THE NETWORK STRUCTURE OF CAPITAL MARKETS AND ITS INTRINSIC DEVIATIONS

Kapitalizacija je jedna od ključnih ekonomskih, ali i društvenih pojava. Ona obezbeđuje ekonomski i društveni napredak. Kapital može nastati od dobra samo u određenim društvenim uslovima, koji su pravno regulisani preko instituta imovine i privatne svojine, i u kojima stupa u međudejstvo sa radom, stvarajući novu vrednost. Prometovanje kapitala zahteva posebnu društveno ekonomsku celinu, uobličenu u tržište kapitala. U kapitalizaciji i prometovanju kapitala, uspostavlja se mrežna struktura tržišta kapitala, sledeći mrežne strukture društva i šireg tržišta. Njeni pripadnici okupljeni su oko posebnog čvorišta berze, odnosno multilateralne trgovinske ustanove. Samoj prirodi mrežne strukture i protoku informacija kroz nju, svojstveni su neki urođeni nedostaci, zbog kojih je neophodna posebna regulacija tržišta kapitala.


Introduction
The market, with the capital market as its most organised part, is simultaneously a social and economic phenomenon.Of course, the economy itself is, above all, social.It develops due to the society's needs and the society then forms and builds around it, changing and developing along with it.The interdependence of the social and the economic is inextricable and mutually conditional, and what is more, mutually defining.
The vitality of this connection is something that is necessary for the development of societies and economies.This connection branches out into innumerable and multiple flows.The market has so far proved itself, through economic and social history, as the only known environment in which these flows can be directed, collected, focused in a way that does not hinder the development of either the economy or society.Any intervention in the flows between the economic and the social, which uses resources beyond these flows, necessarily causes the distortions of connecting flows, causing lagging, longstanding stagnation, unfavourable movements of any kind, which could ultimately ruin the very economies and societies exposed to such integrations.
The market, although spontaneously emerging, and originating from the needs of economic and social factors, if left to spontaneously develop, easily comes to its own negation, and it produces the same effects in "full freedom", as it does when it is deprived of all freedom.The market certainly does not suffer interventions, as neither the economy suffers the suspension of the market; however, the economy does not suffer the hypertrophy of the market's role, either.The market needs regulation in order to avoid the negative effects of its spontaneous development.

Capital as a Social Relation
This claim can be proven in the capital market all the more simply because that is the most organised part of the market, due to the nature of the subject of its existence -the capital itself.And it itself develops and survives only and solely on the union of the economic and the social.Some goods can be capitalised, i.e. can become capital, only in the economic process of production or exchange.
Such a process can be established exclusively between people, where one buys, and the other sells, where one invests, and the other produces, which ultimately creates a new value which settles parts of the livelihood of immediate participants, as well as those indirectly related to them.The tax paid from the newly created value will, therefore, go to all members of a society, for their health or education needs.
Capital is equated with social relations, and during the economic processes of transformation from the goods, through transport or production, to the use of the result of such a transformation from goods to capital, which takes on the form of a new value.Without the social relation the capital would not exist, simply because the transformation of goods into capital would be impossible, there would be no one to organise and realise it.Moreover, capital is tied to the society not only through the paths of its own actualisation, but also in its objectification.
It exists through the society and for the society, for its members.If the bond of objectification is lost, if the transformation of goods into capital becomes the goal in itself, and becomes a process of creating a larger quantity of goods, capital loses its essence.Its actualisation, just as well as its objectification, can only be tied to the society and its use within the society, there is no objectification solely for its own sake, for sake of the process as such.The accumulation of wealth decapitalises goods, and deprives that very wealth of purpose.
Capital is an economic category based on a social relationship.And as society is made up of clearly isolated individuals, who confirm and verify their existence through a mutual relationship with other individuals in society, so does the capital exist only within and for social relations.Around this relationship, other social relations are emerging, until the entire society rests, directly economically and indirectly through social institutions, on capital-relationships.
