Title

Regulating Complexity in Financial Markets

Document Type

Article

Comments

The most up-to-date version of this piece can be found in the Duke Law Scholarship

forthcoming, 87 Washington University Law Quarterly

Abstract

As the financial crisis has tragically illustrated, the complexities of modern financial markets and investment securities can trigger systemic market failures. Addressing these complexities, this article maintains, is perhaps the greatest financial-market challenge of the future. The article first examines and explains the nature of these complexities. It then analyzes the regulatory and other steps that should be considered to reduce the potential for failure. Because complex financial markets resemble complex engineering systems, and failures in those markets have characteristics of failures in those systems, the article’s analysis draws on chaos theory and other approaches used to analyze complex engineering systems.

Date of Authorship for this Version

3-23-2009

Keywords

systemic risk, financial markets, complexity, engineering systems