Regulated vs Unregulated Markets

From a regulatory standpoint, investment markets can be divided into two broad categories:  regulated and unregulated markets. These two types of markets are complementary and important to well-functioning financial markets.

Regulated markets are overseen by a regulator to protect the public interest in those markets. This is why they are sometimes loosely referred to as public markets. Products in this market tend to be standardized and easily accessible to the public.

For example, if you want to buy shares of a publicly-traded firm like Safaricom, for example, you can call any broker and get the same standardized share of the company. The offering of the product needs to have been reviewed and approved by the respective regulator before the investment products can be sold to the public.

Unregulated products, on the other hand, are not regulated by a specific body. However, the manner of offering is usually regulated so that it qualifies to be outside the scope of regulation.

The manner of offering is usually private; hence they are also loosely referred to as private products or private offers. Since they are an alternative to public markets products, they are also referred to as alternative markets.

Like with any investment, each category has its advantage and disadvantages. No product is better or worse than the other; they both serve unique purposes depending on an investor’s specific investment objectives and risk appetite. The table below outlines them:

Investors need to first understand their investment objective, risk appetite, then understand the investment products available to them before they make an investment decision towards or away from unregulated products. We highly recommend that you speak to a Financial Advisor before you invest in any of the two categories of investments.

For market participants and the regulatory framework, we need to evolve from the mentality that all financial products must be regulated, and clearly demarcate what is a private offer and what is a public offer, and allow the two to co-exist for the benefit of advancing our capital markets.

To read more on regulated vs unregulated products, visit here.