Charles Sutcliffe

A New Regulatory Framework

In this chapter we put forward a regulatory structure that we believe may be more suited to the environment as it is likely to develop.

Ex ante testing of accounting standards using stochastic models

Abstract Most previous studies of the effects of accounting standards have been conducted on an ex post basis. This paper explores a methodology for studying the implications of accounting standards prior to their introduction. As an illustration, the effects of alternative earnings recognition methods for long-term contracts were examined (SSAP 9). A stochastic model of a representative firm was constructed, where the underlying stochastic process was mean reverting. This model was then used to derive mathematical expressions for the earnings figures produced by different accounting procedures. The performance of these alternative accounting procedures was examined using the general criteria of prediction and closeness to economic income. The accounting procedures required by SSAP 9 emerged relatively well from these tests, and the methodology appears to offer the potential for development.

Policy Responses to Fragmentation

This chapter examines the regulatory implications of market fragmentation and consolidation. It begins with a brief summary of the arguments advanced at greater length in Chapter 4. This is followed by a longer analysis of regulatory effects, together with a description of suggested responses.

The Regulation of Transparency

The purpose of this chapter is to offer suggestions to help regulators in setting transparency standards. The FSA is required by the FSMA1 to ensure that each RIE has appropriate arrangements for relevant information (information that is relevant in determining the current value of the investments) to be made available to persons engaged in dealing in investments on the exchange. This requires the FSA to ensure that markets are transparent. In addition, the FSA has a duty to maintain confidence, promote public understanding, protect consumers, reduce financial crime and facilitate competition. All of these objectives are advanced by transparent markets.

Over the Counter (OTC) Markets

OTC markets are part of the total market for a security, and so have been considered in the Chapters dealing with transparency and fragmentation. OTC trading tends to be a hidden aspect of financial markets whose importance is large and growing, but where regulation and disclosure are small. For these reasons, this chapter brings together the material on OTC markets from elsewhere in this book to highlight the importance of these markets to regulators.

The Recognised Investment Exchanges

In this chapter we summarise and review the results of our discussions with the UK RIEs. These discussions took place in the early part of 2000 and therefore reflect the state of play at that time. We conducted extensive interviews with the RIEs, supplementing our understanding with searches of the literature, press coverage, reviews of RIE web sites, etc. The RIEs at the time were:1 London Stock Exchange Tradepoint Stock Exchange LIFFE London Metal Exchange (LME) OM International Petroleum Exchange (IPE)

Executive Summary and Policy Implications

A world in which markets are fragmenting and evolving in unpredictable ways presents three major risks to meeting the FSA’s statutory objectives: the possibility of segmented trading of the same security in a number of venues, leading to low liquidity, price fragmentation, poor price discovery, difficulty defining an exchange, and the like best execution becoming hard to achieve and harder to monitor and enforce increasing risk of systemic risk and market abuse, as there is no single entity with an overall picture of trading activity.

Theory and Results on Transparency

A trading mechanism can be thought of as a set of protocols that translates investors’ latent demands into realised prices and quantities. Market transparency is essentially the ability of market participants to observe the information in the trading process, and transparency can be defined as ‘the degree to which information about trading (both past and prospective) is made publicly available on a real-time basis’ (IOSCO, 1993).This publication of trading information for transparency reasons is distinct from the confidential reporting of trades to the exchange and regulatory authorities for surveillance or settlement purposes.

The zoning decision

During a period of intense school reorganization and closure in Reading C. M. S. Sutcliffe was was a member of Berkshire County Council, serving on the Education Committee. He was also a governor of two local schools, one of which was closed during this rationalization. He has addressed a number of academic conferences on the subject of school zoning. He now holds the Northern Society chair in the Department of Economics at the University of Newcastle upon Tyne. J. L. G. Board is now a member of the Department of Accounting and Finance at the London School of Economics. He has co‐authored a number of papers on the application of modelling techniques to social decisions. The allocation of children to secondary school is both difficult and contentious. Although a balanced intake is desirable, it is, in practice, often not achieved. This paper discussed the use of goal programming models to achieve these allocation patterns and considers the results of the first large‐scale application of the technique to th...