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Home Finance What is the role of regulators in the financial markets?

What is the role of regulators in the financial markets?

by Ragini Salampure
What is the role of regulators in the financial markets?

Financial markets are exposed to numerous threats. Hence, it is important to take appropriate measures to regulate them accordingly. Otherwise, there is a possibility for people to cause numerous fraudulent activities. Such fraudulent activities can make people lose the hope that they have in the financial market. Hence, it is important for the regulators to work hard and make sure that people don’t lose their hope in the financial markets. They will be able to deliver protection to the people against fraud and risks that are associated with the market. On top of that, the regulators are also capable of allowing the capitalism to operate in a highly efficient manner as well. 

The important role played by the financial regulators

The International Capital Market Association told us that People who regulate the financial markets are known as financial regulators. The main responsibility of the financial regulators is to go ahead and ensure the customers from encountering financial fraud. They include the fraudulent activities that can take place with credit cards, unethical mortgages, and other similar financial products. 

It is important to ensure effective government overnight to make sure that the companies are protected from excessive risks. This is why it is essential to have right regulations at all times. We can also see how numerous laws have been implemented to ensure this. The financial regulators are also responsible for implementing the laws and ensuring that they are in place. Based on that, it is possible to make sure that we get are provided with favorable conditions in the financial market to proceed with the investments. 

Proper regulations that exist in the financial markets are capable of addressing some of the biggest social concerns as well. Without addressing such social concerns, the businesses will have second thoughts in mind before investing or going forward with transactions in the financial markets. That’s because the businesses assume that there is a risk that they have to deal with. 

An example on how regulators work to prevent fraudulent activities – Insider trading

Insider training is something that is happening around the world. However, it is not something that is supposed to happen. That’s because insider trading is illegal, and it is associated with numerous consequences. Due to the same reason, it is important to have a clear understanding on insider trading, so that you will be able to make sure that you don’t commit it. The financial regulators are capable of identifying insider trading activities, and taking appropriate measures to make sure that such insider trading activities are not in a position to create a negative impact on the people who work on financial securities. 

Is there a difference between insider trading and insider information? 

Yes, there is a difference between insider trading and insider information. Insider information is referring to the knowledge of material that is associated with a publicly traded company. If it has provided unfair advantage to the investor or trader, information related to the transaction will be considered as insider information. Getting involved in the act is called as insider trading. 

As insider will be a person who has access to non-public, but valuable information with related to a company. The people who are employed for companies are usually working as insiders. They will have a clear understanding about the information with related to the stocks and insecurities of the company. They will try to take advantage based on the information they have.

When an insider uses all the information to purchase stocks or do any other similar activity, insider trading would happen. This doesn’t mean that all the trading activities that they do will be illegal. There is a possibility for the insiders to go ahead with their trading activities legally. You need to understand what is considered as legal and what is considered as illegal. Then you will be able to refrain from all the negative effects that could come on your way. If you are going for any of the transactions as an insider, you will need to ensure that you are doing it while remaining registered along with the SEC.

We can see numerous instances on where legal insider training is happening. For example, a CEO will be able to buy back the shares of a company. Or else, an employee will be able to purchase the company information as needed. However, nothing should take place illegally. For example, non-public material related information should be used illegally to make profits. The SEC is monitoring all the trading activities that are taking place. Hence, all the people who engage with insider trading will be caught. You just need to make sure that you are not contributing towards it in any given way. 

When do the regulations are facing a threat? 

The regulations would be facing problems when they are inhibiting the free market. That’s because this market is the most efficient method available out there as of now in order to go ahead and set prices. It will also be able to deliver appropriate support to improve the corporate efficiency. Along with that, it is possible to reduce the overall cost to the consumers. Back in the 1970s, there were wage price regulations, which created distortion within the market. This is one of the biggest factors that created a negative impact on stagflation. However, we will be able to see how the financial regulators are capable of ensuring that such consequences are never happening, and they are not in a position to create a negative impact on the people who work for the market.

It is true that financial regulations are in a position to dampen the overall economic growth. However, the financial regulators are trying their best to overcome the negative effects that can take place because of this. Based on that, it is possible to use the appropriate rules to ensure the overall stability of the financial market. 

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