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Economic Regulation and Its ReformWhat Have We Learned?$
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Nancy L. Rose

Print publication date: 2014

Print ISBN-13: 9780226138022

Published to Chicago Scholarship Online: January 2015

DOI: 10.7208/chicago/9780226138169.001.0001

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Retail Securities Regulation in the Aftermath of the Bubble

Retail Securities Regulation in the Aftermath of the Bubble

Chapter:
(p.545) 9 Retail Securities Regulation in the Aftermath of the Bubble
Source:
Economic Regulation and Its Reform
Author(s):

Nancy L. Rose

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226138169.003.0010

This chapter discusses regulation of the retail securities and investments industry, written for and from the perspective of an industrial organization economist. It describes the economic size and scope of this industry, and reviews the sources of market failure that create an economic rationale for regulation, focusing on information imperfections that cause agency conflicts, and potential limits on investor processing, monitoring and oversight. After reviewing the laws and regulatory institutions that comprise the core of modern securities regulation, the chapter examines four regulatory issues with parallels in other industries. First is the question of price regulation versus disclosure of investment management fees, an ongoing debate particularly for the mutual fund sector. Next is the role of antitrust policy and agency regulation in disciplining firm behaviour, especially when regulatory capture may be a concern. Third is the interplay between firm boundaries and conflicts of interest, which were scrutinized in the creation and repeal of the Glass-Steagall Act. Fourth is the effects of competition when quality is not observed, and the potential role for minimum quality standards and regulatory oversight in this setting. The conclusion highlights the recurring role that the market and regulatory failures it describes play in financial market failures.

Keywords:   Retail securities and investments, Market failure, Securities regulation, Sarbanes-Oxley, Economic regulation, Asymmetric information, Conflicts of interest, Antitrust policy, Deregulation

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