Policy & regulation

Financial Markets

Deregulation of equity, bonds and derivatives markets has undermined the primary objective of financial markets: to channel savings and capital to the most promising economic developments, while managing risk adequately.

We now face an urgent need to re-direct capital from short-term, speculative use to long-term investment in a sustainable economy. It is only natural for market participants to develop their most profitable activities, regardless of the bigger picture. Markets need institutional and regulatory incentives to ensure that they deliver the social and economic benefits of cost-effective resource allocation and financial stability.

Real investors share the fate of issuers: they focus on fundamental value and stewardship, and they win or lose with the success of the underlying project. Speculators focus on price movements – in any direction – and the behaviour of other speculators. There is nothing bad about this as an activity, but everything in proportion. A market dominated by speculation quickly becomes divorced from economic activity and burdens society with a poor allocation of resources.

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