While financial innovation and globalization can only be applauded for their salutary impact on market efficiency, they present some difficult problems for market practitioners and, where the practitioners are regulated entities, their supervisors.
Today, I should like to concentrate on three themes, or principles, related to the evolution of financial markets: First, there exists a significant and dynamic connection running between market innovation and market regulation. Financial innovation often occurs in response to regulation, especially when such regulation does not make economic sense. Conversely, the evolution of regulation often is spurred by advances in the market.