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Well-functioning financial markets

Discussion Note 13 - 19 November 2012

In this note we discuss the theoretical foundation for well-functioning financial markets and why well-functioning financial markets are essential to reach the objective for the management of the Fund. Against this background we discuss, how NBIM may work to influence how the markets we invest in function.

main findings

  • NBIM is a large, long-term, global investor. Well-functioning financial markets are essential to reach the objective for the management of the Fund and fulfil our mission to safeguard and buildfinancial wealth for future generations.
  • Resilient, robust financial markets that are less prone to shocks and facilitate long-term growth are among the most important factors determining the long-term return on the Fund. Corporatetransparency helps overcome potential information asymmetries between us as an owner andthe companies we commit fund capital to. Fair access to the markets enables us to easily andrapidly determine the best available price and serves to minimise search and transaction costs.
  • Well-functioning financial markets are described in standard microeconomic theory. According to theory, interventions might be warranted to correct market imperfections and failures. Interventionsthat are not soundly based risk being ineffective or could lead to unwanted and unforeseenconsequences.
  • NBIM should engage in the development of regulatory frameworks and industry-wide standards with the aim of safeguarding the long-term interests of the Fund.
  • Successful engagement requires that we commit sufficient time and resources. Through highquality, research-based, credible and timely engagement using our in-depth market knowledge, we should aim to influence how the markets we invest in function. 

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