Regulating capital markets : striking the balance

Abstract

The purpose of this Research Project, is to analyze the scope of Capital Markets regulation, and the extent to which it may or may not have been overstretched. It shall delve into the importance of striking a balance between maintaining market integrity and efficiency whilst at the same time retaining an adequate degree of investor protection and investor understanding, focusing mostly on protection for retail investors in corporate bond offerings. The importance of fundamental economic theories, such as the Efficient Market Hypothesis will be advocated in order to work as the backdrop for which all Securities Regulation shall be weighed against. This approach will be the thread running through the entire project and will serve as the method for striking this elusive balance. Moreover, a number of laws of the European Union and those under Maltese Law, regulating Capital Markets shall be discussed and the overall impact they have on market participants will be considered. For present purposes, this project shall deal in particular with the regulations imposing the duty of issuers to disclose information, and how excessive disclosure can potentially have detrimental and counter productive effects for issuers, investors and in general, the efficiency of the market as a whole. In chapter three, the concept of over-regulation and its consequences shall also be discussed. An example of what is considered to be over-regulation under Maltese domestic law is analyzed in order to substantiate the argument against over-regulation. Nevertheless, the more recent efforts from regulators who have acknowledged certain excesses in regulation are also examined, by reference to the various reforms under European Union law. These are considered in light of the discussion on over-regulation and are viewed and as the potential balancing act for Securities Regulation. In the last two Chapters of this project, the solutions and concluding remarks are drawn up, where the argument for regulators to establish the real objectives of regulation is made. The key point here is for regulators not to try to eliminate risk totally but to truly focus on the elimination of those risks which investors do not need to and should not face.