Despite the shortcomings of the Dodd-Frank Act, this article argues that the two parts most relevant to derivatives—Titles VII and VIII—are likely to endure. Title VII, which covers the trading of derivatives, especially swaps, generally strikes the right balance between preserving the vibrancy of the US derivatives markets and mitigating risk to market participants and the US financial system. While Title VII’s consolidation of much of the credit risk management function in central counterparties (CCPs) itself poses a systemic risk, this article contends nonetheless that Title VII addresses this risk by giving the Commodity Futures Trading Commission (CFTC) the power to mitigate it through regulations that implement the ‘core principles’ applicable to CCPs. This oversight is complemented by Title VIII, which provides enhanced supervision of systemically important CCPs. The Dodd-Frank Act’s approach to derivatives will endure, it is argued, so long as policymakers understand the interrelationship between Titles VII and VIII. This article focuses on that relationship and closes with a brief discussion of some of the work the CFTC is undertaking to bring finality to the statutory framework created by Titles VII and VIII.
{"title":"The Enduring Legacy of the Dodd-Frank Act’s Derivatives Reforms","authors":"H. Tarbert","doi":"10.1093/JFR/FJAA011","DOIUrl":"https://doi.org/10.1093/JFR/FJAA011","url":null,"abstract":"\u0000 Despite the shortcomings of the Dodd-Frank Act, this article argues that the two parts most relevant to derivatives—Titles VII and VIII—are likely to endure. Title VII, which covers the trading of derivatives, especially swaps, generally strikes the right balance between preserving the vibrancy of the US derivatives markets and mitigating risk to market participants and the US financial system. While Title VII’s consolidation of much of the credit risk management function in central counterparties (CCPs) itself poses a systemic risk, this article contends nonetheless that Title VII addresses this risk by giving the Commodity Futures Trading Commission (CFTC) the power to mitigate it through regulations that implement the ‘core principles’ applicable to CCPs. This oversight is complemented by Title VIII, which provides enhanced supervision of systemically important CCPs. The Dodd-Frank Act’s approach to derivatives will endure, it is argued, so long as policymakers understand the interrelationship between Titles VII and VIII. This article focuses on that relationship and closes with a brief discussion of some of the work the CFTC is undertaking to bring finality to the statutory framework created by Titles VII and VIII.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":"6 1","pages":"159-171"},"PeriodicalIF":2.6,"publicationDate":"2020-09-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/JFR/FJAA011","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42432428","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Increasing cyber and hybrid risks will test the European Union’s system of fragmentation on issues of security, but centralization on financial and other economic issues. This asymmetry was not an obstacle in a world in which security threats were more contained or of a different nature. But the world is changing. In this article, we document the rise in cyber attacks in the EU. Meanwhile, hybrid threats are real, though difficult to quantify. We then explore preparations to increase the resilience of the financial system in terms of regulation, testing, and governance. We find that at the individual institutional level, significant measures have been taken, even though there are diverging views on whether individual companies are sufficiently prepared. More worryingly, preparations appear less advanced at the system-wide level. We recommend that EU finance ministers increase resilience through regular preparedness exercises and greater consideration of systemwide regulatory issues. A broader political discussion on the integration of the EU security architecture applicable to the financial system should also be advanced. This includes reopening the framework on foreign-investment screening in order to have screening of foreign investment in critical financial infrastructure at the EU level.
