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This chapter discusses Japanese securities law. Topics covered include the development of securities law in Japan; enactment of the Financial Instruments and Exchange Law (FIEL); goal, scope, and concepts of the FIEL; concepts of securities and financial instruments; collective investment schemes; financial instruments business and firms; tender offer; and market supervision.

This chapter addresses the issue of how trading systems should be classified and governed. The chapter is composed of three sections. In the first, the criteria that the Securities and Exchange Commission (SEC) has historically used to identify whether a trading system should be classified as an exchange or a broker are evaluated. In the second, various flaws with the exchange/broker distinction are identified and discussed. In the third section, various alternative approaches to regulating exchanges and trading systems, including the newest suggestions by the SEC, are analyzed. A joint approach of separating the regulation of market structure from the regulation of other areas of public concern, and of employing competition policy to regulate market structure, is recommended as the best way of classifying and regulating trading systems.

This chapter presents a series of case studies illustrating how specific exchanges have actually been governed in particular contexts. The following institutions and contexts are described in turn: the proposed iX merger between Deutsche Börse and the London Stock Exchange (LSE), and its subsequent collapse, in 2000; the “Penny Stocks Incident” at Hong Kong Exchanges and Clearing Ltd. in 2002; the attempted takeover of the LSE by NASDAQ over the period 2006–8; Euronext's purchase of London International Financial Futures and Options Exchange in 2001; the resignation of the chairman/CEO of the New York Stock Exchange in 2003; and the purchase by the “Murakami Fund” of a major block of shares in the Osaka Securities Exchange in 2005. A few brief general lessons from each case study are also identified.

This chapter deals with relations with the outside world and their impact. It shows how the International Organization of Securities Commissions (IOSCO) occupied the centre stage in the International Accounting Standards Committee's (IASC) aims and deliberations between 1987 and 2000. A first phase in the relationship between the two organizations ended in a difficult period during the second half of 1994. The relationship was then set on a new footing in 1995, and a more promising phase began. The board's standards were registering very little impact in the developed, industrialized countries. The leaders felt it was essential that the board establish a closer relationship with securities market regulators, national standard setters, and major preparers. They also came to believe, with a nudge from the US Securities and Exchange Commission (SEC), that real progress towards international harmonization would not occur until most of the optional treatments in the board's standards were removed.

This chapter reviews the rules governing financial disclosure by corporations in the United States. It begins with an overview of state regulation (which is still in force) and then turns to federal regulation, which began in 1933. The public securities markets are described and the Securities and Exchange Commission’s (SEC) rules governing financial disclosure of public corporations are outlined. Standard setting by the American Institute of Certified Public Accountants (AICPA), the Financial Accounting Standards Board (FASB), and the Public Company Accounting Oversight Board (PCAOB), and investor protection and corporate governance are considered next. Current issues such as the scope of auditing practices, auditor independence, audit failures, principles- versus rules-based accounting standards, and convergence of U.S. and international standards are discussed.

This chapter discusses the main factors that affect the governance of exchanges in American federal law and regulation. The chapter is composed of two sections. The first analyzes federal laws and regulations that affect the governance of securities exchanges. A similar analysis for futures exchanges is presented in the second section.

Most financial markets are highly competitive – there are hundreds or thousands of active traders and at any time and place prices vary only within a narrow range – the bid‐ask price spread. Regulation is usually associated with monopoly; it might seem, therefore, that regulation of financial markets is unnecessary. After an introductory section on the ethics of finance and the economic function of financial markets, the second section of this chapter explains why that conclusion is unwarranted. The third section discusses the various levels of US federal regulation (the exchanges, the regulatory commissions and the courts); the fourth looks at federal regulation of trading in corporate shares and bonds by the Securities and Exchange Commission; the fifth shows how futures markets are federally regulated in the US; and the sixth is a case study of an important regulatory failure – the silver manipulation of 1979–80 in the USA. The final section looks at regulation in the UK.

Much of the foundation of mutual funds' success was laid early on, in the 1920s and 1930s–mutual funds' use, beginning with the first fund in 1924, of redeemable shares and a simple capital structure that did not result in leverage; establishment of a federal agency, the Securities and Exchange Commission, devoted exclusively to administration of the federal securities laws; and enactment of the Revenue Act of 1936, which provided favorable conduit tax treatment for mutual funds and their shareholders.