Ovo je veoma staro naučno i filosofsko saznanje, od Aristotelovog čoveka kao "društvenog bića" 1 , a ono što je savremena misao tom saznanju dodala i unapredila ga, jeste saznanje da se delanja pojedinaca u društvu i njihova osobna potvrda društvenosti odigrava 1 ζῶον πολιτικόν, ispravniji prevod od "društvenog bića" bio bi, možda, "biće zajednice".Only such societies are long-lasting and advanced, in terms of continuous improvement of technology and improvement of the living conditions of their members.Large civilization lags even relate to the lack of capitalisation capabilities, due to the lack of appropriate institutions and processes.A picturesque example is the Imperial China, which, despite its great wealth and significant technological innovations, significantly lagged behind the market economy countries, i.e. those driven by the capitalisation logic to progress, up until the last century (Landes, 2004, pp. 353-366).
In economic and sociological terms, capital is determined by its activity, it cannot exist without a transformation process.Capital, therefore, exists, as we have seen, only through social relations, only through the activities of interested individual members of the society.It cannot be reached through different terms, except through individualised and proprietary goods.If there is no interested individual as the owner, there is no one to deal with the transformation of goods into equity.Ideological illusions with the so-called social property are costly paid by inefficiency, the destruction of the economic substance and the degradation of entire societies.
State ownership is also not the answer.And in the system of state ownership of goods, the transformation of these goods into capital rests on managers who care about their own interests, and since they cannot express that interest through the goods they manage -because they are not theirs, but owned by the state, the emergence of capital withdrawal from state firms and transfer to personal property remains the rule in systems where state ownership prevails.Corruption is a systemic factor and the only way centralised authoritarian regimes function without economic freedom and with suppressed capital individuation.
Hence stems the necessity of legalising the concept of ownership and private property.Hernando de Soto, in an extraordinary study entitled Mystery of Capital, even claims that capital cannot be established without prior definition of private property, its legal protection through the fundamental principles of each community, and, finally, the registration of ownership (de Soto, 2001, p. 47).It is the initial and driving reason for the civilisation progress of the Western world in the early 13 th century and the drawing up of the Great Charter of Liberty, which represents the legal formulation of protection, among other things, of property (Magna Carta ..., 1215, art.2-7, 30-32); the Charter itself was created on the basis of the previous document, which, two centuries earlier, listed the property and, thus, its registered owners in the English Kingdom, the so-called Domesday Book (de Soto, 2001, p. 60).
Protection of private property has since been a legal institute formulated and standardised in basic legal acts, including its protection through independent institutions.The institutions that protect it, if they do not exist in the constitutions, should always be codified, with clear jurisdictions and independence, in systemic laws, in the legal hierarchy immediately below the constitution.The protection of capital through the protection of private property, its interests, the way of creation and marketing in a particular segment of the market, has been gradually left, since the Great Economic Crisis, to the specially established regulatory institutions in market economies.

Society and Economy as Networks
Society is, again, a mix of various interest networks of its members.This understanding was developed by a special theory dealing with society and human behaviour, both individually and as a group.Each of us exists in the environment of other individuals, and not passively, but in active collaboration, interdependence and opposition.By seeking a place in society and building a position in it, we establish links with other members of our community, whether we are aware of them or not.We exist in a network of interwoven contacts, impressions, services, opinions and actions.Man exists as a person only in relation to others, through others we build self-knowledge, Štimac M. The Network Structure of Capital Markets and Its Intrinsic Deviations preko mreže kontakata koja se uspostavlja između pripadnika društva.
we confirm and realise ourselves.Man is a social and political being, in the sense of existing and acting in society and through society.This is a very old scientific and philosophical knowledge, from Aristotle's man as a "social animal" 1 , and what the contemporary thought has added and improved on this knowledge is the idea that the workings of individuals in society and their personal confirmation of sociality are played through a network of contacts that are establishes between the members of a society.
The network theory of society, therefore, observes the society, or some of its parts, as a set of mutually established links between all members.Relationships can be viewed separately from one's own point of view, as emotional connections within a wider family, or business relationships between the enterprises of one area, or the relationships based on the traditions and codes of honour of a particular class.Network structures are resilient, can overcome various crisis more easily, and the solidarity within the network is higher.Everything done within a network affects all its members, and all in some way, directly or indirectly, contribute to the results of activities that are performed within the network.Hence, with strong arguments, it can be proved that there is a social responsibility of the company in the concept of corporate social responsibility, or the responsibility of each individual for the state of the market, or society in general.
