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This paper argues that corporate governance, and executive and employee compensation in particular, was a key driver behind the decline in the quality of the ratings issued by credit rating agencies (CRAs), which in turn contributed to the financial crisis. It argues that the most common explanations for the failure of CRAs, including conflict of interest, inadequate models and insufficient staff, were themselves driven by the incentives provided to decision-makers. In support of its argument, it draws on a number of recent inquiries and reports on the causes of the crisis. It then critically analyses the European Regulation on CRAs, paying particular attention to its reliance on corporate governance structures to deal with conflicts of interest. It emphasises that US-based CRAs already had equivalent structures in place before the crisis, but that they did not prevent the decline in ratings quality. Indeed, they put in place the remuneration schemes which this paper argues drove the decline in quality. It concludes with some suggestions as to other ways in which CRA failure might be prevented in future and how the Regulation might be improved. [ABSTRACT FROM AUTHOR]

The fi nancial crisis has generated a deep revision of the regulation of securities and derivatives markets. In this paper, we critically examine the extent to which current reforms, such as the European Market Infrastructure Regulation and the proposed new Markets in Financial Instruments Directive and Regulation, will expand "public" securities and derivatives markets, while correspondingly reducing the scope of "private" markets (which broadly coincide with the "unregulated" over-the-counter markets). We also ask whether these reforms will on the whole reduce systemic risks and transaction costs of securities and derivatives trading in Europe. For these purposes, we formulate conjectures that are partly based on the experience of past reforms in the area of equity trading. [ABSTRACT FROM AUTHOR]

In the EU, short selling rules were introduced in 2012 (the ‘Regulation’), largely as a consequence of the sovereign debt crisis. The influence of the crisis is evident in the Regulation, which restricts short selling in the sovereign debt markets, as well as the short selling of shares. In contrast, the US has had short selling rules in place since the 1930s. Following the financial crisis, although short selling regulation did not form a key priority on the international G20 reform agenda, the SEC subsequently implemented a number of new restrictions. This article analyses the choices made in both jurisdictions concerning short selling restrictions. Some similarities exist, but divergences are also evident, not least in the absence of constraints on sovereign debt in the US. Further, aside from the sovereign debt restrictions, the US rules are in fact more onerous than those in the EU. This article suggests that this outcome can, perhaps, be explained in part by political pressures brought to bear on the SEC following the financial crisis. Turning to the EU, although the Regulation’s passage was also a highly politicised affair, some of the more interventionist proposals could be subsequently watered down during the lengthy negotiation process. [ABSTRACT FROM AUTHOR]