When buying stocks, bonds, mutual funds, and other securities, individuals seeking advice typically turn to broker-dealers or investment advisers before they invest. In many cases, brokers and advisers perform similar functions but they are regulated differently under laws enacted during the Great Depression. Regulators are considering ways to harmonize the regulation of these professionals, but harmonization is fraught with difficulties. This chapter discusses the debate over harmonization and explains how the U.S. Securities and Exchange Commission, the courts, and Congress have responded. The chapter concludes with insights into considerations that will likely determine how the harmonization debate will be resolved.

Many developments in recent years have contributed to mutual funds' success, including generally rising securities markets, a growing middle class, the creation of new types of funds and new ways to distribute fund shares, and laws designed to encourage Americans to save for retirement. However, the foundation of mutual funds' success was laid early, in the 1920s and 1930s. Beginning with the creation of the first fund in 1924, mutual funds used redeemable shares and a simple capital structure that did not result in leverage. In 1934, a federal agency, the U.S. Securities and Exchange Commission, was established that was devoted exclusively to administration of the federal securities laws. In 1936, a law was enacted providing favorable tax treatment for funds and their shareholders. This chapter traces the history of mutual funds, which began in Europe.

This chapter is about the publicly held companies in the USA. Ever since independence the states have fought to limit the role of the Federal government. Wherever a company operates it may choose any state in which to incorporate, and the states compete for its business. The recent reforms led by the Sarbanes–Oxley Act (SOX) apply directly only to them and their audit firms. The chief, but not all-powerful, machine for exerting Federal pressure is the Securities and Exchange Commission (SEC) that regulates many of the processes affecting companies, shareholders, and the market, and the traffic between them. The New York Stock Exchange is the dominant institution in the stock market. Meanwhile, control of a US company can pass by replacing enough of the board through the proxy process, but the usual route is by acquiring a majority of the votes through a tender offer.

This chapter discusses the modernization of mutual fund industry regulation. The explosive growth of and dramatic changes in the mutual fund industry during the 1980s and 1990s led the Securities and Exchange Commission (SEC) and the industry to seek to modernize SEC requirements in the areas of disclosure, substantive regulation of fund activities, and fund compliance with law and regulation. Disclosure requirements relating to fund prospectuses, shareholder reports, advertisements, and newsletters were updated (although disclosure of “shelf space” went unaddressed). Similarly, a number of SEC substantive rules and industry best practices in areas such as permissible investments by money market funds, 12b -1 plans, personal investing by fund managers, and the independence and effectiveness of fund directors were improved. In the area of compliance, the SEC did not adopt the industry's recommendation to require funds to establish formal compliance systems. Moreover, the SEC transferred oversight of its own inspections of mutual funds from the division responsible for fund regulation to a separate new unit, a step which many observers believe has harmed compliance.

The record 1982–2000 bull market ended with a bubble in high-technology and telecom stocks, followed by a severe bear market and revelations of a number of major corporate and accounting scandals, resulting in enactment of the Sarbanes–Oxley Act. In 2003–2004, there were revelations of illegal market timing and late trading in mutual fund shares at some twenty fund groups—the worst scandal ever in the fund industry. The scandal resulted in over a hundred proposals for legislative and regulatory reform, and led the Securities and Exchange Commission to adopt a record number of new regulations.

As earlier chapters have made clear, mutual funds not only are subject to Securities and Exchange Commission regulation under the federal securities laws but also they must meet requirements imposed by other bodies of law. The vast changes in the mutual fund industry that occurred during the bull market of 1982–2000 led the industry to seek changes in state securities laws, federal tax law, and federal pension law. Against all odds, the industry obtained federal legislation ending the state regulation of mutual funds. The industry was also successful in obtaining some degree of modernization of provisions of the Internal Revenue Code dealing with mutual funds. However, federal pension law and regulation were not updated to take account of the major shift from defined benefit plans to 401(k) and other types of defined contribution plans.

