วันพุธที่ 1 ตุลาคม พ.ศ. 2551

Stock market crash

A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market. Crashes are driven by panic as much as by underlying economic factors. They often follow speculative stock market bubbles.

Stock market crashes are social phenomena where external economic events combine with crowd behavior and psychology in a positive feedback loop where selling by some market participants drives more market participants to sell. Generally speaking, crashes usually occur under the following conditions[citation needed]: a prolonged period of rising stock prices and excessive economic optimism, a market where Price to Earnings ratios exceed long-term averages, and extensive use of margin debt and leverage by market participants.

There is no numerically specific definition of a crash but the term commonly applies to steep double-digit percentage losses in a stock market index over a period of several days. Crashes are often distinguished from bear markets by panic selling and abrupt, dramatic price declines. Bear markets are periods of declining stock market prices that are measured in months or years. While crashes are often associated with bear markets, they do not necessarily go hand in hand. The crash of 1987 for example did not lead to a bear market. Likewise, the Japanese Nikkei bear market of the 1990s occurred over several years without any notable crashes।

Wall Street Crash of 1929

The most famous crash, the Wall Street Crash of 1929, happened on October 29, 1929. The economy had been growing robustly for most of the so-called Roaring Twenties. It was a technological golden age as innovations such as radio, automobiles, aviation, telephone and the power grid were deployed and adopted. Companies who had pioneered these advances like Radio Corporation of America (RCA), and General Motors saw their stocks soar. Financial corporations also did well as Wall Street bankers floated mutual fund companies (then known as investment trusts) like the Goldman Sachs Trading Corporation. Investors were infatuated with the returns available in the stock market especially with the use of leverage through margin debt. On August 24, 1921, the Dow Jones Industrial Average stood at a value of 63.9. By September 3, 1929, it had risen more than sixfold, touching 381.2. It would not regain this level for another twenty five years. By the summer of 1929, it was clear that the economy was contracting and the stock market went through a series of unsettling price declines. These declines fed investor anxiety and events soon came to a head. October 24 (known as Black Thursday) was the first in a number of increasingly shocking market drops. This was followed swiftly by Black Monday on October 28 and Black Tuesday on October 29.

On Black Tuesday, the Dow Jones Industrial Average fell 38 points to 260, a drop of 12.8%. The deluge of selling overwhelmed the ticker tape system that normally gave investors the current prices of their shares. Telephone lines and telegraphs were clogged and were unable to cope. This information vacuum only led to more fear and panic. The technology of the New Era, much celebrated by investors previously, now served to deepen their suffering.

Black Tuesday was a day of chaos. Forced to liquidate their stocks because of margin calls, overextended investors flooded the exchange with sell orders. The glamour stocks of the age saw their values plummet. Across the two days, the Dow Jones Industrial Average fell 23%.

By the end of the week of November 11, the index stood at 228, a cumulative drop of 40 percent from the September high. The markets rallied in succeeding months but it would be a false recovery that led unsuspecting investors into the worst economic crisis of modern times. The Dow Jones Industrial Average would lose 89% of its value before finally bottoming out in July 1932.

While the Crash may have inflicted heavy financial loss on many investors, Main Street was far less involved in the stock market than it is today, and the crash alone cannot be blamed for the Great Depression which followed. The Crash dealt a severe blow to many a stockholder's portfolio, but the main cause of the Depression was the federal government's raising tariffs and severely resticting the money supply, which significantly curtailed economic activity across the board and prolonged the recovery. Many essential sectors recovered fairly quickly, but few buyers had much cash, and those who did were reluctant to spend it.

