Narrow Results

With the fragmentation of electronic markets, exchanges are now competing in order to attract trading activity on their platform. Consequently, they developed several regulatory tools to control liquidity provision/consumption on their liquidity pool. In this paper, we study the problem of an exchange using incentives in order to increase market liquidity. We model the limit order book as the solution of a stochastic partial differential equation (SPDE) as in [R. Cont and M. S. Müller, 2021, A stochastic partial differential equation model for limit order book dynamics, SIAM Journal on Financial Mathematics 12(2), 744–787]. The incentives proposed to the market participants are functions of the time and the distance of their limit order to the mid-price. We formulate the control problem of the exchange who wishes to modify the shape of the order book by increasing the volume at specific limits. Due to the particular nature of the SPDE control problem, we are able to characterize the solution with a classic Feynman–Kac representation theorem. Moreover, when studying the asymptotic behavior of the solution, a specific penalty function enables the exchange to obtain closed-form incentives at each limit of the order book. We study numerically the form of the incentives and their impact on the shape of the order book, and analyze the sensitivity of the incentives to the market parameters.

Korea's financial crisis of 1997–1998 was brought about by the unsustainable combination of large capital inflows and an inefficient financial system. The Bank of Korea contributed to the crisis primarily through its failures as the regulator of the financial system rather than as the conductor of monetary policy. Our paper explores the role of the two major monetary policy reforms Korea has implemented in response to the crisis — the establishment of a new financial regulator and the adoption of inflation targeting — in Korea's efforts to build a stronger and more efficient financial system, thereby preventing crises in the future.

The main purpose of this paper is to examine the roles of economic and political factors in explaining the foreign ownership share of a country's banking assets. In particular, our study includes new market-openness and regulation variables. The General Agreement on Trade in Services is an important element that affects financial sector regulation of every current and potential World Trade Organization member country, and opening financial markets is an important goal of this agreement. We find that the market openness index developed by Barth et al. (2010) bears a statistically significant relation to foreign ownership, as expected, and that regulation, rule of law, and profit opportunities are also important determinants of foreign ownership of bank assets.

This paper examines the career of economist Prof. George Kaufman, whose work combined and benefited both academia and the financial industry, helping both better understand the problems of financial stability, financial regulation, and financial sector competition. In doing so, he brought together great minds from both fields and helped many economists progress in their careers. Prof. Kaufman promulgated the idea that government policy needed to foster two simple goals: proper incentives and competitive markets. He believed the combination would produce a richer society and more stable economy. He created the U.S. Federal Reserve’s Conference on Bank Structure and Competition, the leading conference in the world addressing financial regulatory issues for 50 years. Prof. Kaufman also founded the U.S. Shadow Financial Regulatory Committee in 1986 in the midst of the thrift crisis, helping to solve that crisis and inspiring the creation of other shadow financial regulatory committees around the world. Through his activities, he left behind an outstanding legacy of leadership, research, and opinion in various economic fields, providing platforms upon which many scholars will build in the coming decades.

This paper presents a stochastic dynamic model that can be used to describe situations in asset management where hedge funds may inadvertently find themselves running a Ponzi financing scheme. Greater transparency is necessary to reduce such opportunities, such as audited financials, and disclosure of valuation methodologies. In that respect, new regulatory frameworks enacted by the Obama administration and the European Union are welcome developments.

This paper examines the impact of countercyclical capital buffers (CCyBs) on financial stability and contributes to the discussion of CCyBs in an agent-based framework. The main focus of this work lies upon the question whether the implementation of CCyBs according to the Basel III framework improves financial stability unconditionally, or at the expense of unintended side effects. For this purpose, we extend the agent-based model of [Riccetti, L., Russo, A. and Gallegati, M., Firm–bank credit network, business cycle and macroprudential policy, J. Econ. Interact. Coord. (2021)] to investigate the effect of credit-to-GDP gap-based CCyBs in general as well as the effects of varying the smoothing parameter lambda $\lambda$ of the Hodrick–Prescott (HP) filter within the method of calculating CCyBs. To the best of our knowledge, this study is the first one that investigates systematically how the method of calculating credit-to-GDP gap-based CCyBs may affect macrofinancial dynamics and stability in such an agent-based framework.

The research problem

We observed the impact of European, international, and national mandatory financial and non-financial regulations on the corporate environmental disclosure of listed companies in the Euronext 100 between 2002 and 2017.

Motivation

Our study was motivated by the perfect European context created by the implementation of the IASs/IFRSs, mandatory since 2005, to enhance financial statement comparability across European companies, and by the national transposition of the 2014/95/EU Non-Financial Reporting Directive requiring European listed and large corporations to disclose information relative to their environmental footprint starting January 1, 2017.

The test hypotheses

H₁: Financial legislation through the IASs/IFRSs implementation improves the level of environmental disclosure in Europe.

H₂: Non-financial legislation through the Non-Financial Reporting Directive improves the level of environmental disclosure in Europe.

Target population

The paper is useful for: (1) researchers wanting to observe the evolution of environmental disclosure in Europe and the main factors influencing it; (2) CEOs and managers who seek to improve their own financial and non-financial reporting; (3) policymakers to know the impact of national and international regulations on environmental disclosure and practices; and (4) users of annual financial statements.

Adopted methodology

We hand collected data using the financial environmental grid proposed by Barbu et al. [(2014a). Mandatory environmental disclosures by companies complying with IAS/IFRS: The case of France, Germany and UK. The International Journal of Accounting, 49(2), 231–247] for both descriptive and monetary items from the annual financial statements of all French, Dutch, Belgian, and Portuguese companies included in the Euronext 100 index. We used descriptive statistics and regression models to analyze this data.

