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Regulating Complexity in Financial Markets

58 Pages Posted: 21 Aug 2008 Last revised: 14 Nov 2010

Steven L. Schwarcz

Duke University School of Law

Date Written: February 25, 2010

Abstract

As the financial crisis has tragically illustrated, the complexities of modern financial markets and investment securities can trigger systemic market failures. Addressing these complexities, this article maintains, is perhaps the greatest financial-market challenge of the future. The article first examines and explains the nature of these complexities. It then analyzes the regulatory and other steps that should be considered to reduce the potential for failure. Because complex financial markets resemble complex engineering systems, and failures in those markets have characteristics of failures in those systems, the article's analysis draws on chaos theory and other approaches used to analyze complex engineering systems.

Keywords: financial markets, regulation

Suggested Citation

Schwarcz, Steven L., Regulating Complexity in Financial Markets (February 25, 2010). Washington University Law Review, Vol. 87, No. 2, p. 211, 2009; Duke Law School Public Law & Legal Theory Paper No. 217. Available at SSRN: https://ssrn.com/abstract=1240863

Steven L. Schwarcz (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7060 (Phone)
919-613-7231 (Fax)

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