Regulating retail structured products for the less-than-rational investor an analysis of recent regulatory policy in three jurisdictions
thesisposted on 02.03.2017 by Joy, Martin
In order to distinguish essays and pre-prints from academic theses, we have a separate category. These are often much longer text based documents than a paper.
Retail structured products are financial instruments that use derivatives to deliver a range of economic payoffs to retail investors. The investor protection issues posed by the products’ inherent complexity have catalysed investor protection regulatory policy in various jurisdictions since the 2008 financial crisis. Studying these initiatives can help us understand post-crisis investor protection regulation. In particular, they offer the opportunity to explore if and how changing ideas of retail investors (from rational to less-than-rational decision-maker) are driving different regulatory policy settings. This thesis contains case studies of recent regulatory policy from Hong Kong, the EU and the US on retail structured products. The cases studies consist of examinations of the identified regulatory policy problems and offered solutions of each jurisdiction. The thesis uses a novel analytical framework on investor protection policy to offer the new central finding that this recent policy appears to be influenced by a notional investor who is less-than-rational. Four supplemental findings support this central finding. o First, the problems that have driven recent policy are a broad range of previously unaddressed problems. This indicates that what authorities perceive to be a ‘problem’ has changed (perhaps reflecting the changing idea of the notional investor). o Second, a number of the solutions publicly announced by regulatory authorities since the crisis have focused on changing the investment environment in which investors are located, rather than simply seeking to simply give investors better information. o Third, these solutions appear relatively interventionist, with the state prescribing outcomes rather than leaving these to market forces. o Lastly, the influence of the idea of the less-than-rational investor is incomplete. There is an observable disconnect between the presentation of the policy and its substance. This suggests that regulatory authorities have difficulty in publicly signalling that they believe investors are less-than-rational.