Relations between individual members of the social group, as distinct from the characteristics of the group itself and its backward influence on its own members, began to be studied by Ferdinand Tönnies, at the end of the previous century.On the basis of the types of connections between members, he established a notable distinction between a community and a society, describing both: a community is created if its members are interconnected personally and directly, and a society is created if the connections are formalised and disbarred, and rest on a matter of interest formulated through a norm (Tönnies, 1887).
In such an approach, the capital market could undoubtedly be classified as a social phenomenon.
According to Émile Durkheim, another sociologist from the same period, we would easily arrive at the same conclusion and recognise the capital market as a social phenomenon, as he described social phenomena as those which, once formed, transcend all the individual participants through whose efforts they were created.The Encyclopaedia of Philosophy says the following on his analysis: "Durkheim's analyses demonstrate that in order to understand the individual, it is necessary to situate them within the network of social relations that informs and influences their life" (Internet Encyclopaedia of Philosophy).
The ultimate expression of this theoretical setting is summarized in Metcalfe's law (Techopedia), which explains that the more participants one social network has, the more valuable it is for each participant separately 2 .Not only does networking create a synergistic effect that creates a new quality, a new phenomenon -a community, but also the value of that community for the members can be mathematically shown: it is equal to the square value of the number of participants.The network of five participants will have a value of 52 and 25 respectively for each of them, while a network of 10 participants, although only doubled in the number of participants, will have a four times higher value: 102 = 100.
Tönnies' and Durkheim's findings were followed by research from the beginning of the pervious century, with the rise of the 1930s, and the new theoretical breakthroughs of the 1950s, which dealt with the nature of networks created by cross-links between some of their participants.The once established the theory that observes society and social phenomena, and various forms of organisation, through the frequency, distribution, mutuality and other qualities of the established relationships between the participants, has undergone continuous expansion and implementation to all new social forms throughout the 20 th century.

Mreža tržišta kapitala
Mreže su idealna okruženja za širenje informacija, njihovi tokovi zavise od prirode veza između učesnika.Ovo valja posebno imati na umu pri ispitavnju primene teorije društvenih mreža na tržište kapitala, jer je ono okruženje u kome posrednici trgujući razmenjuju novac drugih ljudi, za obećanja ljudi koje predstavljaju, dakle koje počiva prvenstveno It experienced a new breakthrough with the emergence of social media and the electronical connection of the members of social groups.Special attention is paid to the possibility of self-organisation, or targeted organisation.The resistance of established social networks to the influences that come from the environment, network interaction, the possibility of launching, as well as the managing social events (Liu et al, 2017) is also being tested.One of the more recent studies on this subject is Niall Ferguson's book, The Square and the Tower, in which he contrasts diffused network social organisations with those which rest on a firmer hierarchical order, and examines their interaction through history, including the latest major social movements (Niall, 2018).Social networks, according to these theoretical settings, can be classified as follows: 1. Egocentric, made up of a core member, with branching connections towards other members, all of which are in direct contact with the starting member, and without which the network would collapse -for example, a company with its business partners, or any person with people with which they have a certain connection, most of all accounts on Facebook or LinkedIn; 2. Sociocentric, in which all individual members are of equal importance for the maintenance of the network, and the quality of the network itself depends cumulatively on all members, which is why the connections among the members are spontaneously or subsequently arranged, of a higher type -examples of such a network are a military unit, the participants in corporate governance within a single company, or members of a single stock exchange; 3. Open networks, which new members can easily access, and just as easily leave, making them numerically the largest -such as social classes, like the middle class, or the market in the most general sense.Economic phenomena, since they are so deeply immersed in society and dependent on social phenomena, also take on social manifestations.If a society is made up of intertwined mutual connections of its members, then so is the economy.Particular specific forms of grouping these links occur where the interests are grouped, around which these social, economic and political connections are established in the first place.Thus, as a separate segment of the social and economic aspects of those members who trade and exchange goods, a market will form.