The Crash of 1987

Main article: Black Monday (1987)

The mid-1980s were a time of strong economic optimism. From August 1982 to its peak in August 1987, the Dow Jones Industrial Average (DJIA) grew from 776 to 2722. The rise in market indices for the 19 largest markets in the world averaged 296 percent during this period. The average number of shares traded on the NYSE had risen from 65 million shares to 181 million shares.[1]

The crash on October 19, 1987, a date that is also known as Black Monday, was the climactic culmination of a market decline that had begun five days before on October 14th. The DJIA fell 3.81 percent on October 14, followed by another 4.60 percent drop on Friday October 16th. But this was nothing compared to what lay ahead when markets opened on the subsequent Monday. On Black Monday, the Dow Jones Industrials Average plummeted 508 points, losing 22.6% of its value in one day. The S&P 500 dropped 20.4%, falling from 282.7 to 225.06. The NASDAQ Composite lost only 11.3% not because of restraint on the part of sellers but because the NASDAQ market system failed. Deluged with sell orders, many stocks on the NYSE faced trading halts and delays. Of the 2,257 NYSE-listed stocks, there were 195 trading delays and halts during the day. [2] The NASDAQ market fared much worse. Because of its reliance on a "market making" system that allowed market makers to withdraw from trading, liquidity in NASDAQ stocks dried up. Trading in many stocks encountered a pathological condition where the bid price for a stock exceeded the ask price. These "locked" conditions severely curtailed trading. On October 19th, trading in Microsoft shares on the NASDAQ lasted a total of 54 minutes.

The Crash was the greatest single-day loss that Wall Street had ever suffered in continuous trading up to that point. Between the start of trading on October 14th to the close on October 19, the DJIA lost 760 points, a decline of over 31 percent.

The 1987 Crash was a worldwide phenomenon. The FTSE 100 Index lost 10.8% on that Monday and a further 12.2% the following day. In the month of October, all major world markets declined substantially. The least affected was Austria (a fall of 11.4%) while the most affected was Hong Kong with a drop of 45.8%. Out of 23 major industrial countries, 19 had a decline greater than 20%.[3]

Despite fears of a repeat of the 1930s Depression, the market rallied immediately after the crash, posting a record one-day gain of 102.27 the very next day and 186.64 points on Thursday October 22. It took only two years for the Dow to recover completely; by September 1989, the market had regained all of the value it had lost in the 1987 crash. The Dow Jones Industrial Average gained six-tenths of a percent during the calendar year 1987.

No definitive conclusions have been reached on the reasons behind the 1987 Crash. Stocks had been in a multi-year bull run and market P/E ratios in the U.S. were above the post-war average. The S&P 500 was trading at 23 times earnings, a postwar high and well above the average of 14.5 times earnings.[4] Herd behavior and psychological feedback loops play a critical part in all stock market crashes but analysts have also tried to look for external triggering events. Aside from the general worries of stock market overvaluation, blame for the collapse has been apportioned to such factors as program trading, portfolio insurance and derivatives, and prior news of worsening economic indicators (i.e. a large U.S. merchandise trade deficit and a falling U.S. dollar which seemed to imply future interest rate hikes).[5]

One of the consequences of the 1987 Crash was the introduction of the circuit breaker or trading curb on the NYSE. Based upon the idea that a cooling off period would help dissipate investor panic, these mandatory market shutdowns are triggered whenever a large pre-defined market decline occurs during the trading day.

Mathematical theory of stock market crashes

The mathematical characterisation of stock market movements has been a subject of intense interest. The conventional assumption that stock markets behave according to a random Gaussian or normal distribution is incorrect. Large movements in prices (i.e. crashes) are much more common than would be predicted in a normal distribution. Research at the Massachusetts Institute of Technology shows that there is evidence that the frequency of stock market crashes follow an inverse cubic power law.[6] This and other studies suggest that stock market crashes are a sign of self-organized criticality in financial markets. In 1963, Benoît Mandelbrot proposed that instead of following a strict random walk, stock price variations executed a Lévy flight.[7] A Lévy flight is a random walk which is occasionally disrupted by large movements. In 1995, Rosario Mantegna and Gene Stanley analyzed a million records of the S&P 500 market index, calculating the returns over a five year period.[8] Their conclusion was that stock market returns are more volatile than a Gaussian distribution but less volatile than a Lévy flight.

