Abstract: This chapter explores the institutional conditions for the development of financial markets in emerging markets and transition economies. We focus on the development of the legal and regulatory framework for stock markets, but suggest that our framework would also be applicable to the law governing credit markets and banking institutions. Given the importance of financial markets for economic growth and development (McKinnon 1973), efforts to promote the development of such markets has been a corner stone of economic policies in transition economies. Not all countries, however, have been
equally successful in creating sustainable financial markets. This is true even for countries that have followed blue prints of what are widely regarded best practices for governing financial markets. This chapter offers an explanation for why this may be the case.