Other social networks will be broader, like a nation, made up of social connections that are established around the same market, in the same language as the means of communication.A nation, therefore, is not an ideological notion, nor just a sociological one -it is a politicaleconomic concept, being a combination of a market and a language, a market in which participants communicate in the same language.
Likewise, a class is not a social, nor an economic, but an ideological category, because various members of what ideology recognises as a class do not have identical interests, and therefore they are more effectively grouped according to their interests than ideological consciousness (if there even is such a thing).Grouping based on purely economic interest, practically forms the market; within the market, a grouping based on a particular interest in capital circulation creates the capital market.
A social network must be based on interest, and communication is equally important for its maintenance.In order for one network to be established, connected, the communication among its factors must be through the same means, the same language.The members of one network must understand each other, but besides this, a joint interest is indispensable.The working class, for example, is just an ideological category, it is not a social network.Under certain conditions, it can become a social network, if the rights of all and every worker are equally threatened, in which case the interest in establishing rights will act as an attractive force to establish an effective social network.
This, however, is only a theoretical assumption within a single model: even the October Revolution was not executed by workers networked into the working class, but those who had a common interest to end the war and misery that it caused -soldiers and sailors, deserters, together with the workers, regardless of whether they worked in some factory or not, parts of the intelligence system...It is, therefore, much more natural and appropriate to observe na razmeni informacija.Standardizovanih i formalizovanih, svakako, ali tek informacija.
The middle class, on the contrary, is not an ideological category, middle class members have a common interest, which is ultimately expressed through the democratisation of society and the establishment of strong institutions.A nation can also represent a target social network only when, along with communication, it develops the market as a network mechanism, through which the interests of its members are realised.The nation is, therefore, a blend of communication and the market.

Network of the Capital Market
Networks are ideal environments for information distribution, since their flows depend on the nature of the connections between the participants.This should be especially borne in mind when examining the implementation of the social network theory to the capital market, because this is the environment in which mediators exchange the money of other people via trade, for the promises of the people they represent, i.e. the environment which primarily rests on the exchange of information.Standardised and formalised information, as it is, but merely information.
Standardisation and its legal formalisation distinguish the network of capital markets within a wider network of a single market.The capital market is organised, normed and regulated.The relationships that are established on it, and which form its network, must be established and developed in the prescribed manner.The goal of this high level of standardisation and legal formulation is to maintain the network of capital markets itself, which would have collapsed without this.
Its members must also meet certain criteria in order to qualify for it.In this sense, the capital market network is semi-closed, as it does not bar entry in general, such as some class networks, but highlights the conditions for access.Once in a class network, a member of the network will not leave it in generations, regardless of all internal changes, while leaving the capital market network is necessary as soon as the changes in the participants become such that they endanger the maintenance of the entry criteria.
Relations between members of the capital market are short but frequent.Each member will endeavour to establish as many connections as possible with as many other network members as possible, and to make them as often as possible.By their very nature, these relationships are interconnected, that is, they are created to satisfy a certain economic interest, which can only be satisfied again if at least two members realise some benefit in satisfying this interest.After achieving the benefits and satisfying the interests, the individual connection is extinguished.
The network of capital markets is also structured: it is circular in shape, diffused, and requires more stringent conditions for the members of the centre; from the centre to the periphery, the criteria for membership are reduced in both complexity and number, while the participants in the network of capital markets do not equate themselves with the participants of the wider market network.The network of capital markets is thus established as a meta-network, in relation to the market itself.
Its very centre is somewhat of a hub 3 , which gathers all the edges of the nodes which immediately surround that hub, and through them all the edges of the other nodes on the capital market.In the most developed, modern, form of a network of capital markets, the realisation of the interests that initiate connections is no longer concluded in direct contact between the nodes, but in the interaction of the nodes of the network and the hub in the middle.
The hub is a stock exchange and the accompanying structure of clearing and settlement, either as part of the stock exchange, or as a separate economic unit.In the latter case, the capital market network will have two hubs in the centre: the stock market, where the job of satisfying the interest is conducted by establishing a connection between the network members, and the clearing, where this business is executed, and the concrete link between the members is extinguished.
