11.04.2011
By Terry Flanagan

Markets Accommodate Regulators?

Capital markets observer urges a peaceful coexistence for buy side and regulators.

In the post 2008 financial crisis world, financial regulation is rampant. Yet, many of the drafted new rules and regulations stemming from that global financial meltdown have missed deadlines, stirred market controversy, and solicited complaints from buy side firms—who inevitably need to pay for the cost of new regulation.

“The role of regulators is to keep an orderly marketplace and maintain a system that works, and that is to the benefit of everyone in the marketplace,” said Michael Kurzrok, director of equities at consultancy and research firm, Woodbine Associates.

“There have been dynamic changes in the marketplace that requires the revamping of oversight. If the regulators get it right, in the end it will be a better place to conduct business. The buy side should take this opportunity to play an integral part in this process.”

It isn’t always easy for buy side firms, and other market participants to warm up to regulators, due to the costly nature of implementing new rules and technology to stay complaint; especially given the majority of firms will need to adjust for a firms’ mistakes.

“Regulation is a necessary evil, to an extent. The ‘innocent’ will always bear the cost of the ‘guilty’ in some sense,” Kurzrok said.

Another disconnect between regulators and the markets they regulate is the age-old disconnect between the ability for regulators to upkeep their knowledge with the rapidly changing markets.

Kurzrok expects regulators need to be “forward looking” and “proactive” to bridge the knowledge gap, “rather than to allow the markets take any shape or direction they may from within.”

“Regulation will always be reactionary to some extent. Yet, it is of utmost importance for today’s regulators to be more proactive and forward looking,” he said. “But technology has transformed market structure, and has done so at an unprecedented pace.”

Ultimately, a coexistence between regulators and the markets will need to materialize to “create a desirable financial environment going forward, with efforts to purposefully reshape the marketplace,” according to Kurzrok.

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