How Should Financial Markets Be Regulated to Ensure That Information Is Provided?

Promoting Information in the Marketplace for Financial Services

“…21 As discussed in Chap. 7 below, there is an important role for financial market self-regulation in a coregulated environment to facilitate getting information into the market to promote investor confidence.…”

“…This emerging discipline studies the effects of emotional, social and cognitive factors on decision making in the financial markets. 21 Behavioural models often draw on insights from psychology, and they question the assumption that markets participants are rational. In particular, individuals are biased by stereotypes and anecdotal evidence, and tend not to make decisions based on logic but rather on emotions and superficial assessments.…”

“…From 1928 the annual financial statements had to be audited by an independent auditor. Benston provided evidence that the compliance 21 See, e.g., Morris (1984), discussed in Chap. 7.…”

“…The idea of fairness and balance between the parties is usually achieved by the good faith doctrine which is entrenched in most civil law jurisdictions. 21 Also, statute law may impose duties that resemble concepts known from fiduciary law. However, these are usually limited to specific situations, for example the duty not to compete under the German law of business partnerships 22 and the duties applying to the directors of stock companies.…”

“…The licensing of those dealing in financial services, as well as those marketing related financial product information, is the basic mechanism of control used in common law jurisdictions such as the first Act in the United Kingdom on securities regulation, the 1697 Act to 'restrain the number and ill-practice of brokers and stock jobbers'. 21 There had been evidence of fraud, manipulation, sham companies, pump and dump, insider trading and market rigging during the stock market boom of the 1690s, which inevitably was followed by bust. The first legislation of 1697 required brokers to be licensed and to undertake by oath to act lawfully.…”