{"title":"Hybrid and Cyber Security Threats and the EU’s Financial System","authors":"M. Demertzis, G. Wolff","doi":"10.1093/jfr/fjaa006","DOIUrl":"https://doi.org/10.1093/jfr/fjaa006","url":null,"abstract":"Increasing cyber and hybrid risks will test the European Union’s system of fragmentation on issues of security, but centralization on financial and other economic issues. This asymmetry was not an obstacle in a world in which security threats were more contained or of a different nature. But the world is changing. In this article, we document the rise in cyber attacks in the EU. Meanwhile, hybrid threats are real, though difficult to quantify. We then explore preparations to increase the resilience of the financial system in terms of regulation, testing, and governance. We find that at the individual institutional level, significant measures have been taken, even though there are diverging views on whether individual companies are sufficiently prepared. More worryingly, preparations appear less advanced at the system-wide level. We recommend that EU finance ministers increase resilience through regular preparedness exercises and greater consideration of systemwide regulatory issues. A broader political discussion on the integration of the EU security architecture applicable to the financial system should also be advanced. This includes reopening the framework on foreign-investment screening in order to have screening of foreign investment in critical financial infrastructure at the EU level.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":"6 1","pages":"306-316"},"PeriodicalIF":2.6,"publicationDate":"2020-09-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/jfr/fjaa006","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48306613","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Trading in modern equity markets has come to be dominated by machines and algorithms. However, there is significant concern over the impact of algorithmic trading on market quality and a number of jurisdictions have moved to address the risks associated with this new type of trading. The European Union has been no exception to this trend. This article argues that while the European Union algorithmic trading regime is often perceived as a tough response to the challenges inherent in machine trading, it has one crucial shortcoming: it does not regulate the simpler, basic execution algorithms used in automated order routers. Yet the same risk generally associated with algorithmic trading activity also arises, in particular, from the use of these basic execution algorithms—as was made evident by the trading glitch that led to the fall of United States securities trader Knight Capital in 2012. Indeed, such risk could even be amplified by the lack of sophistication of these simpler execution algorithms. It is thus proposed that the European Union should amend the objective scope of its algorithmic trading regime by expanding the definition of algorithmic trading under the Markets in Financial Instruments Directive (MiFID II) to include all execution algorithms, regardless of their complexity.
{"title":"Unregulated Algorithmic Trading: Testing the Boundaries of the European Union Algorithmic Trading Regime","authors":"Clara Martins Pereira","doi":"10.1093/jfr/fjaa008","DOIUrl":"https://doi.org/10.1093/jfr/fjaa008","url":null,"abstract":"\u0000 Trading in modern equity markets has come to be dominated by machines and algorithms. However, there is significant concern over the impact of algorithmic trading on market quality and a number of jurisdictions have moved to address the risks associated with this new type of trading. The European Union has been no exception to this trend.\u0000 This article argues that while the European Union algorithmic trading regime is often perceived as a tough response to the challenges inherent in machine trading, it has one crucial shortcoming: it does not regulate the simpler, basic execution algorithms used in automated order routers. Yet the same risk generally associated with algorithmic trading activity also arises, in particular, from the use of these basic execution algorithms—as was made evident by the trading glitch that led to the fall of United States securities trader Knight Capital in 2012. Indeed, such risk could even be amplified by the lack of sophistication of these simpler execution algorithms.\u0000 It is thus proposed that the European Union should amend the objective scope of its algorithmic trading regime by expanding the definition of algorithmic trading under the Markets in Financial Instruments Directive (MiFID II) to include all execution algorithms, regardless of their complexity.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":"6 1","pages":"270-305"},"PeriodicalIF":2.6,"publicationDate":"2020-09-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/jfr/fjaa008","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44157407","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract The European sovereign debt crisis and, more recently, the COVID-19 pandemic have revealed the European Economic and Monetary Union’s fragility, which essentially emanates from the inherent tension between a single monetary policy and decentralized fiscal policies. To cushion economic and financial shocks and sever the sovereign-bank doom loop, different proposals to create a common public debt security have been put forward, although none of them has so far seen the light of day. Building on pertinent economic and finance scholarship, this article reviews four promising safe asset proposals from a legal perspective: Sovereign bond-backed securities (SBBS), E-bonds, Purple bonds, and Coronabonds. Rather than focusing on their feasibility under EU law or national constitutional law, this article compares the proposals from an investor perspective against the backdrop of the following formal and functional legal characteristics that render assets ‘safe’: governing law, dispute settlement forum, investor protection, and investor representation in sovereign debt restructurings. Against this backdrop, targeted recommendations on critical design elements of safe assets, with the aim of reconciling the economic policy objectives with the pertinent legal constraints, are advanced.