This chapter explains how legislative changes to, and the broader commentary on, US derivatives regulation illustrate the value of parsing the overlap/distinct and centralization/decentralization dimensions in assessing the tradeoffs of regulatory allocations. The Securities and Exchange Commission and the Commodity Futures Trading Commission have been tasked with decentralized authority over securities and futures, respectively. Over time, their jurisdictions have increasingly overlapped as the futures and securities markets converged. Reorganization proposals and legislation to correct perceived problems with the overlapping, decentralized regulatory regime (such as Title VII of the Dodd-Frank Act) have usually failed to parse the various tradeoffs between overlap and distinct or between centralized and decentralized authority. By limiting their analysis, policymakers and observers of derivatives regulation may have misdiagnosed problems with the existing allocation or missed potential opportunities to craft different regulatory configurations that might have better accommodated policy tradeoffs or been more politically viable.

This chapter examines the regulatory agencies that administer and enforce securities laws on public offerings. Securities markets were, at the beginning, self-regulating with little or no state intervention. With time, regulation by stock exchanges grew stronger and state intervention through controller of capital issues and registrar of companies emerged. This regime witnessed a paradigmatic shift with the enactment of the Securities and Exchange Board of India Act, 1992. Today, the regulatory agencies that primarily administer and enforce securities laws on public offerings are the Securities and Exchange Board of India and stock exchanges. Registrar of companies, though strictly not a regulatory agency, also exercises some powers and functions. For completeness, the chapter also examines the regulatory role of Reserve Bank of India in a public offering programme.

The New York Stock Exchange imposed ongoing disclosure requirements for listed companies in the pre-SEC era. The Securities Exchange Act of 1934 was motivated by the view that these requirements were both inadequate and laxly enforced. This chapter provides evidence that the SEC’s periodic disclosure rules, although more detailed than the NYSE’s, were not more informative to investors. The Exchange Act is therefore better understood as a “best practices” mandate that imposed the NYSE’s standards on smaller regional exchanges and, in doing so, hastened their demise.

China’s sustained, high rate of economic growth over the last 30 years is unparalleled and reflects its exceptional combination of pragmatism and vision. Moving forward, China will need to focus on translating this growth into the next stage of development. This chapter focuses on the role that institutions will play in creating its new market economy. To support those institutions, in the context of multiple transitions—including many demographic changes—the Chinese government must have a clear vision for the future. This vision must have broader objectives than GDP growth. Growth must be sustainable, and the fruits of growth must be equitably shared. To achieve this will require a balance between the market and the state. This will require a new approach to planning, which will increasingly center around managing the public sector. An essential role for government will be creating the institutional “infrastructure”—including the legal frameworks, the so-called “rules of the game” that are necessary to make a market economy work. But those institutions and legal frameworks cannot simply be borrowed from abroad, if China is to succeed in creating a "market economy with Chinese characteristics." Indeed, it is likely that they won’t even work well, given the unique structure and dynamics of China’s economy. And many of the institutions and arrangements that worked well for China in the past may not be well suited for the future. This chapter examines, from these perspectives, some of the critical challenges facing China in coming years: The move away from its reliance on manufacturing to a more balanced economy, creating an alternative growth model to its export-led model, making China into an "innovation economy” and one with greater focus on improving the quality-of-life, for instance through protection of the environment and creating livable cities. The chapter touches on a number of other institutional reforms that China will have to address in coming years, including those pertaining to taxation, financial markets, and social insurance.

The Commodity Futures Trading Commission (CFTC) is an independent agency with exclusive jurisdiction over futures trading in all commodities. The CFTC’s mandate has been renewed and expanded several times since then, giving it expanded powers. This chapter focuses on the role of the CFTC with respect to regulation of derivatives, as well as its organizational structure and the sanctions it imposes as part of a disciplinary action against erring parties. It also provides an overview of the Commodity Exchange Act of 1936 and the Commodity Futures Modernization Act of 2000 (CFMA or 2000) and looks at the CFTC’s disputes with the Securities and Exchange Commission regarding jurisdiction over security derivatives. In addition, it discusses the CFTC’s rules concerning exclusions and trading in forwards, options, futures, swaps, hybrid instruments, and foreign exchange instruments.