Impact of Financial Regulations on Market Liquidity in Germany

Abstract

Purpose: The aim of the study was to investigate the impact of financial regulations on market liquidity in Germany. Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings:  Financial regulations in Germany impact market liquidity through a complex interplay of factors. While they enhance stability and investor protection, compliance costs and altered trading dynamics may initially hinder liquidity. However, regulatory initiatives driving innovation and global harmonization can ultimately foster a more efficient market environment, benefiting both domestic and international Unique Contribution to Theory, Practice and Policy: Market microstructure theory, information-based theory of liquidity & agency theory may be used to anchor future studies on the impact of financial regulations on market liquidity in Germany. Financial institutions should proactively adapt their trading strategies and liquidity management practices in response to changing regulatory environments. Regulators should adopt a balanced approach to financial regulation, considering both the benefits of market liquidity and the need for stability and investor protection.