87507 - FOUNDATIONS OF RISK REGULATION IN FINANCIAL MARKETS

Course Unit Page

Academic Year 2019/2020

Learning outcomes

The course offers a review of market failures in financial markets and underlying economic theories, such as moral hazard, adverse selection and cognitive biases. The course then puts theories in practice by analyzing the economic foundations of building blocks of financial market regulations and institutions, including the recent European banking union, capital markets union reforms and risk regulations for central counterparty clearing houses (CCPs). Students will be able to understand the rationale of risk policies in financial markets, how to identify a market failure and devise intervention.

Course contents

Introduction to risk regulation (approx. 9 hours)

  • Basics of financial markets and institutions
  • Theories of efficient markets
  • Transaction costs and market failures
  • Bounded rationality theories
  • Theories of regulatory intervention and objectives of financial regulation

Risk regulation in financial markets (approx. 24 hours)

  • The Better Regulation Framework and Impact Assessment
  • Financial market functioning and the role of analysts and information regulation
  • Market microstructure rules and integrity
  • Market data provision, trading venue classification and other market infrastructure regulation
  • OTC derivatives markets and other key post-trade regulation
  • Asset management regulation
  • Investment service provision and retail investor protection

The course does not cover prudential and macro-prudential regulation, which will be covered by other courses in the Master programme, while it covers the underlying market failures.

Readings/Bibliography

See online learning platform (IOL).

Teaching methods

Each lecture will combine the theoretical framework with practical examples to show how that framework applies to financial markets and policy-making. The lecturer will invite the class to actively participate and debate. Slides and materials will be made available before the class or right after.

Assessment methods

Assessment is based on:

1. Class participation (10%)

2. Group work and presentation (40%)

3. Final exam (50%).


The assessment of class participation aims at evaluating the ability to contribute to the debate with meaningful questions and interesting points.

The Group work aims at evaluating student's ability to identify market failures, to justify the need for regulatory intervention, to devise different policy options and to select the best option.

The final exam is a 1.5 hour written exam evaluating the ability to present effectively the theoretical topics and empirical analyses covered in the course and to apply them to actual policy-making.

Office hours

See the website of Diego Valiante