Knowing markets: Would less be more?

Regulators attempt to understand financial markets and their risks in terms of categories of knowledge and datasets that are defined and produced by the markets. However, regulators cannot adequately interpret or utilize such knowledge, for reasons including their social distance from the sites of knowledge production, the diversity of financial firms' proprietary risk models, firms' abilities to game the rules thus rendering the 'metrics' meaningless and several backfiring aspects of global regulatory networking and reform. Calls for yet more information about trading, posed in terms of the merits of transparency, result in information swamping of regulators. Meanwhile, while policy-makers tinker with regulatory structures ('architecture'), political reaction to the crisis de-legitimizes public regulation as a project. Yet there is one positive aspect of the reforms - enhancing powers for 'resolution' of financial firms in ways that impact upon investors while minimizing wider destabilization - upon which the regulatory information requirement can and should be refocused. To protect the public interest, legal transparency is required, trading transparency is not. This paper introduces these issues by drawing on critical work on transparency and markets.

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