show a direct dependence between price, return, and volume perturbations.

Sustainable energy consumption and capital formation: Empirical evidence from the developed financial market of the United Kingdom

Financial transaction in the United Kingdom is one of the largest in the world, how sustainable energy consumption influence the sustainability of the UK’s developed financial market transactions vis a vis the country’s economic growth and capital formation is to date not established. To achieve parsimonious results, the study used time series data from 1970 to 2013. The study applied the Zivot-Andrew structural break test, the Bayer-Hanck combined cointegration test; the ARDL bounds testing approach to cointegration and the Johansen cointegration test. The findings from the ARDL estimation was validated using the innovation accounting test and the impulse response function. The results confirmed the existence of cointegration among the variables. The study discovered the relationship between the developed financial market and energy consumption to have an inverted U-shape pattern of exacerbating the model arrangement of energy consumption in the UK. This suggests that energy demand rises with financial market development and start to decline after a threshold level of the markets’ operational peak. Implying that the global financial transaction that flows from other countries to the UK are an indirect form of additional pressure to the country’s electricity predicaments, and this need to be investigated by energy policy makers. In addition to that, the study found economic growth to have a significant influence on sustainable energy consumption, while, capital formation is positively linked with energy demand. The causality analysis, on the other hand, exposed the existence of bidirectional causal relationship pointing out how sustainable energy consumption could lead to the resilience of the UK Financial market and the country’s economic growth prospects. How and in what manner can this happen is clearly discussed in this study. In addition to that, the implications of our findings to the currrent BREXIT debate is also discussed.

FINANCIAL FRAUD: A LITERATURE REVIEW

AbstractThis paper describes the empirical universe of financial fraud as it has been documented in the academic literature. Specifically, it describes the different forms of fraudulent behaviour in the context of financial market activities, the prevalence and consequences of such behaviour as identified by previous research, and the economic and market structures that scholars believe facilitate it. To structure the discussion, a conceptual distinction is made between three types of financial fraud: false financial disclosures, financial scams, and financial mis‐selling. The findings of the literature review highlight a number of recent developments that scholars think have facilitated the occurrence of financial fraud, including (1) the development of new fundamental conflicts of interest and perverse incentive structures in the financial industry; (2) an influx of unsophisticated, gullible participants in the financial marketplace; (3) the increasing complexity involved in financial market transactions as a result of rapid technological, legal, and financial innovation and an ever‐widening menu of financial products; (4) an increase in the use of justified secrecy in the form of a mystification of trading models adopted by fund managers.

The impact of global technological trends on accounting

The article points out that the pace of technological advance has led to integrating informaion and communication technology into accounting processes. Examples of advanced technologies for business that influence accounting management include computer-assisted learning and artificial intelligence, “smart” applications for telecommunication devices, “smart” things, complemented by virtual reality, digital twins, blockchain, chat communication systems, adaptive security systems, applications and network architecture, integrated electronic platforms. The aim of the research is to elucidate the impact of advanced technological trends on accounting management and highlight advantages of applying computer and communication technology to the processing of credentials.Artificial intelligence (AI) and computer-assisted learning, which include neural networks and natural-language processing, support the accounting system that is capable of learning, forecasting, adapting and working autonomously. Using AI, technology developers focus on three areas: advanced analytics of accounting information, digital assistants of accounting automation, and interactive interface for virtual reality. AI, used in automated information processing, is complemented by applying “smart” things that make it possible to identify, measure, evaluate and transfer accounting data on phenomena and events to the single database without the participation of staff.A proposed information model of integrated database might act as a common information environment for electronic interaction of all participants in financial market transactions. There is information exchange between suppliers, customers, banking institutions, legal and factoring organizations, government fiscal and statistical authorities. However, public access to a single database may lead to losses of confidential information, which requires effective methods for information protection of the accounting system. “Blockchain” is one of the advanced technologies of information security. It is a type of accounting ledger in the database (for example, in bitcoin crypto-currency), where entries are grouped consecutively into blocks to prevent unauthorized changes.The use of computer and communication technology in the accounting management will provide: the opportunity for complete automation of accounting processes; minimization of time and money spent on administrative staff; information protection in communication interactions between participants of information processes; development of algorithms for building a common database of credentials and common information environment.

