INSTITUTIONAL APPROACH TO ENSURING FINANCIAL STABILITY OF THE STOCK MARKET

Abstract

Stock market volatility is a fundamental characteristic that necessitates the application of corrective, balancing, and preventive mechanisms to preclude the spread of shocks from the market to the broader economy. It is crucial to emphasize that ensuring the financial stability of the stock market should not be viewed as a mechanism to simply block its inherent volatility. Instead, the objective should be the strategic application of methods, instruments, and levers of influence that, in aggregate, contribute to maximizing the market’s functional effectiveness and its positive impact on the country’s economic development, fully acknowledging its dynamic nature. The purpose of this research is to develop a comprehensive scientific framework for ensuring the financial stability of the stock market through a robust institutional approach.
Based on a functional methodology, the study identifies the primary subjects within the institutional framework for stock market financial stability. These include entities involved in legislative and regulatory activities, analytical and forecasting operations, professional infrastructure, institutional investors, and consumers of investment financial services. The article reveals the specific channels through which these actors exert their influence on market stability.
The institutional framework for stock market financial stability is structured into formal and informal components. The research identifies several specific sub-institutions: the institution of values, the institution of trust, the institution of rule-making, the institution of regulation and supervision, the institution of financial culture, and the institution of financial stability of institutional investors. The study substantiates the profound influence of both formal and informal institutions on the overall effectiveness of ensuring market stability, also revealing how financial culture institutionally influences this stability through its interrelationship with the institutions of values, trust, and investor stability.
Furthermore, a critical analysis of scientific and pragmatic approaches to the typology of institutional investors is conducted. The study demonstrates that, for the purpose of analyzing their influence on market stability, investors should be categorized by their significance into three groups: those of public interest, systemically important institutions, and other institutional investors. Through a detailed comparative analysis, the substantive differences between systemically important and public-interest institutional investors are highlighted. Finally, the specific tasks required of institutional investors for ensuring financial stability are decomposed within the contexts of rule-making, regulation, supervision, and their own institutional financial health.