The Effectiveness Of Fines In Preserving Competition Finance Essay - Free Essay Example

Sample details Pages: 5 Words: 1437 Downloads: 6 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? Competition is a public good and society does not expect the victims of anticompetitive conduct to protect themselves. Authorities remain on the forefront in enforcing rules and regulations prohibiting actions that restrain or are likely to restrain competition (Baker 2006). The Financial Service Authority (FSA) requires firms and their management to have systems and controls in place to ensure they submit accurate and timely data and/or information.   The FSA uses this information to: detect and investigate suspected market abuse, insider trading and market manipulation; identify market wide risks and have a comprehensive understanding of the activities of each firm. In September 2010, FSA fined the London-based firm Goldman Sachs International (GSI) a total of  £17.5 million for breaching trust. The fine relates to GSIs failure to ensure that it had in place adequate systems and controls to enable it to comply with its UK regulatory reporting obligat ions. The FSA investigation found that GSI defective systems and controls compromise the level and quality of its communications with the FSA. GSI co-operation with FSA and agreeing to settle at an early stage qualified it for a 30% discount. Without the discount the fine would have been  £25 million. (FSA Press Release GSI Case) Also in April 2010, the FSA fined three firms a total of  £4.2m for failing to provide accurate and timely transaction reports to the FSA. The three firms were Credit Suisse ( £1.75m fine), Getco Europe Limited ( £1.4m) and Instinet Europe Limited ( £1.05m).   Credit Suisse is a bank, Getco is a market maker trading on electronic markets, and Instinet is an agency broker. The firms cooperated fully with the FSA in the course of the investigations and agreed to settle at an early stage thereby each firm qualified for a 30% discount. Without the discounts the total fines would have amounted to a  £6m (FSA Press Release Case 2). The ca ses focus on sharing of valuable transactions information. Emphasis is not only on transparency but also quality and timeliness of the information. These define crucial features of market structure that influence competition and potentially anti-competitive actions in markets. According to the efficient market hypothesis, it is assumed that in efficient markets, price reflects all available information. Holding firms accountable for enhancement of transparency is desirable for industry competition as it suppresses actions that restrain or are likely to restrain competition. The actions include collusion, parallel pricing, predatory pricing, limit pricing, harmful mergers, abuse of dominant position, and arrangements intended to monopolize. Besanko et al (2010) observe that when transactions are public, deviations from competition rules are easier to detect than when they are covert. It is also important to note that industry competition is not only price competition, but also inv olves quality competition. Product quality affects consumer decisions and firms strategies. If consumers are uninformed, this may result in the adverse selection and lemons problems in the market. Other key highlights from the cases are (a) the problem of incomplete contract- though GSI knew that one of its UK traders was under United States Securities and Exchange Commission (SEC) investigation for allegedly defrauding investors, FSA was not aware. And as a result of asymmetric information, that staff approved by FSA in November 2008 to trade. (b) the importance of international cooperation in enforcement of completion rules, had the SEC and FSA been sharing vital information on matters of mutual interest FSA would have not approved the said trader; and (c) the need of an effective compliance monitoring system firms even established ones like GSI cannot be relied on to comply. Fines, unlike damages which are meant to penalize the violations, are meant for deterrence purposes . Wils (2005) argues that the imposition of fines can contribute in three ways to the prevention of competition rules violations: through deterrent effects, through moral effects, and by raising the cost of violations. But the vital question is, are these fines large enough for deterrence purposes? Are they proportionate to the crimes? Considering the GSI fine, as Prately commented, it was a trifling sum by the banks standards; nobody at Goldman Sachs went hungry as a result of the  £17.5m fine. However, the public revelation of such defective corporate controls hurts more. Langus and Motta (2007) present empirical evidence that news of such penalties decreases the firms market value due to noise on stock market prices as stock markets react to the news (firms share prices are often very responsive even to minor events). The key issue in these fines is setting fines that are large enough to discourage prospective violators. How large is optimal is a question that needs furth er research and debate. However, it is important that optimal fines be the minimum fines necessary to discourage violations. In addition Mottaa (2007) emphasizes that possible economic costs associated with large fines such as leading the firm to close or downsize its operations; leading a firm to dispose off its assets; reducing the financial asset available to the firm, which in turn may decrease its ability to borrow from financial markets and a possibility to pursue profitable investments should be considered in setting up fines. Wils (2005) points out that fines which exceed the firms ability to pay would lead to bankruptcy. A successful strategy that deters violations is one which penalizes the violators and effectively discourages the prospective violations (the firm must perceive that its expected net gain from violations is lower than its expected cost). Wils (2005) argues that because of overconfidence bias, prospective offenders are likely to overestimate the gain and underestimate the probability of detection and punishment. Therefore, a necessary condition for deterrence to work is that the expected fine, discounted for the probability of detection and punishment, should exceed the gain which the offender expected to obtain from the violation. Connor (2002) observes that though fines have a deterrent effect on violations, they are not sufficient to effectively preserve competition. Other additional ways need to be incorporated including: Introduction of criminal penalties for the executives found guilty of violations (Motta 2007). This provides a very strong deterrent as the risk averse managers would find it very risky to engage in anticompetitive actions. This will also address the principal-agency problem. The managers (agents) may engage in violations which may not be the objectives of the firm owners. But since it is the shareholders (principals) that eventually pay the fine, the managers may not care. It also explains why the (i) senio r staff at GSI did not pass information about the staff in the centre of the case on to the UK authorities despite knowing that the said staff had been accused of serious breaches of U.S. laws; (ii) Despite repeated reminders from the FSA during the course of 2007 and 2008, none of the 3 firms in the second case carried out regular reviews of its data to prevent the breaches. Promotion of the private actions for damages: add damages recognized to consumers to the fines firms have to pay, thereby increasing deterrence for instance, the USA case involving vitamins conspirators, who to date have made direct payments amounting to more than $1 billion to victimized buyers (Baker 2006). Additional ways include the use of leniency programs to increase the probability that violators will be uncovered (Leniency programs may lead to prosecutions of violators that may otherwise have remained secret and possibly in operation). Also introduction of administrative fines and director disqual ification for managers to align personal incentives with firms decisions. And promoting (forcing where necessary) the diffusion of competition compliance programmes and the code of conduct in firms. The main criticism of the fines in the literature is that they force firms into bankruptcy and that they are eventually paid by the consumer through higher prices for further research. These need further research before conclusion is done about them. In conclusion, fines are important and necessary in deterrence of violations of competition rules, even though, they alone are not sufficient in promotion of competition in the industry concerned. Successful preservation of competition calls for inclusion of other ways in addition to fines. The setting up of fines also should take into consideration of the magnitude of the offence, economic implications and nature of firm. I agree with Baker (2006) that the possibility to impose high fines is limited by inability to pay, by the social and economic costs of high fines, and by requirements of proportional justice. To avoid a deterioration of the market structure as a result of the imposition of fines, where high fines are imposed and where there is a significant difference in the ability to pay of the various offenders, the amount of the fines imposed on the different firms should be differentiated so as to reflect their respective ability to pay. (1,486 words) Don’t waste time! Our writers will create an original "The Effectiveness Of Fines In Preserving Competition Finance Essay" essay for you Create order