Atlas Nods: The Libertarian Case for a Basic Income

Proposals for a universal basic income are generating interest across the globe, with pilot experiments underway or in the works in California, Canada, Finland, Italy, Kenya, and Uganda. Surprisingly, many of the most outspoken supporters of a universal basic income have been self-described libertarians — even though libertarians are generally considered to be antagonistic toward redistribution and a universal basic income is, at its core, a program of income redistribution. What explains such strong libertarian support for a policy that seems so contrary to libertarian ideals? This Article seeks to answer that question. We first show that a basic safety net is not only consistent with, but likely required by, several strands of libertarian thought. We then explain why libertarians committed to limited redistribution and limited government might support a system of unconditional cash transfers paid periodically. Delivering benefits in cash, rather than in-kind, furthers autonomy by recognizing that all citizens — even poor ones — are the best judges of their needs. Decoupling such transfers from a work requirement acknowledges that the state lacks the ability to distinguish between work-capable and work-incapable individuals. Providing payments periodically, rather than through a once-in-a-lifetime lump sum grant, ensures that all individuals can receive a minimum level of support over lifespans of variable lengths, while also allowing individuals to adjust payment flows through financial market transactions. Although our main objective is to assess the fit between libertarian theory and a universal basic income, we also address various design choices inherent in any basic income scheme: who should receive it?; how large should it be?; which programs might it replace?; and should it phase out as market income rises? Lastly, we consider the relationship between a basic income and the political economy of redistribution. We find that the case for a basic income as a libertarian “second-best” is surprisingly shaky: libertarians who oppose all redistribution but grudgingly accept a basic income as the least-worst form of redistribution should reconsider both aspects of their position. We conclude by drawing out lessons from our analysis for non-libertarians, regardless of whether they are supportive or skeptical of basic income arguments.

Tax Treatment of Financial Market Transactions

The tax regime applicable to financial products traded on the Colombian stock market seeks to promote and foster the growth of that market through tax benefits. However, the lack of systematic rules gives rise to some interpretative issues involving risks for transactions. Moreover, the adoption of existing standards for information exchange poses enormous burdens for Colombian financial institutions.

Tax Treatment of Financial Market Transactions

The authors provide a general overview of the tax regime applicable to the most common financial instruments traded on the Chilean stock market by providing the key tax elements to be considered by local and foreign investors. An updated overview is also provided regarding the taxation applicable to Chilean securities and financial instruments.

Tax Aspects of Financial Market Transactions

The authors provide an overview of the aspects of the taxation of transactions on the Brazilian financial market, presenting the main issues that can affect the attraction of foreign investment, as well as challenges that arise under the current Brazilian legal framework in light of relevant tax issues worldwide, such as exchange of information on tax matters and the classification of hybrid financial instruments.

The Euro Must Be Abandoned to Achieve European Monetary Integration

This article explains why the euro has to be abandoned in order to integrate the euro-area member countries monetarily. It first recalls the negative consequences of the adoption of a single European currency by a number of countries whose economies are still too different on structural grounds to support the financial constraints elicited by the fiscal and monetary policy straightjacket. It thus points out the lack of fiscal transfers between these countries and the dogmatic attitude of the ECB regarding its own policy strategy and objectives, both of which affect the (un)employment level as well as the degree of financial (in)stability across the euro area. The article then suggests a way out of this area for those countries whose population cannot support the burden imposed by austerity policies with no foreseeable positive effect for the large majority of the people. It thus proposes the reintroduction of national currencies in these countries, for which the euro will still be available but as a mere supranational currency used by their national central banks only, in order for them to settle international trade and financial-market transactions carried out by residents in their countries. This monetary–structural reform will increase financial stability and employment levels across Europe, thereby also inducing positive effects for public finance.

The geographic distribution of international currencies and RMB internationalization

The paper investigates the determinants of geographical distribution of international currencies in global financial market transactions. We implement a gravity model, in which international currency distribution depends on the characteristics of the source and destination countries. We find that the source country's currency is more likely to be used in the financial market transactions of the destination country if the bilateral trade and capital flows are large or the destination country's economy is the larger of the two. We also find that the level of development of the destination country's financial market and whether the two countries use a common language are important determinants of the currency distribution. In addition, our model suggests that, to be a true international currency, the renminbi should be used more extensively in the financial markets of the US and UK.

The Geographic Distribution of International Currencies and RMB Internationalization

The paper investigates the determinants of geographical distribution of international currencies in global financial market transactions. We implement a gravity model, in which international currency distribution depends on the characteristics of the source and destination countries. We find that the source country’s currency is more likely to be used in the financial market transactions of the destination country if the bilateral trade and capital flows are large or the destination country’s economy is the larger of the two. We also find that the level of development of the destination country’s financial market and whether the two countries use a common language are important determinants of the currency distribution. In addition, our model suggests that, to be a true international currency, the renminbi should be used more extensively in the financial markets of the US and UK.

The taxation of repos: Key tax risks and how to manage them

Tax risks arise in connection with repo transactions, specifically the transfer of securities by way of collateral. These tax risks, including withholding tax, capital gains tax and transfer tax, have the potential to exceed commercial profits arising from a repo transaction and so should be fully understood and carefully managed. These tax risks can arise in the jurisdiction where the repo parties are based and in the market where the repo securities are issued, and are exacerbated by the fact that at the heart of every repo transaction is a tax ownership tension, with the result that it is not always clear whether the repo seller or buyer is the tax (or beneficial) owner of the securities posted as collateral and any income arising on those securities during the term of the repo. At the same time, tax authorities are increasingtheir scrutiny of financial market transactions and imposing new taxes on them. This article outlines the key tax risks arising in connection with repo transactions and how to manage them effectively in practice.