Researchers continue to study this theory, particularly using computer simulation of crowd behaviour, and the applicability of models to reproduce crash-like phenomena.

Recession

A recession is a contraction phase of the business cycle. The U.S. based National Bureau of Economic Research (NBER) defines a recession more broadly as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."[1] A sustained recession may become a depression.

Newspapers often quote the rule of thumb that a recession occurs when real gross domestic product (GDP) growth is negative for two or more consecutive quarters. This measure fails to register several official (NBER defined) US recessions.[2]

Attributes of recessions

A recession has many attributes that can occur simultaneouly and can include declines in coincident measures of overall economic activity such as employment, investment, and corporate profits. Recessions are the result of falling demand and may be associated with falling prices (deflation), or, alternatively, sharply rising prices (inflation) in a process known as stagflation. A severe or long recession is referred to as an economic depression. Although the distinction between a recession and a depression is not clearly defined, it is often said that a decline in GDP of more than 10% constitutes a depression.[3] A devastating breakdown of an economy (essentially, a severe depression, or hyperinflation, depending on the circumstances) is called economic collapse.

Predictors of a recession

There are no completely reliable predictors. These are regarded to be possible predictors.[4]

  • Stock market drops have preceded the beginning of recessions. However about half of the drops of 10% or more since 1946 have not been followed by recessions.[5] Also, approximately half of the stock market decline came after the beginning of recessions.
  • Inverted yield curve,[6] the model developed by Fed economist Jonathan Wright, uses yields on 10-year and three-month Treasury securities as well as the Fed's overnight funds rate. Another model developed by Federal Reserve Bank of New York economists uses only the 10-year/three-month spread. It is, however, not a definite indicator;[7] it is sometimes followed by a recession 6 to 18 months later.
  • The three-month change in the unemployment rate and initial jobless claims.[8]
  • Index of Leading (Economic) Indicators (includes some of the above indicators).[9]

Responding to a recession

Strategies for moving an economy out of a recession vary depending on which economic school the policymakers follow. While Keynesian economists may advocate deficit spending by the government to spark economic growth, supply-side economists may suggest tax cuts to promote business capital investment. Laissez-faire economists may simply recommend the government remain "hands off" and not interfere with natural market forces. Populist economists may suggest that benefits for consumers, in the form of subsidies or lower-bracket tax reductions are more effective, and serve a double purpose including relieving the suffering caused by a recession.[citation needed]

Both government and business have responses to recessions. In the Philadelphia Business Journal, Strategic Business adviser Carter Schelling has discussed precautions businesses take to prepare for looming recession, likening it to fire drill. First, he suggests that business owners gauge customers' ability to resist recession and redesign customer offerings accordingly. He goes on to suggest they use lean principles, replace unhappy workers with those more motivated, eager and highly competitive. Also over-communicate. "Companies," he says, "get better at what they do during bad times." He calls his program the "Recession Drill." [10]

Central bank response

Usually, central banks respond to recessions by easing monetary conditions, e.g. lowering interest rates. In the United States, the Federal Reserve has responded to potential slow downs by lowering the target Federal funds rate during recessions and other periods of lower growth. In fact, the Federal Reserve's lowering has even predated recent recessions[11]. The charts below show the impact on the S&P500 and short and long term interest rates.

  • July 13, 1990-September 4, 1992: 8.00% to 3.00% (Includes 1990-1991 recession) [12] [13]
  • February 1, 1995-November 17, 1998: 6.00 - 4.75 [14] [15] [16]
  • May 16, 2000-June 25, 2003: 6.50- 1.00 (Includes 2001 recession) [17] [18] [19]
  • June 29, 2006- (Mar. 18 2008): 5.25-2.25 [20]

Siegel[21] points out that cuts in the Federal funds rate are now widely anticipated; thus, cuts are no longer followed by a longer-term rise in stock market indexes.

