Is Systemic Risk Relevant to Securities Regulation?

Abstract

The global financial meltdown has led to a renewed focus on the purposes of securities regulation and on the expansion of these purposes to include considerations of systemic risk; yet the case for such an expansion has been assumed more than argued. This article derives an argument for expansion from developments in the financial markets. Traditionally, mitigating systemic risk has fallen within the realm of financial institution (i.e., prudential) regulation rather than securities law. However, developments in financial markets, including the bundling and sale of securitized products by a variety of complex institutions, are blurring the line between prudential regulation and securities law. This evolution makes systemic risk increasingly relevant to securities regulation. Consequently, the article argues, securities regulation should expand to encompass mitigating systemic risk.

Keywords: Systemic Risk, Securities, Regulation

JEL Classification: K10, K22