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Recent events indicate the need for a re-adjustment of focus in the public policy discussion on the question of public versus non-public market models, the treatment of different asset classes and their role in the capital-formation process, FESE states questioning whether alternative, private markets cope as well in bear markets as regulated, public markets.
During the crisis,
Regulated markets inspire the confidence of investors in securities markets, FESE says. The crisis has challenged the basic assumption that all market structures are equally valid and pose the same level of risks for the system. On the contrary, during the crisis, certain products traded on certain market structures were revealed to be riskier, to be more difficult to assess, to have inherently greater conflicts of interest, and to be more prone to illiquidity.
FESE complains that the regulatory framework implemented over the last few years may have created too big a gap between the regulated, public market space and the unregulated, private market space, generating distorted incentives for issuers to prefer private markets over public ones.
The challenge for policymakers is to assess whether the legislative framework creates a sufficiently level playing field between market models and the attractiveness of the asset classes that they trade.
Non-organised, private markets should be a central part of any follow-up to the reports prepared by the FSF, ECOFIN, and others. Further work should be carried out to identify the needed improvements towards the orderly functioning of these markets.