{
  "title": "Competition among Exchanges and Enforcement Policy",
  "publication": "IMF Working Papers, February 1, 2013",
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  "summary": "In this paper, we explore how competition among stock exchanges, operated as self-regulatory organizations (SROs), affects the design of their members' surveillance.",
  "sections": [
    {
      "heading": "Summary and research question",
      "content": "- Explores how competition among stock exchanges, operated as self-regulatory organizations (SROs), affects the design of their members' surveillance.\n- Develops a model with two for-profit SROs competing for trading volume, while brokers execute transactions on behalf of investors and may misreport the true cash flow.\n- Investigates how SROs deter fraud by announcing an investigation and imposing a monetary penalty.\n- Focuses on the role of resources devoted to monitoring and the efficiency of monitoring technologies in determining investigation success.\n- Shows that when contracts are incomplete and investors do not have perfect information about monitoring efficiency, competition among exchanges induces a race to the bottom in enforcement policy and a reduction in total welfare compared to a monopolist SRO."
    },
    {
      "heading": "Model features and mechanisms",
      "content": "- Agents and institutions:\n  - Two for-profit SROs (exchanges) competing for trading volume.\n  - Brokers executing transactions on behalf of investors; brokers may misreport true cash flow.\n  - Investors with imperfect information about monitoring efficiency.\n- Enforcement tools:\n  - Announcement of investigations.\n  - Imposition of monetary penalties upon detection.\n- Determinants of investigation success:\n  - Amount of resources devoted to monitoring.\n  - Efficiency of monitoring technologies."
    },
    {
      "heading": "Main findings",
      "content": "- Competition among exchanges, under incomplete contracts and imperfect investor information about monitoring efficiency, leads to a \"race to the bottom\" in enforcement policy.\n- This competitive weakening of enforcement results in a reduction in total welfare relative to a monopolist SRO."
    },
    {
      "heading": "Policy implications (as implied by findings)",
      "content": "- Weakening of enforcement incentives under competitive SRO structures can harm overall welfare.\n- Informational asymmetries about monitoring efficiency are key drivers of reduced enforcement intensity in competitive settings.\n- Design of regulation and oversight may need to account for incentives created by competition among SROs to avoid downward pressure on monitoring and penalties.\n\n---\n\n Content in this bundle\n\n- wp1337\n  - wp1337 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp1337 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/competition-among-exchanges-and-enforcement-policy-40296"
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    "Authors: Cecilia Caglio, Andrea Pescatori",
    "Published: February 1, 2013",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781475516784.001",
    "Explores how competition among stock exchanges, operated as self-regulatory organizations (SROs), affects the design of their members' surveillance.",
    "Develops a model with two for-profit SROs competing for trading volume, while brokers execute transactions on behalf of investors and may misreport the true cash flow.",
    "Investigates how SROs deter fraud by announcing an investigation and imposing a monetary penalty.",
    "Focuses on the role of resources devoted to monitoring and the efficiency of monitoring technologies in determining investigation success.",
    "Shows that when contracts are incomplete and investors do not have perfect information about monitoring efficiency, competition among exchanges induces a race to the bottom in enforcement policy and a reduction in total welfare compared to a monopolist SRO.",
    "Agents and institutions:",
    "Enforcement tools:",
    "Determinants of investigation success:",
    "Competition among exchanges, under incomplete contracts and imperfect investor information about monitoring efficiency, leads to a \"race to the bottom\" in enforcement policy.",
    "This competitive weakening of enforcement results in a reduction in total welfare relative to a monopolist SRO.",
    "Weakening of enforcement incentives under competitive SRO structures can harm overall welfare.",
    "Informational asymmetries about monitoring efficiency are key drivers of reduced enforcement intensity in competitive settings.",
    "Design of regulation and oversight may need to account for incentives created by competition among SROs to avoid downward pressure on monitoring and penalties.",
    "**_wp1337**"
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