Analyses

The results are interpreted through the lenses of neo-institutional theory, legitimacy theory, and homogeneity theory.

Findings

The results show that mandatory financial and non-financial regulations improved the level of environmental disclosure of European companies from different countries over time, but the level of reporting was still very low. The force of coercive isomorphism is not strong enough to cause companies to be more environmentally responsible and to report more, but normative and mimetic isomorphism, and gaining legitimacy, could have a positive influence on the environmental reporting practices of European companies. Taken as a whole, the policy of “one size fits all” is not appropriate for environmental regulation in Europe and needs to be adapted because each country has a specific culture, tradition, and education regarding environmental values. These values should be improved to promote a better environmental conscience, better individual responsibility, and a tangible feeling of truth and transparency in disclosures, with all these generating real environmental practices and reliable reporting without any trace of greenwashing.

There are no models for financial systems of systems (SoS). Without a model for a financial SoS, systemic risk cannot be uniformly interpreted by practitioners, law makers and economists. The recent financial turmoil and the interdependence of components have exasperated the need for modeling financial systems as a SoS. The current national dialog about the crisis in the financial system has been dominated by the traditional forces that have shaped the economic and financial paradigm. However, it should come as self-evident that the system's perspective on a system such as the financial system should add value and credibility to the analysis, synthesis, and policy changes pertaining to this vital system. The financial system has one foot in social sciences and the other in quantitative sciences. A reductionist approach to understanding the financial system produces locally valid approximations by ignoring systemic complexity. However, it is the systemic complexity that causes the mischaracterization of risk which, left undetected, accumulates in the SoS and creates a systemic risk. This paper provides a model for financial SoS and an associated systemic risk measure and connects the field of systemic reliability to systemic risk.

We propose a framework for regulating stablecoins as a new asset class. We define stablecoins as those digital currencies which are centrally managed and backed by other assets. We compare stablecoins and ETFs under the principle that similar risks should be treated in a similar fashion. Hence, we argue that locking stablecoins into an ETF-like structure, along with restrictions on the basket composition, would significantly reduce the regulatory concerns. Stablecoin providers would be functionally similar to ETF sponsors, and stablecoins would be a new vehicle for traditional fiat currencies. Finally, we address common macroeconomic concerns in light of our proposed framework.

This study investigates whether cryptocurrencies can be considered a viable addition to pension funds. Using the regulatory setting of Switzerland, it is assessed whether adding crypto-components to a standard pension fund portfolio has positive effects on the fund’s risk and return figures. The empirical data supports the notion that cryptocurrency components may well increase the yield of a pension fund portfolio, yet this enhancement of yield comes at slightly higher risk levels. This increase in risk can be mitigated by adding an actively managed crypto-component to the portfolio rather than a passive investment product. The paper contributes to the ongoing debate in the area of financial innovations on the purpose and solidity of cryptocurrencies as an asset class.

The UK authorities have consulted on the issue of the ‘digital pound’, a retail central bank digital currency (CBDC) for general use in payments by UK households and firms. The stated ambition is a new form of central bank money, used alongside Bank of England notes and commercial bank deposits. There are inherent contradictions in these plans. Promoting adoption requires that users should be able to freely and conveniently receive and send digital pound payments and that account services can compete effectively with commercial bank transaction accounts. Containing the risks of retail CBDC to financial stability requires doing the opposite: limiting the use of the digital pound and handicapping account providers in their competition with commercial banks. To resolve this contradiction, ambition should be scaled back, focusing on specific and narrow use cases that cannot be easily addressed using commercial bank transaction accounts.

The rapid development of FinTech and BigTech is challenging existing regulatory approaches. However, the existing regulatory approaches seem to have reached their limits. The traditional micro perspective cannot adequately capture the specific characteristics of FinTech. With the rise of platformication and the emergence of ecosystems, smart regulation is not enough. In the FinTech era, the financial system is getting more extensive and more interconnected. The chapter presents a macro-structural regulatory approach. The structural developments require an adaptive, proactive, and comprehensive regulatory perspective. As finance becomes more granular and algorithm-driven, a paradigm shift in financial regulation is required. The response must be structural and systemic. Law is given precedence over technology.

There have been various concerns about the regulation of cryptocurrencies in this era of modern technology. The quest for their regulation has been becoming increasingly topical among various stakeholders because of the possibility of using cryptocurrencies for money laundering. The Central Bank of Nigeria had recently barred banks and financial institutions from dealing in or facilitating transactions in cryptocurrencies, such as bitcoin, warning that banks that fail to act will face severe sanctions. Similarly, the Securities and Exchange Commission has also suspended its plans to regulate cryptocurrency transactions in Nigeria. Both regulators have argued that impending risks are associated with dealing in unregulated digital currencies and not legal tender. This chapter argues that besides the risk of such transactions for an ordinary individual who transacts in cryptocurrencies, it can also be a channel for corrupt individuals to launder stolen monies.

We consider the problem of designing a derivatives exchange aiming at addressing clients’ needs in terms of listed options and providing suitable liquidity. We proceed into two steps: First, we use a quantization method to select the options that should be displayed by the exchange. Then, using a principal–agent approach, we design a make-take fees contract between the exchange and the market maker. The role of this contract is to provide incentives to the market maker so that he offers small spreads for the whole range of listed options, hence attracting transactions and meeting the commercial requirements of the exchange.