The differences between the types of
6 "The Matthew effect describes the phenomenon that in societies, the rich tend to get richer and the potent even more powerful.It is closely related to the concept of preferential attachment in network science, where the more connected nodes are destined to acquire many more links in the future than the auxiliary nodes."operations on the market, whether brokers' or dealer', which of them prevail, whether the stock market is classical or an electronic dealer market, and whether clearing is part of a stock exchange or a special organisation, all of this does not matter to the nature of the capital markets network itself.It is derived from the mediators' operations, protecting their business integrity and the quality of services provided to those who are not in the network.
The very essence of the capital market network has remained the same since its emergence within the wider market, in the course of its development and maintenance to date: the mutual and multiple connectedness of traders.Today, for example, following this logic of network organisation, it is also defined in this way by modern legislation.The European Union Directive governing the capital market talks about the generic term of a multilateral system (MiFID II, 2014).This network concept is also broad enough to include all possible participants, and deep enough to regulate the links that are established between them.In Article 4 of the Directive, which provides definitions of key concepts, Item 19, states: "multilateral system" means any system or facility in which multiple third-party buying and selling trading interests in financial instruments are able to interact in the system .

Negative Effects
There is no perfect organisation, every social phenomenon, no matter how positive it is, always has accompanying effects that can jeopardise the prosperity it provides.Recognising and describing such negative phenomena within a wider context, the organisation of a society, for example, is a prerequisite for further advancement and improvement, through the relevant measures, or reorganisation, by which the negative effects can be mitigated.
The network structure of the capital market, such as the network structure of the wider market and the entire society, entails some intrinsic disadvantages.The first one endangers the equality of the members of the society, i.e. the participants in the capital market.

The Matthew Effect
This effect was described as a social phenomenon, one could dare say even as a pattern, by the American sociologist Robert K. Merton and his wife, at the end of the 1960s, who named it after St. Matthew, the evangelist, for the parable in his gospel, which reads: "For whoever has will be given more, and they will have an abundance.Whoever does not have, even what they have will be taken from them" (Matthew 25:29).
Merton described the sociological and psychological background of this phenomenon (Merton, 1968, p. 159), in a study dealing with the system of communications and awards in scientific circles, and through the example of limited membership at the French Academy of Sciences.The society consists of many intertwined mutual links through which its members communicate and enter different interactions.However, not all members of a society are equally incorporated into social structures.Those who are better positioned have a denser network of reciprocal communication links around them and they can more easily achieve their aspirations and interests.This makes them more attractive to other members of the society, who will try to connect with them, and they will, again, increase their connection and the possibility of gaining interest, which will further popularise and expand their network.On the other hand, those with poorer positions have a higher chance of their network of contacts dwindling down.For example, this is simply explained at the beginning of the paper of Matjaž Perc, published four years ago: "The Matthew Effect describes the phenomenon that in societies, the rich tend to get richer and the potent even more powerful.It is closely related to the concept of preferential attachment in network science, where the more connected nodes are destined to acquire many more links in the future than the auxiliary nodes (with fewer connections, author's comment)."(Perc, 2014, p 11).
The Matthew Effect as a phenomenon is easily visible in the capital market.Its necessary innateness in every social network may be most obvious and easiest to see on the capital market.It is natural for investors to choose those intermediaries that are better positioned on
7 "Behavioral finance is the study of the influence of the psychological factors on financial markets evolution.Financial investors are people with a very varied number of deviations from rational behaviour, which is the reason why there is a variety of effects, which explain market anomalies."the market; the more numerous and denser the mediators' connections are, the better they will be able to market the assets entrusted to them to provide their clients with higher profits.It is also not difficult to conclude that the arrival of new clients will make these intermediaries interesting to those who need investments, which will only increase their opportunities for easier and faster capitalisation.Developed to the limit, the Matthew Effect could lead to a cornered market, either of a single financial instrument or any market in general.The smaller the market is in terms of the number of nodes (points in the network) and the amount of financial instruments and their value, the more pronounced this effect will be.The assumption is that this could not happen in the circumstances where the market is left to its participants, because others will struggle to regain influence on it by expanding the network of communications and services.