How The Single European Market - 1324 Words

1.0 Introduction In this report I will discuss why and how the Single European Market was set up, its failures and successes how it works and its recent changes. Today, The Single European Market (SEM) otherwise known as the (Internal Market) grants people and businesses with the privilege to trade and move openly across borders within the EU. This has had a huge impact on the world we live in today it altered the way European live, travel and work also to study and do business. The concept of setting up a European single market is to bring unity to the EU; this encounters money, goods, people, and services to collaborate freely to arouse competition and trade. 2.0 Findings Summary For the single market to function properly they†¦show more content†¦The European Economic grew bigger with up to 31 countries joining the ECA having limited rights for each country. The treaty had plans on building a common market in 1957 this came into reality in 1958 with the creation of a customs union along with the Single European Act (SEA) in 1957. ‘They declared in its preamble that signatory state was determined to lay the foundations of an ever closer union among the peoples of Europe’. This confirmed a political objective of a progressive political interrogation from the member of states. On February 1986 The SEA was signed the ninth member of the states along with Denmark, Greece and Italy this was the first huge remedy of the treaty establishing the (EEC), This was en3dorsed on July 1987. The SEA established the European council the Single Market that designates the conferences of the Heads of the States and government. Since the SEA economists have gradually improved the economic analysis of EU regulation, The European Union regulation is now routinely discussed in terms of incentives, asymmetries of information, multiple policy options, market based instruments and quantification of benefits and costs. 3.0 Successes The Single Market came into enforcement establishing the free-movement of service, goods, capital and people, these free movements allow companies to sell their products

