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Subject 9. Market Regulation PDF Download
Regulators generally seek to promote fair and orderly markets in which traders can trade at prices that accurately reflect fundamental values without incurring excessive transaction costs. Governmental agencies and self-regulating organizations of practitioners provide regulatory services that attempt to make markets safer and more efficient.

The objectives of market regulation are to:

  • control fraud. Customers may not know how to protect themselves, since the financial markets are quite complex.
  • control agency problems. Financial agents often have different goals from their customers. How to effectively measure the services they provide?
  • promote fairness. For example, insider trading is prohibited in most markets as it offends basic notions of fairness.
  • set mutually beneficial standards. Common financial standards allow investors to compare companies easily.
  • prevent undercapitalized financial firms from exploiting their investors by making excessive risky investments. Regulators generally require that financial firms maintain minimum levels of capital to reduce the probability that these firms will fail and hurt their customers.
  • ensure that long-term liabilities are funded. Insurance companies and pension funds need to maintain adequate reserves to ensure they can pay their liabilities when due.

Learning Outcome Statements

describe objectives of market regulation.

CFA® 2023 Level I Curriculum, Volume 4, Module 36

User Contributed Comments 3

User Comment
jonan203 basically, the exact opposite of what large banks are doing today.
gill15 Oh snap. I didnt even read this reading but I'm gonna say it's complete.

Think I can infer what it's about from the last comment.
khalifa92 read second comment
read first comment
move on
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I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz

Tamara Schultz

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