The threat from the over-developing Matthew Effect can, moreover, be a permanent and efficient incentive to expand the capital market to new clients and create new financial products.Only a strong participant entering the capital market, past its original network, such as a state agency or ministry, or as a monopoly, by selecting a preferential broker, could damage the defence mechanism of the market itself from the Matthew Effect.

Pigeons-in-Piazza
This phenomenon has not been described in scientific literature so far, but is present in all capital markets and, as such, is known to all its participants and named by special phrases in their arguments, such as 'Pigeons-in-Piazza', for example, in English.Its basis is the speed of information dissemination in the capital market network, higher than the speed in other networks, which then reflects through certain behaviours of large groups of people.
The market is an almost ideal example of the information dissemination network and it partly relies on the flow of information; capital market, as we have seen, exists only as a flow of information -the flows of money and securities or financial derivatives are found before and after the market transactions themselves.If the flow of information stops, the capital market also stops.
The flow of information depends on the very structure of the capital market, its deepening and dissemination, as well as the degree of regulation and the way it is regulated.But this flow is certainly faster and more frequent than in other markets, or in society.Hence, the reactions of the participants in the capital market, the way they act in accordance with the information received, are in many respects specific and, in some cases, more pronounced than in the members of the society, outside the capital market.
The peculiarities of the reactions of the capital market participants were explained by the theoretical behaviourists, whose basic assertion can be reduced to the fact that the market participants are not guided in their actions by efficiency, or the shortest way to meet the greatest number of interests, but rather by reasoning that can be explained only if the consideration includes psychology, and most importantly crowd psychology.A relatively recent study, The Impact of Behavioural Finance on Stock Markets, says: "Behavioural finance is the study of the influence of the psychological factors on financial markets evolution.Financial investors are people with a very varied number of deviations from rational behaviour, which is the reason why there is a variety of effects, which explain market anomalies."(Birău, 3/2012).
This approach also provided us with the awareness that profit is not always the only driver of activity within the market networks.The establishment of new connections, better positioning, borrowing services, we have seen, can be equally strong motives for market activities.Such activities also provide the longevity and sustainability of networks.If profit were the only driver and motive, the interconnection between members of the network would quickly be eroded and the network would be dispersed.
In the Pigeons-in-Piazza effect that we are researching, the speed of information flows provided by the capital market network leads to the hasty reactions of the investors.The name of this effect is a clear reference to the shape of the market deviation: if you throw a few bread crumbs on the piazza, all the pigeons will flock to the place where the crumbs were thrown, no matter how small the possibility of them all Ograničavanje raspona dozvoljenih dnevnih fluktuacija cene na berzama može donekle da ublaži ovaj efekat, čak u početnoj fazi i da ga zauzda.Najbolja odbrana od njega, ipak, jeste investicioni mentalitet, odnosno svest igrača da će bolje zaštiti svoje dugoročne interese ako ne podležu panici.Drugim rečima, ako svoje ponašanje podvrgnu pretpostavkama teorije efikasnog tržišta, pre nego bihejviorizma.
One of the most obvious examples of this behaviour of market participants is the Asian crisis of the summer of 1997.Two decades before the crisis, the steady growth of smaller economies on the western coasts of the Pacific Ocean, the so-called Asian Tigers, attracted foreign investments.In emerging economies, money was easy to find for worthwhile projects until the moment when the inflow of money only created an illusion of real growth.According to the most common estimates, the saturation of the market with capital took place about a decade before the outbreak of the crisis.Large investors followed the middle and small ones, like pigeons in the piazza, making it so that the capital in these markets became cheap and investments were made in unprofitable activities.
The local currency crises, which began that summer, revealed the size of the discrepancy between the amount of available capital and the local economies' ability to absorb.And, again, the pigeon story was repeated: First, large investment banks began to leave these markets by selling securities from their portfolio.
And then, they were followed by small investors in panic, flooding the stock exchanges with their portfolios.The prices of the securities were in sharp decline, as the market was flooded with them.Through this panic reaction and unlimited offer, the investors practically contributed to the further deterioration of their own portfolios (Wong, 2000).
