Is it appropriate for the development of financial markets and the economy that above-average profits can be made by inducing financial and/or economic crises through speculative transactions carried out with the help of derivatives made in the capital markets liberalized in recent decades?
And if NOT, how should the standards and rules of financial markets be improved, so that in this way it is not possible to deliberately cause financial and/or economic crises and escalate the development of negative economic processes?
How should the standards and rules of operation of financial markets be improved, so that the scale of deliberate triggering of financial and/or economic crises through the use of speculative transactions carried out with the help of derivatives, transactions carried out in certain capital markets, is significantly reduced?
In the past, already since the commodity crises of the 1970s, the period of the beginning of the development of various new types of derivatives, the increase in the scale of deregulation and liberalization of the operation of financial markets, the change of international monetary systems through the replacement of the Bretton Woods system with free exchange rate systems, the scale of instability in financial markets, including capital markets, currency markets, stock exchanges has increased significantly. During the global financial crisis of 2007-2009, data emerged confirming the facts of speculative activities by some investment banks, which increased the scale of development of the aforementioned crisis. Also, at the beginning of March 2020, when the World Health Organization declared the state of the global epidemic, i.e. the so-called SARS-CoV-2 (Covid-19) coronavirus pandemic, this fact also triggered a strong increase in the volatility of asset valuations in the capital markets. When new events suddenly appear that generate uncertainty, fear then financial risks, credit risks, currency risks, liquidity risks, debt risks, etc.increase, which causes an increase in volatility in financial markets. Institutions that take advantage of this kind of situation, institutions that have sensitive information, use this kind of information and, on the basis of this information, carry out insider trading in certain capital markets are an example of imperfect functioning of financial markets. Such instances of imperfect functioning of financial markets, including capital markets, should be detected and limited by institutions established for this purpose, such as the Securities Commission, the Financial Supervision Commission, the Banking Supervision Commission, etc. The functioning of financial markets should be improved, and the rules, standards and procedures of individual institutions and segments of financial markets should be perfected. When it is the so-called small, small stock market investors then it is assumed that this is a positive factor in ensuring a certain level of liquidity in the capital market. However, when transactions are carried out by large financial institutions, including banks and investment funds with the involvement of large financial resources in an amount, for example, comparable to the value of the state budget of a small country, then there are quandaries about the possibility of deliberate not only exploitation of situations of instability in financial markets, but also about possible actions that amplify or even inspire these instabilities. For example, military actions and failures of critical infrastructure installations, high-risk system infrastructure, energy sector infrastructure can be factors that cause a significant increase in asset price volatility in capital markets, including energy commodity prices on commodity exchanges and securities prices on stock exchanges. A recent example would be failures, perhaps sabotage actions carried out on pipelines filled with natural gas causes destabilization in energy commodity price markets. This causes the currencies of small economies, i.e. Poland, for example, to fall. In addition, a significant increase in interest rates on the currencies of large economies like the US and the EU increases the scale of the decline in the currency of a small, developing economy and one that is highly exposed to the energy crisis. In addition, the war in Ukraine is taking place next to Poland. In addition, large, internationally operating investment banks can take advantage of this situation to conduct profitable speculative transactions using currencies characterized by a high level of exchange rate volatility and susceptibility to certain defined influencing factors. A decline in the exchange rate of the Polish national currency PLN will cause additional difficulties in the central bank's anti-inflationary, interventionist monetary policy. The topic of the need to improve the issues of the functioning of financial markets, including the improvement of the rules, standards and procedures for the operation of individual institutions and segments of financial markets is still relevant.
In view of the above, I address the following question to the esteemed community of researchers and scientists:
How should the standards and rules of operation of financial markets be improved, so as to significantly reduce the scale of deliberately causing financial and/or economic crises and escalating the development of negative economic processes?
How should the standards and rules of financial markets be improved so that it is not possible to deliberately cause financial and/or economic crises through the use of speculative transactions carried out with the help of derivatives, transactions made in certain capital markets?
How should the functioning of financial markets be improved systemically, institutionally, organizationally and normatively so as to reduce the scale of triggering financial and/or economic crises?
What are your thoughts on this topic?
What is your opinion on this issue?
Please answer,
I invite everyone to join the discussion,
Thank you very much,
Warm regards,
Dariusz Prokopowicz
The problem of financial and/or economic crises does not entirely rest on derivatives made in the capital markets liberalized in recent decades but on ethics. So, to improve the functioning of the financial markets to reduce the scale of triggering financial and/or economic crises, a set of ethical standards must be part of derivatives.
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