The declining frequency of recessions in the past two decades and the reduction in declines in GDP suggest that the Federal Reserve has been successful in moderating contractions. However some critics argue that reducing the Federal funds rate has had the effect of adding too much liquidity to the financial markets and excess debt accumulation by consumers. Empirical research by the staff of European Central Bank showed a correlation between excessive money growth and the depth of post-boom recessions.[22]

Stock market and recessions

Some recessions have been anticipated by stock market declines. In Stocks for the Long Run, Siegel mentions that since 1948, ten recessions were preceded by a stock market decline, by a lead time of 0 to 13 months (average 5.7 months). It should be noted that ten stock market declines of greater than 10% in the DJIA were not followed by a recession[23].

The real-estate market also usually weakens before a recession[24]. However real-estate declines can last much longer than recessions.

Since the business cycle is very hard to predict, Siegel argues that it is not possible to take advantage of economic cycles for timing investments. Even the National Bureau of Economic Research (NBER) takes a few months to determine if a peak or trough has occurred in the US[25].

During an economic decline, high yield stocks such as financial services, pharmaceuticals, and tobacco tend to hold up better[26]. However when the economy starts to recover and the bottom of the market has passed (sometimes identified on charts as a MACD [27]), growth stocks tend to recover faster. There is significant disagreement about how health care and utilities tend to recover[28]. Diversifying one's portfolio into international stocks may provide some safety; however, economies that are closely correlated with that of the U.S.A. may also be affected by a recession in the U.S.A.[29].

Recession and politics

Generally an administration gets credit or blame for the state of economy during its time.[30] This has caused disagreements about when a recession actually started.[31] In an economic cycle, a downturn can be considered a consequence of an expansion reaching an unsustainable state, and is corrected by a brief decline. Thus it is not easy to isolate the causes of specific phases of the cycle.

The 1981 recession is thought to have been caused by the tight-money policy adopted by Paul Volcker, chairman of the Federal Reserve Board, before Ronald Reagan took office. Reagan supported that policy. Economist Walter Heller, chairman of the Council of Economic Advisers in the 1960s, said that "I call it a Reagan-Volcker-Carter recession.[32] The resulting taming of inflation, did, however, set the stage for a robust growth period during Reagan's administration.

It is generally assumed that government activity has some influence over the presence or degree of a recession. Economists usually teach that to some degree recession is unavoidable, and its causes are not well understood. Consequently, modern government administrations attempt to take steps, also not agreed upon, to soften a recession. They are often unsuccessful, at least at preventing a recession, and it is difficult to establish whether or not they actually made it less severe or long lasting.[citation needed]

Understanding of the word "recession" differs between economists, newspapers, and the general public. Generally speaking, a recession is present when graphs are sloping down in respect to production and employment. Consequently, a politician can truthfully say "the recession is over," even though little has improved. This may imply to the public that the economy is in recovery, suggesting the graphs are sloping upward, though there may actually exist a period of stagnation, when numbers remain low even though they are no longer dropping.[citation needed]

History of recessions

Global recessions

There is no commonly accepted definition of a global recession.[33] The IMF estimates that global recessions seem to occur over a cycle lasting between 8 and 10 years. During what the IMF terms the past three global recessions of the last three decades, global per capita output growth was zero or negative.

Economists at the International Monetary Fund say that a global recession would take a slowdown in global growth to three percent or less. By this measure, three periods since 1985 qualify: 1990-1993, 1998 and 2001-2002.[34] International Monetary Fund has recently lowered its 2008 global growth projection from 4.9 percent to 4.1 percent (as measured in terms of purchasing power parity).[35]

There is significant speculation about a possible U.S.A. recession in 2008. If it happens, it is expected to have a global impact.[36][37][38] U.S. represents about 21 percent of the global economy. Impact of a U.S. recession can spread though the following:[39]

  • Less spending by American consumers and companies reduces demand for imports.
  • The crisis of the U.S. subprime-mortgage market has pushed up credit costs worldwide and forced European and Asian banks to write down billions of dollars in holdings.
  • Dropping U.S. stock prices drag down markets elsewhere.

