When deciding to invest, one of the most important things to understand is where the operations actually take place. Whether you buy stocks, bonds or other financial instruments, you never enter a market without rules. In fact, each exchange takes place within authorized trading venues such as regulated markets or MTFs (multilateral systems). Here’s how they work, who controls them, why they’re so important, and how they differ from unregulated ones.
Regulated markets in Italy
Regulated markets are defined as financial platforms controlled and subject to precise rules, established mainly by the Consolidated Law on Finance (TUF).
Precisely due to the high level of detail of these rules, the role of the Bank of Italy and Consob is more central than other trading venues: these authorities must in fact check that everything happens in a transparent and correct manner.
In this scenario, those who manage a regulated market have very specific tasks:
- organize the facilities and services to make it work;
- check that all activities comply with the regulations;
- ensure that operations take place in an orderly manner.
Furthermore, it has the power to decide whether a title:
- may be admitted to listing;
- must be suspended;
- must be excluded when it does not comply with the required requirements.
The market manager must also take all necessary measures to avoid inappropriate behavior, such as price manipulation or the use of inside information.
Even those who invest must respect precise rules. For example, if the shareholding in a company changes, the change must be communicated quickly and clearly. This transparency serves precisely to protect those who invest.
Foreign regulated markets
In addition to the Italian ones, there are also regulated foreign markets that are controlled and subject to precise rules.
There circular 165/E of 1998 of the Revenue Department of the Ministry of Finance clarified that regulated markets should not only include Italian ones but also those of OECD countries (economically more developed), provided they are established and controlled by local authorities.
Over time, however, the regulatory framework has evolved profoundly. The rules contained in legislative decree no. 415 of 1996 were absorbed into the Consolidated Finance Act, which today is the main reference text when talking about regulated markets.
It establishes that a market can be considered regulated only if authorized and controlled according to European Union rules and if it guarantees transparency, correctness of operations and investor protection.
Furthermore, it is Consob that authorizes these markets and includes them in an official list.
Are all foreign markets regulated?
Not all foreign markets have regulated market status per se. Based on the Consolidated Finance Act, two very simple situations can be distinguished:
- the markets located in the countries of the European Union which are considered regulated markets because they follow the same rules established by European legislation.
- markets located outside the European Union which can be considered regulated only if Consob recognizes them through agreements with the supervisory authorities of the country in which they are located.
All other foreign markets, even if they are located in developed countries, do not automatically fall within the definition of regulated market according to the Consolidated Law on Finance.
Understanding what is meant by a foreign regulated market is important especially today. The reason is that more and more people invest online even in foreign markets without knowing the level of control to which they are subject.
Knowing that a market is recognized by European legislation or by Consob offers greater security, transparency and protection to investors. This is why the law clearly distinguishes between regulated markets and other trading systems.
The differences between regulated and unregulated markets
The main difference between regulated markets and unregulated markets is that in the former there is an official quotation and a system that determines prices in a clear and uniform way. It means that all buy and sell orders are published and crossed according to precise rules. In unregulated markets, however, the price arises from the agreement between those who buy and those who sell at that moment, without a recognized official price.
Another important difference concerns transparency and control. In regulated markets, the rules are clear and supervised by authorities such as Consob or other foreign supervisory authorities. Furthermore, negotiation processes follow standardized procedures. In unregulated markets which are also called Over the Counter (OTC), however, the rules are more flexible and there is no central body that guarantees uniformity in processes and timetables. This difference also affects liquidity and available information.
Furthermore, in regulated companies the information is more accessible and each operation is published, increasing overall liquidity. In OTC markets, however, transparency is less and it can be difficult to know precisely prices, volumes and conditions before executing a trade.
Finally, in traditional stock exchanges, operations take place through centralized platforms while in alternative markets exchanges can be decentralized and therefore between dealers, brokers or directly between interested parties.
This does not mean that one type of market is better than the other. Alternative platforms simply offer more flexibility and a wider range of tools, but come with higher risks and lower protections.
For those who invest, it is therefore essential to carefully evaluate:
- which market to choose;
- which tools to choose, based on your objectives and ability to manage risk.
How regulated markets work
In regulated markets, when a person buys a share, the order is sent to an electronic platform that connects those who want to buy with those who want to sell. These are no longer physical places, but digital systems in which purchase and sale proposals are automatically matched through authorized intermediaries.
On these markets not only shares are traded but it is also possible to purchase shares of funds, bonds and other financial instruments. This mechanism ensures that prices are determined clearly and based on market conditions, thus reducing the risk of arbitrators or discretionary decisions.
Is it better to invest only on regulated markets?
When you start investing, one of the main doubts concerns where it is best to do it and which markets to choose. In most cases, small savers prefer regulated ones because they offer more security and greater transparency than other systems. Consob also explains this clearly in its official guide, in which it specifies that the rules serve precisely to protect those who put in their money and to guarantee correct operations.
This does not mean that risk does not exist as it is always possible to lose money. However, the risks linked to scams, unclear information and opaque operations are greatly reduced.
