Promoting Access to Primary Equity Markets: A Legal and Regulatory Approach

38 Pages Posted: 20 Apr 2016

Date Written: April 2006

Abstract

This paper examines legal and regulatory measures that can be taken to promote access to the primary market in emerging market economies. While capital market development depends on many factors including, primarily, a favorable macroeconomic environment, an appropriately designed and effective legal and regulatory framework can help to encourage market growth and to increase access to finance for all companies, including small- and medium-sized enterprises. In this paper we identify the basic necessities that underpin a regulatory regime that is cost effective and strikes an appropriate balance between, on the one hand, laws and regulations that may be too restrictive to achieve a supply of capital and, on the other, those that may be so relaxed that investors feel that there is an unacceptable level of risk and do not care to venture into the market. We explore the legal foundations for the successful operation of a primary market for securities and identify disclosure and effective monitoring and enforcement as essential elements of legal protection. We then examine different legal and regulatory approaches for improving access to finance. We discuss measures that can be used by traditional stock exchanges to attract smaller enterprises to their lists as well as recent initiatives to create second boards or divide the main board into different market segments. We also discuss different mechanisms for companies to raise funds outside of a formal stock market listing, including private placements and private equity. Finally, we propose some recommendations for a simple legal and regulatory framework that will help promote access to primary equity markets, via both the traditional exchange as well as other alternatives.

Keywords: Markets and Market Access, Economic Theory and Research, Financial Intermediation, Corporate Law, Investment and Investment Climate

Suggested Citation

Friedman, Felice B. and Grose, Claire, Promoting Access to Primary Equity Markets: A Legal and Regulatory Approach (April 2006). World Bank Policy Research Working Paper No. 3892, Available at SSRN: https://ssrn.com/abstract=913188

Felice B. Friedman (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Claire Grose

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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