United States recessions

According to economists,[40] since 1854, the U.S.A. has encountered 32 cycles of expansions and contractions, with an average of 17 months of contraction and 38 months of expansion. However, since 1980 there have been only eight periods of negative economic growth over one fiscal quarter or more[41], and three periods considered recessions:

From 1991 to 2000, the U.S. experienced 37 quarters of economic expansion, the longest period of expansion on record.[41]

For the past three recessions, the NBER decision has approximately confirmed with the definition involving two consecutive quarters of decline. However the 2001 recession did not involve two consecutive quarters of decline, it was preceded by two quarters of alternating decline and weak growth.[41]

2008 recession in some countries

Further information: Economic crisis of 2008

Since 2007, there had been speculation of a possible recession starting in late 2007 or early 2008 in some countries.

United States

The United States housing market correction (a consequence of United States housing bubble) and subprime mortgage crisis had significantly contributed to anticipation of a possible recession.

U.S. employers shed 63,000 jobs in February 2008, the most in five years. Former Federal Reserve chairman Alan Greenspan said on April 6, 2008 that "There is more than a 50 percent chance the United States could go into recession." [42]. On April 29, 2008, nine US states were declared by Moody’s to be in a recession. [43]

Although the US Economy grew in the first quarter by 1%, [44] [45] by June 2008 some analysts stated that due to a protracted credit crisis and "rampant inflation in commodities such as oil, food and steel", the country was nonetheless in a recession.[46]

Other countries

A few other countries have seen the rate of growth of GDP decrease, generally attributed to reduced liquidity, sector price inflation in food and energy, and the US slowdown. These include the United Kingdom, Japan, China, India, New Zealand and the eurozone.

Stock market bubble

A stock market bubble is a type of economic bubble taking place in stock markets when price of stocks rise and become overvalued by any measure of stock valuation.

The existence of stock market bubbles is at odds with the assumptions of efficient market theory which assumes rational investor behaviour. Behavioral finance theory attribute stock market bubbles to cognitive biases that lead to groupthink and herd behavior. Bubbles occur not only in real-world markets, with their inherent uncertainty and noise, but also in highly predictable experimental markets [1]. In the laboratory, uncertainty is eliminated and calculating the expected returns should be a simple mathematical exercise, because participants are endowed with assets that are defined to have a finite lifespan and a known probability distribution of dividends. Other theoretical explanations of stock market bubbles have suggested that they are rational [2], intrinsic [3], and contagious [4]

Examples

The NASDAQ Composite index spiked in the late 90s and then fell sharply as a result of the dot-com bubble.
The NASDAQ Composite index spiked in the late 90s and then fell sharply as a result of the dot-com bubble.

Two famous early stock market bubbles were the Mississippi Scheme in France and the South Sea bubble in England. Both bubbles came to an abrupt end in 1720 bankrupting thousands of unfortunate investors. Those stories, and many others, are recounted in Charles Mackay's 1841 popular account, "Extraordinary Popular Delusions and the Madness of Crowds."

The two most famous bubbles of the twentieth century, the bubble in American stocks in the 1920s and the Dot-com bubble of the late 1990s were based on speculative activity surrounding the development of new technologies. The 1920s saw the widespread introduction of an amazing range of technological innovations including radio, automobiles, aviation and the deployment of electrical power grids. The 1990s was the decade when Internet and e-commerce technologies emerged.

Other stock market bubbles of note include the Nifty Fifty stocks in the early 1970s, Taiwanese stocks in 1987 and Japanese stocks in the late 1980s.

Stock market bubbles frequently produce hot markets in Initial Public Offerings, since investment bankers and their clients see opportunities to float new stock issues at inflated prices. These hot IPO markets misallocate investment funds to areas dictated by speculative trends, rather than to enterprises generating longstanding economic value.

A rational or irrational phenomenon?

Emotional and cognitive biases (see behavioral finance) seem to be the causes of bubbles. But, often, when the phenomenon appears, pundits try to find a rationale, so as not to be against the crowd. Thus, sometimes, people will dismiss concerns about overpriced markets by citing a new economy where the old stock valuation rules may no longer apply. This type of thinking helps to further propagate the bubble whereby everyone is investing with the intent of finding a greater fool. Still, some analysts cite the wisdom of crowds and say that price movements really do reflect rational expectations of fundamental returns.

