The emergence of transnational hybrid governance: how private risks trigger public intervention

This chapter investigates the role played by private self-regulatory authorities in the reform of financial market regulation in Europe. It poses the question of whether private self-regulation facilitates or hampers the centralisation of rule-making. The chapter is based on case studies of two specific segments of the financial market: the international OTC derivative market and the Alternative Investment Market (AIM) of the London Stock Exchange (LSE). Both markets have traditionally been privately self-regulated but differ in the pace at which they have been subject to European regulatory reform: regulation of the former became a priority for national and international regulators soon after the 2008 global financial crisis, whereas the latter has only indirectly been touched by recent European legislation. The chapter first explores the mechanisms through which the systems of private self-regulation emerged and then the factors triggering public intervention and the consequent development of a hybrid system of governance.