Regulation
Why regulation exists
Objectives are investor protection, market integrity, financial stability and confidence. Know the regulatory toolkit: licensing and registration, disclosure requirements, conduct rules, capital adequacy, market-abuse prohibitions and product intervention.
Who regulates what
Understand the roles of a securities commission or regulator, self-regulatory organisations and exchanges, central banks and international bodies. Candidates should know the difference between prudential regulation (safety of firms) and conduct regulation (fair treatment of clients), and the principle of consolidated supervision.
Core rule areas
Disclosure and prospectus requirements for issuers; insider dealing and market manipulation prohibitions; short-selling rules; anti-money-laundering obligations (customer due diligence, suspicious transaction reporting); and client-asset segregation. Know that regulation is often principles-based plus rules-based, and that extra-territorial reach matters for cross-border business.
Traps
Questions blur insider dealing (trading on material non-public information) with market manipulation (distorting price or volume). Another trap is assuming self-regulatory bodies have statutory force equivalent to a regulator. Also watch for confusion between registration of the firm and licensing of the individual.
Worked example
An employee learns of an unannounced takeover and buys shares before the announcement. This is insider dealing: it breaches the prohibition on trading on material non-public information, triggers personal and firm liability, and would typically be reported under the firm's market-abuse surveillance. The fact the information was overheard, not formally given, does not matter.
Rule of thumb
If information is material, non-public and price-sensitive, do not trade and do not tip.