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Why Securities Regulation Requires Upgrade to Match Disruptive Technology

Professor Chris Brummer argues that disruptive innovation has affected financial markets the most, despite scholars and policymakers not having a uniform grasp of the observable fact, much less a consistent set of regulatory solutions. The various channels by means of which innovation flips market practices over are part of the problem. Making matters worse, there’s a popular understanding that stable gatekeepers, for example clearing systems and broker-dealers form the backdrop for the operation of securities regulation. As such, effective regulation is required to cope with the realities the twenty-first century technology presents capital markets.

Now, securities regulation is under intense pressure, thanks to the unparalleled extent of technological innovations that keep upending the very basic market frameworks behind securities markets animation. Advanced computer resources and information technology has helped push to the sidelines important financial go-betweens, including investment banks and exchanges, paving the way for new market participants. When you also consider the negative impact of sporadic improvements to the capital raising process, you understand why private players and places with increased sophistication are playing host and intermediary to capital market liquidity, reducing the significance of public offerings.

It has become important to closely scrutinize such developments, against the backdrop of the global financial crisis, and as the rate of innovation and disruption in markets gain tremendous speed. Nowadays, private entities are outperforming IPOs in generating capital as more resources are built to process requirement. Concerning high-quality stocks, they’re easily being traded via exchanges as much as through the firms themselves. These interferences consistently gain prominence with technological development, and together, they confound policymakers who are unable to react accordingly as they, too, try to find their voice in the latest financial markets ecology . In response to these effects of technology, as Chris Brummer argues, securities authorities have chosen either not to interfere or adopted near “comical concessions,” for example the realization of Twitter and approval of tweets by the agency as a way to reach out to investors.

Developing a hypothetical groundwork for addressing disruptive innovation demands perceptions with the versatility to address and study diverse and changing market conditions in light of soaring regulatory mandates and policy targets. In turn, it becomes vital to abandon customary conjecture regarding the way to operationalize regulatory framework.

To optimize the influence of securities regulation, improvements are required to match a computerized (and typically digital) securities market microclimate undergoing change at rapid rates. The new securities regulation must account for the automated financial services, which have redefined market liquidity and changed its mode of operation. It’s also important to address private markets that are building an ever-growing spectrum of options for security issuances as well as trading.

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