Limiting the range of allowed daily fluctuations in stock prices can somewhat mitigate this effect, even at the initial stage, and reign it in.The best defence from this, however, is the investment mentality, i.e. the consciousness of the players that they will better protect their long-term interests if they do not panic, i.e. if they behave in accordance with the efficient market theory, rather than behaviourism.
There are cases where the profit logic prevailed over panic on the market and thus preserved overall economic stability.The specialists on US stock exchanges, when the value of securities began to decline after President Kennedy's assassination, continued to buy them, surpassing the amount they were obliged to by stock exchange agreements (Financial Post, 22 November 2013; USA Today, 21 November 2013).This slowed down the downward trend and in the short term recovered the situation before the possible outbreak of a crisis, demonstrating that the public interest can be defended even while following private profit.
A similar situation was noted three decades prior to this, on the Belgrade Stock Exchange: after the Marseille assassination, the number of concluded futures contracts with a maturity of six months increased; the mediators thus postponed investment decision-making for half a year, during which the system seemed to persist and the assassination did not seem as if it would have negative economic consequences (Štimac, 1998, pp. 163-166).The possibility of futures trading was thus used to avoid hasty decision-making.

Reflexivity
A somewhat similar phenomenon to 'Pigeons-in-Piazza' is reflexivity, but the direction of movement through the network of capital markets is reversed.The basic movement that establishes and maintains a trend in the capital market does not come from the environment, whether economic or social, but from the very participants in the capital market, specifically the largest ones.If they have the sufficient financial strength and if they are able to act in a certain direction for a long time, they will initiate the market movements favourable to them.
and in advance, without security, expecting that upon maturity of the contract the pound would depreciate so much that he would buy it below the contracted price, thus earning profit from the price difference between the contracted and the initial prices. 5he fact is that the pound was overestimated in relation to the state of the home economy, and that it was necessary to correct its value, first of all towards the Deutsche Mark, but it is also certain that, without the speculative Quantum attack, its devaluation would not have happened for another while.The movement impulse on the market came from a market participant himself, who managed his own estimates and undertook all the activities in the given speculation at his own expense and at his own risk (Wolters, 1996).
The market responded to this action in the following manner.Practically, it reflected what Soros was doing, reacting like a mirror.Hence the name: reflecting of the image.The very phenomenon of reflexivity is theoretically explained by George Soros himself in the book The Crisis of Global Capitalism (Soros, 1998).He defined it as follows: "But financial markets attempt to predict a future that is contingent on the decisions people make in the present.Instead of just passively reflecting reality, financial markets are actively creating the reality that they, in turn, reflect.There is a two-way connection between present decisions and future events, which I call reflexivity."(Soros, 1998, p. 23).
Information about the actions of big, key players provokes such an expected reflection on the market, which corresponds to why the big players initiated the action in the first place.This was noticed and described in the book The Great Crash of 1929 by John Kenneth Galbraith, in the following words: "… Somewhere nearby there are always big players that significantly influence the question of whether the value of the shares increases or declines", and further: "... these big players have become ever more powerful in the eyes of the public…' (Galbraith, 2010, p 30).
Galbraith himself did not fully complete the scientific explanation of this phenomenon and its ultimate consequences, satisfied only by the statement of its existence: "There is an opinion that by seriously convincing the public that progress will continue in the future, we can indeed contribute to the progress that is ultimately achieved.This belief in the effectiveness of words and statements is particularly pronounced among business people."(Ibid, p 33).
The reaction of the market described in this way could hardly be imagined without its network structure, according to which the information spreads diffusely and re-connects to certain hubs.Network members that lean towards these hubs, again, take actions based on such mismatched information, following the movements whose impulse comes from the initial participant in the market.
The phenomenon of reflexivity points to the stratification within the capital market network, because it cannot occur without a clear discrepancy between the larger playersmembers of the network with a large number of connections and those with fewer connections.Accordingly, the reflexivity is similar to the Matthew Effect.The Matthew Effect identifies the situation within the network, i.e. the existence and (possibly) further development of discrepancy, and reflexivity points to its possible consequences in creating market flows.

