Research Paper Number

15/2010

Aviv Pichhadze

Document Type

Article

Publication Date

2010

Keywords

capital markets; corporate governance; institutional investors; ownership; Regulation

Abstract

Drawing on insights from social science methodology and systems analysis, the article adopts a holistic view of the equity markets and highlights how market forces have been driving the evolution in the equity markets towards a first-best corporate governance model. This governance model is the Market Oriented Blockholder Model (MOBM). The analysis shows that the process is not yet complete given that the legal framework has not yet updated its foundation to fully accommodate the MOBM. Such a failure by policy makers creates an opportunity for the introduction, into the financial system, of regulatory systemic risk – long-term imbalances introduced into the regulatory framework by regulators via regulatory initiatives premised on a distorted understanding of market realities. This is illustrated using the example of the treatment of institutional investors by market participants and regulators.

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