How Disruptive Innovation Necessitates Changes to Securities Regulation
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. One of the obstacles pertains to the diverse conduits through which new technology upsets market practices. Another problem is the common misconception that clearing procedures, broker-dealers, and other “watchmen” provide a solid foundation upon which securities regulation operates. Therefore, in twenty-first century securities markets, regulations require upgrading to be able to match the impact of invention.
In this century, securities regulation faces more challenges than ever before, with new technology overwhelmingly altering the little market fundamentals that manipulate capital markets. 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. Better equipped private entities and sites are now providing brokerage and facilitation for capital market liquidity, with public offerings playing an insignificant role, which is easy to explain against the backdrop of inconsistent reforms to capital raising regulation.
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. Today, the money raised in private venues surpasses public offerings courtesy of the fresh tools developed to match demand. 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. Chris Brummer asserts that securities policymakers have responded to the impacts of innovation by either adopting a “hands-off” approach or agreeing to “comical” compromises, for instance the use of Twitter and acceptance of tweets as a means with which to communicate with investors.
To create a theoretical framework for handling disruptive technology calls for flexibility of insights to enable the accommodation and scrutiny of distinct and dynamic market environments against growing sets of regulatory responsibilities and policy objectives. As such, there’s the critical need to avoid traditional suppositions about how regulatory policy gets to function.
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.