{"title":"The Quest for a European Safe Asset—A Comparative Legal Analysis of Sovereign Bond-Backed Securities, E-Bonds, Purple Bonds, and Coronabonds","authors":"S. Grund","doi":"10.1093/jfr/fjaa009","DOIUrl":"https://doi.org/10.1093/jfr/fjaa009","url":null,"abstract":"Abstract The European sovereign debt crisis and, more recently, the COVID-19 pandemic have revealed the European Economic and Monetary Union’s fragility, which essentially emanates from the inherent tension between a single monetary policy and decentralized fiscal policies. To cushion economic and financial shocks and sever the sovereign-bank doom loop, different proposals to create a common public debt security have been put forward, although none of them has so far seen the light of day. Building on pertinent economic and finance scholarship, this article reviews four promising safe asset proposals from a legal perspective: Sovereign bond-backed securities (SBBS), E-bonds, Purple bonds, and Coronabonds. Rather than focusing on their feasibility under EU law or national constitutional law, this article compares the proposals from an investor perspective against the backdrop of the following formal and functional legal characteristics that render assets ‘safe’: governing law, dispute settlement forum, investor protection, and investor representation in sovereign debt restructurings. Against this backdrop, targeted recommendations on critical design elements of safe assets, with the aim of reconciling the economic policy objectives with the pertinent legal constraints, are advanced.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":"1 1","pages":""},"PeriodicalIF":2.6,"publicationDate":"2020-08-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/jfr/fjaa009","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42310074","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
During the global financial crisis, the growth of non-performing loans (NPLs) was partly a consequence of lack of regulatory oversight and poor bank internal processes. NPLs require intrusive monitoring tools and effective corporate governance is crucial in dealing with the deterioration of loans; however, perverse incentives to delay their recognition leave the process at risk. The EU legislation has adopted a set of regulatory measures to resolve and restructure non-performing exposures. While existing literature approaches NPLs from a regulatory and accounting perspective, this article takes a distinctive corporate governance view in order to conceptualize the NPL problem. The strategies through which senior management and shareholder incentives may undermine regulatory objectives on NPL disclosure are identified and an evidence-based approach to reconsidering and settling these problems is advanced.
{"title":"The Role of Bank Management in the EU Resolution Regime for NPLs","authors":"A. Kokkinis, A. Miglionico","doi":"10.1093/jfr/fjaa007","DOIUrl":"https://doi.org/10.1093/jfr/fjaa007","url":null,"abstract":"\u0000 During the global financial crisis, the growth of non-performing loans (NPLs) was partly a consequence of lack of regulatory oversight and poor bank internal processes. NPLs require intrusive monitoring tools and effective corporate governance is crucial in dealing with the deterioration of loans; however, perverse incentives to delay their recognition leave the process at risk. The EU legislation has adopted a set of regulatory measures to resolve and restructure non-performing exposures. While existing literature approaches NPLs from a regulatory and accounting perspective, this article takes a distinctive corporate governance view in order to conceptualize the NPL problem. The strategies through which senior management and shareholder incentives may undermine regulatory objectives on NPL disclosure are identified and an evidence-based approach to reconsidering and settling these problems is advanced.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":" ","pages":""},"PeriodicalIF":2.6,"publicationDate":"2020-08-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/jfr/fjaa007","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46295027","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This Essay examines the intersection between two key attributes of sovereign debt governance in the Euro Area. First, sovereigns mostly issue bonds governed by their own law. This “local law advantage” should make debt restructuring comparatively easy, for the sovereign can change the law to reduce its debt. The second attribute is the so-called Euro CAC, a contractbased restructuring mechanism mandated by the Treaty Establishing the European Stability Mechanism (ESM). Euro CACs let a bondholder supermajority approve a restructuring and bind dissenters. Since 2013, nearly all Euro Area sovereign debt has included the clause. Many believe the ESM Treaty requires governments to use the Euro CAC to restructure. But if so, the Treaty is a suicide pact, for the design of the Euro CAC is flawed. In a meaningful subset of cases, the clause will not provide adequate debt relief. This Essay makes two primary contributions. First, using an Italian restructuring as an example, it explains why the ESM Treaty does not, in fact, require the use of the Euro CAC. Second, it examines the legal constraints—the most pertinent of which derive from the European Convention on Human Rights—that do restrict the use of local law advantage.
