Global Securities Markets: Navigating the World's Exchanges and OTC Markets

INVESTORS

Investors can be divided into two groups: retail investors and institutional investors. Retail investors—individuals investing in stocks for speculation or investments—are but a small fraction of the marketplace. Institutional investors—banks, insurance companies, pension funds, hedge funds, mutual fund companies—are by far the lion's share of the market. Particularly in Europe, but also around the world, the tendency is for law and regulation to protect the uninitiated but let the sophisticated investor fend for himself. For example, the British Virgin Islands allows an international business corporation to contract as it pleases with little regulation under the theory that it is a sophisticated corporate structure. In Germany, some courts treat derivatives investors with sophisticated prior investment experience differently than retail investors with no experience, mandating extensive disclosure to the latter and affording monetary relief to the unsophisticated investor if that disclosure was not made.

The scope of freedom of contract afforded to an investor also turns on whether the investor was solicited by a broker or whether the investor took the initiative and reached out to the broker. If the latter—and if the brokerage firm where the broker works has no physical presence in a country—then both investor and broker may escape financial regulation. In Chile, for example, where there is no public offer of securities in country, Chilean investors are free to contract ...