While financial markets have endured the biggest impact of disruptive innovation, there’s still the absence of a rational explanation of the issue within both scholarly and policymaking circles, hence lack of effective regulations, says Professor Chris Brummer. Partly, the challenge emanates from the numerous ways by which invention upends trade activities. Another problem is the common misconception that clearing procedures, broker-dealers, and other “watchmen” provide a solid foundation upon which securities regulation operates. 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. Improvements in computer processing as well as information technology has seen major financial intermediaries, such as exchanges and investment banks relegated to the side with new market players taking charge. If the undesired outcome caused by intermittent reorganization of capital raising procedures is also factored in, it’s clear how private stakeholders and venues boasting better technology are now hosting and mediating capital market liquidity, eroding the importance 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. Even the steadiest and most profitable of securities are easily exchanged via traditional venues as much as on the firms. These disturbances continue to soar with technological innovation, and they combine to render regulators clueless regarding what must be done as they, also, try to assert their authority in the new capital markets environment. 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. As such, there’s the critical need to avoid traditional suppositions about how regulatory policy gets to function.
Any highly effective securities regulation demands upgrades that accommodate the role of information technology (and virtual environments) in capital markets micro-ecosystems subject to extremely rapid change. The advanced securities policy should accommodate the automated financial markets that have given a new meaning and function to market liquidity. It’s also important to address private markets that are building an ever-growing spectrum of options for security issuances as well as trading.