Conflicts of Interest in the US Self-regulatory Organizations and Financial Market Inefficiency

Abstract

The problem of conflicts between the financial industry professionals’ business interests and the SROs' regulatory activities is studied in this paper. With the help of the elaborated methods the intensity of the US SROs conflicts of interest is revealed since 1991 till 2010 on the basis of the industry professionals’ individual preferences with regard to financial market efficiency. We determined that the professionals gained the maximal accumulated portfolio value provided systematic deviation of the market from normality (efficiency). The professionals’ goals of util ity maximization did not match the SROs’ goals of the due market regulation in accordance with the regulator and international organizations requirements. These methods and results could be used in decision making about the allocation of financial market regulatory powers between regula tor and SRO.