To sort out the competing claims between behavioral finance and efficient markets theorists, observers need to find bubbles that occur when a readily-available measure of fundamental value is also observable. The bubble in closed-end country funds in the late 1980s is instructive here, as are the bubbles that occur in experimental asset markets. For closed-end country funds, observers can compare the stock prices to the net asset value per share (the net value of the fund's total holdings divided by the number of shares outstanding). For experimental asset markets, observers can compare the stock prices to the expected returns from holding the stock (which the experimenter determines and communicates to the traders).

In both instances, closed-end country funds and experimental markets, stock prices clearly diverge from fundamental values. Nobel laureate Dr. Vernon Smith has illustrated the closed-end country fund phenomenon with a chart showing prices and net asset values of the Spain Fund in 1989 and 1990 in his work on price bubbles. At its peak, the Spain Fund traded near $35, nearly triple its Net Asset Value of about $12 per share. At the same time the Spain Fund and other closed-end country funds were trading at very substantial premiums, the number of closed-end country funds available exploded thanks to many issuers creating new country funds and selling the IPOs at high premiums.

It only took a few months for the premiums in closed-end country funds to fade back to the more typical discounts at which closed-end funds trade. Those who had bought them at premiums had run out of "greater fools". For a while, though, the supply of "greater fools" had been outstanding.

Stock market bubble as an example of positive feedback

A rising price on any share will attract the attention of investors. Not all of those investors are willing or interested in studying the intrinsics of the share and for such people the rising price itself is reason enough to invest.

In turn, the additional investment will provide buoyancy to the price, thus completing the loop.

Like all dynamical systems, financial markets operate in an ever changing equilibrium, which translates into price volatility. However instable is this balance, a self-adjustment (negative feedback) takes place normally: when prices rise more people are encouraged to sell, while fewer are encouraged to buy. This puts a limit on volatility. However, once a positive feedback takes over, the market, like all systems with positive feedback, enter a state of increasing disequilibrium. This can be seen in financial bubbles where asset prices rapidly spike upwards far beyond what could be considered the rational "economic value", only to fall rapidly afterwards.

History of finance


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Accounting scandals

Accounting scandals, or corporate accounting scandals are political and business scandals which arise with the disclosure of misdeeds by trusted executives of large public corporations. Such misdeeds typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilities, sometimes with the cooperation of officials in other corporations or affiliates.

In public companies, this type of "creative accounting" can amount to fraud and investigations are typically launched by government oversight agencies, such as the Securities and Exchange Commission (SEC) in the United States.

In 2002, a wave of separate but often related accounting scandals became known to the public in the U.S. All of the leading public accounting firms—Arthur Andersen, Deloitte & Touche, Ernst & Young, KPMG, PricewaterhouseCoopers— and others have admitted to or have been charged with negligence in the execution of their duty[citation needed] as auditors to identify and prevent the publication of falsified financial reports by their corporate clients which had the effect of giving a misleading impression of their client companies' financial status.[citation needed] In several cases, the monetary amounts of the fraud involved are in the billions of USD

List of companies involved in scandals

Big Four major audit firms

(Audit firms are listed, followed by select clients ensnarled by accounting scandals)

Predecessor and other U.S. audit firms

Notable Accounting Scandals (Year First Reported -- Principal Participants)

2002 scandals

Later scandals

Outcomes

The Enron scandal resulted in the indictment and criminal conviction of the Big Five auditor Arthur Andersen on June 15, 2002. Although the conviction was overturned on May 31, 2005 by the Supreme Court of the United States, the firm ceased performing audits and is currently unwinding its business operations.

There was a general perception[citation needed] that there are other accountancy scandals waiting to be uncovered, which contributed[citation needed] to the stock market downturn of 2002.