Inner Beauty Matters free essay sample

Inner beauty matters How many times do we see ourselves in the mirror and make negative comments about our looks. I’m not pretty or I’m too fat or I’m too overweight. These are few of the phrases that first come to mind in most girls when they look at themselves in the mirror. Well, 90% of teenage girls do not like the way they look or appear. The reason for that is in our society you get attention from people if you look attractive and stunning. Some girls who are overweight would get negative comments from peers like- ‘That girl is too ugly’ or ‘That girl looks like a bulldozer’. Fat is not something you have, it is something you are. We dont say You have fat, we say, You are fat. We identify with our bodies. So the teenager gets the message that this fatness is badness. We will write a custom essay sample on Inner Beauty Matters or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Some of the teenagers who don’t accept the way they look, try to change themselves by dieting which leads to illnesses and diseases like anorexia. Dieting is the practice of ingesting food in a regulated fashion to achieve or maintain a controlled weight. In most cases the goal is weight loss in those who are overweight or obese, but some people these days start dieting because they want to change the way they appear to the society. But what really matters in life? An old proverb states, â€Å"Beauty is in the eye of the beholder. † Something or someone is beautiful, depending on the perspective of the person looking in. But the major thing that matters is- Is the person good-looking from inside? Because Without a doubt inner beauty lasts forever whereas outer beauty fades. Anyone can fake the outside to make himself or herself look better and pretty but inner beauty cant be faked. For example you could be the most beautiful person in the world but if you have a horrible personality it just makes you ugly. Your body image is how you perceive, think and feel about your body but this may have no link at all on your actual appearance. For instance, it is common in Western nations for women to believe they are larger and fatter than they really are. Only 16% of women are satisfied with their body weight. Our body shape is already decided before we are born. Each one of us is a unique human being with our own genes from our mum and dad. There is only one person in the world shaped like you. Dieting does not change body shape. The distribution of weight on your body is going to stay the same so learn to love who you are. Dieting is not effective dieting changes a persons metabolism so that they are more likely to lose muscle mass than fat. Instead of dieting to look better and attractive, you can exercise, which is the best and safest way to become healthier. Feeling good about your body as it is helps you to maintain a positive outlook in other areas of your life.

The Great Gatsby As A Satire free essay sample

The Great Gatsby as a Sarcasm Satire is an implement used by writers to indicate out a defect of society or group of people in general. There are different degrees of sarcasm that the writer can utilize. For illustration, the writer may use a type a formal sarcasm known as Juvenalian sarcasm. Here, the author points out a topic with choler and disdain for it in a acrimonious manner. There is besides the contrasting signifier of Juvenalian sarcasm called Horatian sarcasm. Here, the author points out a topic with a gradualness and gay tenderness. The 2nd chief type of sarcasm is informal. This is the type of sarcasm used in The Great Gatsby. We will write a custom essay sample on The Great Gatsby As A Satire or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Here, Fitzgerald uses Nick to indicate out the character s defects and makes each individual the butt of the humor by what they themselves do. The supposed invitees at all of Gatsby s parties are premier illustrations of sarcasm in The Great Gatsby. Many people who attended the parties were neer even invited. This neglect for properness illustrates the crassitude and inconsideration that seemed to run rampant among the rich and celebrated during the mid-twentiess. An illustration of sloppiness is when a big group of people at one of the immense soirees, decides to go on the party in the monolithic, expensive fountain in Gatsby s lawn. They merely leap right in and get down to dance without concern for their wellness, much less concern for the well being of the fountain. After the jamboree had died down, most of the participants went place, go forthing a monstrous muss and sometimes even their apparels or places. Although Gatsby himself did non look every bit dissolute as his invitees, he did hold defects. On outward visual aspect, Jay Gatsby seemed to be a rich, all-around adult male who was ever really poised and facile. But when turned inward, this confident adult male seemed really self-aware and frightened. He was scared that people would happen out about his yesteryear and recognize that he was non ever the rich and graceful adult male that he now is. Throughout the novel, Gatsby informed all of his familiarities that he was an Oxford adult male and that he came from a comfortable household. However, this was non the instance. Gatsby did non go to Oxford and was non from a comfortable household. He was hapless as a kid and obtained most of his money from illicit concern ventures. This is why Gatsby was seldom seen at his ain parties and why he neer liked to speak about his yesteryear or where he earned his life. Prohibition was passed in the early 19 100s to seek to extinguish the usage of intoxicant. But it is clearly obvious that at all of Gatsby s parties and throughout the full novel, elating drinks are abundant. At all of Gatsby s parties, instances of bubbly and spirits are consumed by the tonss. Tom even brings a bottle of spirits along as he Daisy, Jordan, Gatsby and Nick prepare to travel for a thrust. Fitzgerald employs the usage of intoxicant to demo that no affair what the jurisprudence states, people will happen a manner to interrupt it and make what they please. Fitzgerald uses each character and action in The Great Gatsby to indicate out different defect in society during the nineteen-twenties. The invitees at the parties satirize sloppiness in the commonwealth. Gatsby satirizes the uneasiness of the rich. And prohibition satirizes the involuntariness of society to stay by the jurisprudence. Although this novel was written in 1925, it still has great intending today and will likely go on to hold great significance for old ages to come.