Capital markets

Fund firms face the prospect of EU rules setting standards of “value for money” for their investment products under the Retail Investment Strategy due to be unveiled on 24 May. This could include disincentives, for example, to charging active management fees for an investment that underperforms an index fund. For all the discussion of a ban on inducements for investment advice, the commission has decided to propose a more limited inducement ban on execution-only investments. 

In the autumn of 1997, both in Europe and the United States, the ten-year interest rate fell towards 5 per cent. This was caused by the Asia crisis, which caused prices to fall worldwide. Falling interest rates and falling share prices were an unusual combination at the time.

One of the most important functions of a financial system is to bring together people with an abundance and a shortage of capital. Financial markets can efficiently bring innovative companies and investors together. This has a positive effect on the real economy – think of employment and competition (in the form of lower consumer prices).