Saturday, November 7, 2009

The Role of Institutions in Market Development

Institutions play a critical role in the development of financial markets.

It's easy to see the importance of those who establish the regulatory and operational architecture of the system:
  1. Legislators who establish the laws
  2. Regulators who translate those laws into specific regulations and procedures and then enforce them
  3. Accounting Standards Setters - IASB, FASB and particularly relevant to the GCC because of its specialist focus on Shari'ah compliant financial institutions  AAOIFI
  4. For listed securities, exchanges who establish listing and trading rules and provide a forum in which buyers and sellers can conduct transactions
  5. Various professional groups that establish conventions for dealing
  6. Brokers and custodians
  7. The Reuters and Bloombergs out there who provide the instruments through which market information is made available and often the mechanism for conducting trades
But there is another group with a key role, those who provide information to investors to help them make more informed investment decisions and those who take actions to set or encourage the development of industry practice and standards:
  1. Research firms - not only for company research but also research on sectors, individual countries and macro trends as well as investment strategies
  2. Rating agencies - Fitch, Moody's, Standard and Poors and those with a particular GCC focus: Capital IntelligenceIslamic International Rating Agency
  3. Professional Development Associations - CFA Institute, ISDA,  Hawkamah, Mudara  and others.
     The work these groups do can have a profound effect on not only the behavior of individual companies but overall market conduct as well.

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