Regulation of Financial Market

Regulation of Financial Market

Financial market regulation can be defined as a framework of rules, laws and principles which guide the operation of the Capital market as well as the institutions and individuals that conduct business with them. 

Government usually have certain stated financial and economic objectives and to ensure that they are achieved, proper regulatory framework has to be laid in place to prevent institutions and prevent institutions, individuals and organisation from engaging in acts which are capable of hampering the realizations of the objectives.

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Major regulatory reforms have been enacted in recent years to stabilize and strengthen the global financial system.In the US, the Dodd–Frank Wall Street Reform and Consumer Protection Act (DFA) served as the basis for market infrastructure reforms. Within the European Union, the European Markets and Infrastructure Regulation (EMIR) was adopted to regulate the over the counter (OTC) derivatives market, and the Markets in Financial Instruments Directive (MiFID) was introduced to prevent market abuse and to create a governance structure for a single, pan-European market for investment services.

European and international regulations such as these are evaluated in Switzerland and incorporated into national law as part of the ordinary legislative process. In addition, Switzerland engages in a dialogue with G20 states and participates in meetings and working groups aimed at defining a coordinated approach to financial regulation.

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A financial regulator is an institution that supervises and controls a financial system. Their objective is to guarantee fair and efficient markets and financial stability.

The following are the reasons for the regulation of capital market:

To ensure financial stability which is paramount to economic stability, Regulatory is necessary to prevent or withstand unintended fluctuations and shocks in the economy, which may result from operations of these markets and this create destabilizing effects on the economy.

An overriding factor in the regulation of financial market is the significant importance of these markets to the economic growth and development, and indeed political stability of any country.

the third basis for regulation, closely related to financial stability is to protect investors/depositors to strengthen their confidence in the market. Investors awareness that they are well protected could definitely stimulate confidence and consequently increase participation in the market.

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Regulation is necessary to promote efficient financial system capable of facing the challenges of facing the challenges of innovation by adjusting promptly and easily to changing economic and financial circumstances. As such, the system must encourage competition and guard jealously all measures that facilitates the sustenance of confidence in the market.

There are two main types of regulations, they are:
  • Statutory regulation
  • Non-Statutory regulation
These are laws created by the legislative arm of government. In Nigeria, there are four basic statutory financial market regulatory agencies. They include
  1. Federal Ministry of Finance
  2. The central bank of Nigeria
  3. The security and exchange commission
  4. Nigeria deposit Insurance corporation (NDIC)
The security and exchange commission (SEC) falls under the direct supervision of the federal ministry, while the The central bank of Nigeria reports directly to the presidency.

The Nigeria's stock exchange regulates their members for the purpose of meeting the aspirations of the financial markets in Nigeria. They draw up rules and regulations that govern the conduct of the market that are under their supervision and operations. The rules and regulations are to be cleared with the regulatory apex- institutions for desired effects.
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