{"title":"Restructuring Euro Area Sovereign Debt: Have the Options Narrowed?","authors":"W. M. C. Weidemaier","doi":"10.1093/jfr/fjaa003","DOIUrl":"https://doi.org/10.1093/jfr/fjaa003","url":null,"abstract":"This Essay examines the intersection between two key attributes of sovereign debt governance in the Euro Area. First, sovereigns mostly issue bonds governed by their own law. This “local law advantage” should make debt restructuring comparatively easy, for the sovereign can change the law to reduce its debt. The second attribute is the so-called Euro CAC, a contractbased restructuring mechanism mandated by the Treaty Establishing the European Stability Mechanism (ESM). Euro CACs let a bondholder supermajority approve a restructuring and bind dissenters. Since 2013, nearly all Euro Area sovereign debt has included the clause. Many believe the ESM Treaty requires governments to use the Euro CAC to restructure. But if so, the Treaty is a suicide pact, for the design of the Euro CAC is flawed. In a meaningful subset of cases, the clause will not provide adequate debt relief. This Essay makes two primary contributions. First, using an Italian restructuring as an example, it explains why the ESM Treaty does not, in fact, require the use of the Euro CAC. Second, it examines the legal constraints—the most pertinent of which derive from the European Convention on Human Rights—that do restrict the use of local law advantage.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":"6 1","pages":"125-147"},"PeriodicalIF":2.6,"publicationDate":"2020-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/jfr/fjaa003","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45343113","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Deposit Insurance Schemes (DIS) are mechanisms that reimburse depositors when banks default; however, they also serve important functions in bank resolution proceedings. Whereas it is evident that DIS should contribute to the rescue of banks’ critical financial functions in such resolution scenarios, the resulting questions of who should benefit from their payments and whether these payments result in any repayment obligations have so far remained unaddressed. In response to these questions, the article suggests distinguishing between scenarios in which banks’ critical financial functions are transferred to other institutions and scenarios in which the critical financial functions remain with recapitalized banks. The latter is the more complex situation because it leads to the survival of the bank in resolution and raises the question of hierarchies among several groups of contributors to recapitalizations. The article argues for a subordinate role for DIS in these hierarchies and suggests that DIS payments should lead to holdings of Tier 2 regulatory capital in recapitalized banks.
{"title":"The Role of Deposit Insurance in Bank Resolution","authors":"C. Hofmann","doi":"10.1093/jfr/fjaa002","DOIUrl":"https://doi.org/10.1093/jfr/fjaa002","url":null,"abstract":"\u0000 Deposit Insurance Schemes (DIS) are mechanisms that reimburse depositors when banks default; however, they also serve important functions in bank resolution proceedings. Whereas it is evident that DIS should contribute to the rescue of banks’ critical financial functions in such resolution scenarios, the resulting questions of who should benefit from their payments and whether these payments result in any repayment obligations have so far remained unaddressed. In response to these questions, the article suggests distinguishing between scenarios in which banks’ critical financial functions are transferred to other institutions and scenarios in which the critical financial functions remain with recapitalized banks. The latter is the more complex situation because it leads to the survival of the bank in resolution and raises the question of hierarchies among several groups of contributors to recapitalizations. The article argues for a subordinate role for DIS in these hierarchies and suggests that DIS payments should lead to holdings of Tier 2 regulatory capital in recapitalized banks.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":"6 1","pages":"148-158"},"PeriodicalIF":2.6,"publicationDate":"2020-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/jfr/fjaa002","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48256921","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Mitu Gulati,Ugo Panizza,W Mark C Weidemaier,Gracie Willingham
Abstract During the European sovereign debt crisis of 2011–13, some nations faced with rising borrowing costs adopted commitments to treat bondholders as priority claimants. That is, if there were a shortage of funds, bondholders would be paid first. In this article, we analyse the prevalence and variety of these types of commitments and ask whether they impact borrowing costs. We examine a reform that was widely touted at the height of the Euro sovereign debt crisis in 2011, in which Spain enshrined in its constitution a strong commitment to give absolute priority to public debt claimants. We find no evidence that this reform had any impact on Spanish sovereign bond yields. By contrast, our examination of the US Commonwealth of Puerto Rico suggests that constitutional priority promises can have an impact, at least where the borrower government is subject to supervening law and legal institutions.