On July 9, 2002 George W. Bush gave a speech about recent accounting scandals that have been uncovered. In spite of its stern tone, the speech did not focus on establishing new policy, but instead focused on actually enforcing current laws, which include holding CEOs and directors personally responsible for accountancy fraud.

In July, 2002, WorldCom filed for bankruptcy protection, in the largest corporate insolvency ever.

These scandals reignited the debate over the relative merits of US GAAP, which takes a "rules-based" approach to accounting, versus International Accounting Standards and UK GAAP, which takes a "principles-based" approach. The Financial Accounting Standards Board announced that it intends to introduce more principles-based standards. More radical means of accounting reform have been proposed, but so far have very little support. The debate itself, however, overlooks the difficulties of classifying any system of knowledge, including accounting, as rules-based or principles-based.

In 2005, after a scandal on insurance and mutual funds the year before, AIG is under investigation for accounting fraud. The company already lost over 45 billion US dollars worth of market capitalisation because of the scandal. This was the fastest decrease since the WorldCom and Enron scandals. Investigations also discovered over a billion US dollars worth of errors in accounting transactions. Future outcome for the company is still pending.

On a lighter note, the 2002 Ig Nobel Prize in Economics went to the CEOs of those companies involved in the corporate accounting scandals of that year for "adapting the mathematical concept of imaginary numbers for use in the business world".

Finance designations

There are a variety of Finance designations or Accreditations that can be earned, and awarded to those in the finance industry.

They vary by sector, country, and occupation।

Certified Financial Planner

The Certified Financial Planner (CFP) designation is a certification mark for financial planners conferred by the Certified Financial Planner Board of Standards. To receive authorization to use the designation, the candidate must meet education, examination, experience and ethics requirements, and pay an ongoing certification fee.

Chartered Financial Analyst

Chartered Financial Analyst (CFA) is a professional designation offered by the CFA Institute (formerly known as AIMR) to financial analysts who complete a series of three examinations and work for at least four years in the investment decision making process. CFA charterholders are also obliged to adhere to a strict Code of Ethics and Standards governing their professional conduct.

Fellow Chartered Financial Practitioner

The Fellow Chartered Financial Practitioner(FChFP)designation is a financial planning designation issued by the Asia Pacific Financial Services Association (APFinSA). The designation was developed by the National Association of Malaysian Life Insurance and Financial Adviors (NAMLIFA) in 1996 and later on adopted by APFinSA (of which NAMLIFA is a member) in 2001 as the flagship designation for its 11 member associations.

Master Financial Planner

The Master Financial Planner (MFP) designation is a certification mark for college educated wealth planners conferred by the AAFM Board of Standards. To receive authorization to use the designation, the candidate must meet education, AACSB or ACBSP accredited college examinations, experience and ethics requirements, and pay an ongoing good standing fee.

Registered Financial Planner

In Malaysia, the Registered Financial Planner(RFP)designation is conferred by the Malaysian Financial Planning Council(MFPC). It is one of the recognised qualification by the Securities Commission and Bank Negara Malaysia for those wishing to apply for a financial planner or financial adviser licence. Another RFP designation is offered by theRegistered Financial Planners Institute formed in the United States. Then you have theSociety of Registered Financial Planners offering the HKRFP in Hong Kong and China. There is currently no connection between the three designations.

Financial regulation

Financial regulations are a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system. This may be handled by either a government or non-government organization।

Aims of regulation

The specific aims of financial regulators are usually:

  • To enforce applicable laws
  • To prosecute cases of market misconduct, such as insider trading
  • To license providers of financial services
  • To protect clients, and investigate complaints
  • To maintain confidence in the financial system

Authority by Country

See main article List of financial regulatory authorities by country

The following is a short listing of regulatory authorities in various jurisdictions, for a more complete listing, please see list of financial regulatory authorities by country.

Unique jurisdictions

In Australia, the Australian Prudential Regulation Authority (APRA) supervises banks and insurers. Australian Securities and Investments Commission (ASIC) is responsible for enforcing financial services and corporations laws.

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