Political economy of finance: securities markets regulation

Thesis

What explains ‘regulatory stringency’ in financial markets? I define regulatory stringency as the change in the extent and scope of a regulatory burden imposed on regulated firms (or regulatees).

The level of competition, conceptualised as heterogeneity of regulatees’ regulatory preferences, is central to explaining the extent of rule stringency, either rule weakening or rule strengthening. If regulatees compete due to heterogeneous preferences (i.e. disagree on a specific rule proposed by the regulator), then regulators hold more bargaining power to promulgate stronger, more burdensome regulation. Alternatively, when regulatees have homogeneous preferences, their power with respect to the regulator is increased and rules are consequently weakened. This central theoretical claim is developed through a more nuanced theoretical account, which is inspired by six streams of literature: international political economy of finance, organisational reputation, business conflict, interest groups, capture theory (economics of regulations), and strategic provision of information.

In order to systematically examine the extent of regulatees’ influence on rulemaking in securities markets, the thesis engages in two complementary empirical endeavours: first, the large N study, which is based on a new data set on securities market regulation that spans 13 years of rulemaking (2004–2016) with 200 rules and 7,873 individual submissions to the regulator – the European Securities and Markets Authority (ESMA); second, the case studies on the Markets in Financial Instruments Directive (MiFID II), which focus on the research inducement regime (‘research unbundling’), transparency thresholds in fixed income and derivatives, and dark trading.

Authors: Jerić, J

• DOI: 10.5287/ora-x5aaq9jjd
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: University of Oxford
• Language: English
• Keywords: financial regulation; political economy
• Subjects: Finance; Economics; World politics