{"title":"When Governments Promise to Prioritize Public Debt: Do Markets Care?","authors":"Mitu Gulati,Ugo Panizza,W Mark C Weidemaier,Gracie Willingham","doi":"10.1093/jfr/fjaa001","DOIUrl":"https://doi.org/10.1093/jfr/fjaa001","url":null,"abstract":"Abstract During the European sovereign debt crisis of 2011–13, some nations faced with rising borrowing costs adopted commitments to treat bondholders as priority claimants. That is, if there were a shortage of funds, bondholders would be paid first. In this article, we analyse the prevalence and variety of these types of commitments and ask whether they impact borrowing costs. We examine a reform that was widely touted at the height of the Euro sovereign debt crisis in 2011, in which Spain enshrined in its constitution a strong commitment to give absolute priority to public debt claimants. We find no evidence that this reform had any impact on Spanish sovereign bond yields. By contrast, our examination of the US Commonwealth of Puerto Rico suggests that constitutional priority promises can have an impact, at least where the borrower government is subject to supervening law and legal institutions.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":"225 ","pages":"41-74"},"PeriodicalIF":2.6,"publicationDate":"2020-03-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138505816","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
While financial crises can be triggered by several causes, runs on short-term liabilities are at the heart of all financial crises, with the recent 2007–09 financial crisis being no exception. Given the unpredictability of crisis triggers and the overwhelming predictability of short-term funding’s role in financial crises, legislative and regulatory responses to the recent financial crisis should focus on the consequences of relying on short-term funding in the financial system. However, in addressing the problem of such funding, it is important to recognize the social benefits afforded by short-term liabilities and not simply the costs. To this end, this paper provides a brief overview of short-term funding in the U.S. financial system, while also highlighting the trade-off between the costs and benefits of short-term liabilities. The paper proceeds with an analysis of various proposals aimed at addressing the short-term funding issue.
{"title":"Controlling the Long-Term Problem of Short-Term Funding","authors":"B. Johnson, H. Scott","doi":"10.1093/JFR/FJZ004","DOIUrl":"https://doi.org/10.1093/JFR/FJZ004","url":null,"abstract":"\u0000 While financial crises can be triggered by several causes, runs on short-term liabilities are at the heart of all financial crises, with the recent 2007–09 financial crisis being no exception. Given the unpredictability of crisis triggers and the overwhelming predictability of short-term funding’s role in financial crises, legislative and regulatory responses to the recent financial crisis should focus on the consequences of relying on short-term funding in the financial system. However, in addressing the problem of such funding, it is important to recognize the social benefits afforded by short-term liabilities and not simply the costs. To this end, this paper provides a brief overview of short-term funding in the U.S. financial system, while also highlighting the trade-off between the costs and benefits of short-term liabilities. The paper proceeds with an analysis of various proposals aimed at addressing the short-term funding issue.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":"1 1","pages":""},"PeriodicalIF":2.6,"publicationDate":"2020-01-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/JFR/FJZ004","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"61718928","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper assesses the recently enacted securities regulation, called the volume limit, by the Securities and Exchange Board of India. It reviews the literature on the negative consequences of large sale volumes on the stability of the stock market. The paper also examines the recent development of high-frequency trading in India. The two investigations unveil areas in which the regulation is effective and those in which it is inadequate. That is, the effectiveness of the regulation of the volume limit lies in reducing large price impacts due to genuine transactions. However, the inadequacy of this regulation is exposed when manipulation tactics arise regarding order display, such as spoofing by certain high-frequency traders.
{"title":"Volume Limit: An Effective Response to the India Flash Crash?","authors":"Viktoria Dalko, Michael H. Wang","doi":"10.1093/JFR/FJZ006","DOIUrl":"https://doi.org/10.1093/JFR/FJZ006","url":null,"abstract":"\u0000 This paper assesses the recently enacted securities regulation, called the volume limit, by the Securities and Exchange Board of India. It reviews the literature on the negative consequences of large sale volumes on the stability of the stock market. The paper also examines the recent development of high-frequency trading in India. The two investigations unveil areas in which the regulation is effective and those in which it is inadequate. That is, the effectiveness of the regulation of the volume limit lies in reducing large price impacts due to genuine transactions. However, the inadequacy of this regulation is exposed when manipulation tactics arise regarding order display, such as spoofing by certain high-frequency traders.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":"1 1","pages":""},"PeriodicalIF":2.6,"publicationDate":"2019-12-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/JFR/FJZ006","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41888889","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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