Lesson for Regulation
The network structure of the market, i.e. the view of the capital market as a network of communications between various members of the network, helps us to understand some of the phenomena in it, described earlier, in a different and perhaps more meaningful way.In this regard, we easily come to the need for the regulation of the capital market, as well as to the level of the regulation itself.At the beginning of the previous century, Weber, considering the emergence and role of the market in society, established: "... (that) the market is a coexistence and consequence of rational associations, each of which is specifically ephemeral inasmuch as it is extinguished when the goods are exchanged, samo u liberalnom, tržišnom modelu ekonomije i društva.To, međutim, ne znači da je moguće da ono funkcioniše samo na spontano uspostavljenim odnosima između svojih učesnika.Ekonomska istorija pokazala nam je da se mreže trgovaca uglavnom uspostavljaju spontano, onako kako oni proširuju svoju delatnost i pristupaju drugim tržištima; takve mreže mogu uspostaviti i neku vrstu kodifikovanog autonomnog pravnog poretka, poput pravila objedinjenih u Zakonu trgovca (novolat: Lex Mercatoria, eng.Law Merchant) u srednjem veku, ili grupe pravila o tome šta valja i šta ne valja trgovci da čine, u knjizi Dubrovčanina Bena Kotruljevića, u odmakloj renesansi.No, za trajnost strukture koju trgovci između sebe izgrade, koja se uglavnom svodi na tržište, bilo ono šire, ili meta-tržište poput berze, nužna je podrška autoriteta izvan tržišta, onog oličenog u državi i njenim ustanovama.
unless a certain order has been imposed that guarantees to the participants in the exchange, in relation to their partners in exchange, the legal acquisition of the exchangeable good..." (Weber, 1976, p. 531) 6 .This obviously points to the imposed guarantees of the out-of-market authority for the execution of the contract, so we will conclude the state, adding that this is done through regulatory bodies, in an atmosphere that Weber describes almost identically as a network of participants: "... insofar as both participants in the exchange of their offer orient themselves towards the potential action of an unspecified number of real or possible other competitors interested in the exchange ..."7 (Weber, 1922, p. 364).
The necessity of a kind of organisation with established norms for the maintenance of every social network structure remained a generally accepted statement, which, in our time, was confirmed by Francis Fukuyama (Fukuyama, 2000).In the study The Great Disruption: Human Nature and the Reconstitution of Social Order, he explained the reasons why every society can be easily dissolved, if its internal relations, the relations between its members, do not subject themselves to an order that can be established on the basis of the norms resulting from religion, morality, or legal order.Developing these claims, he concluded that only those societies that are based on a liberal social model and a market economy can provide for themselves not only sustainability, but also every kind of progress.
The capital market, of course, can exist only in the liberal, market model of the economy and society.This, however, does not mean that it is possible for it to function only on spontaneously established relationships between its participants.Economic history has shown us that traders' networks are mostly established spontaneously, as they expand their business and access other markets; such networks may also establish a kind of codified autonomous legal order, such as the rules consolidated in the Law Merchant (neo-lat.: Lex Mercatoria) in the Middle Ages, or the groups of rules on what the traders should and should not do, in the Ragusan Benedetto Cotrugli's book on the late Renaissance.However, for the sustainability of the structure that the traders build among themselves, which is mainly the market, whether it is broad, or a meta-market like a stock market, it is necessary to have the support of the authorities outside the market, personified in the state and its institutions.
This regulation preserves the same liberal character of the capital market.The paradox is deepened by the fact that, when it is noted that the regulation is more developed and more diversified, the free movement of goods and money on the market is more protected.This is clearly demonstrated by Stephen Vogel in the book Freer Markets, More Rules (Vogel, 1996).The book discusses how the so-called deregulation is, in fact, only a new regulation, which has taken on different forms, in order to protect market participants and their business in an adequate way.
The change in the circumstances and the necessity of different and more detailed regulations, according to him, originated due to several factors, from globalisation to the development of various types of business on the markets, and the advancement of technology (ibid, pp.[10][11].And today technology is among the key catalysts of creating newer and newer rules.Thus, the world's leading regulatory agencies, such as the Commodity Futures Trading Commission (CFTC) in the United States, are trying to find the right set of standards that would prevent the so-called highfrequency trading (Investopedia) from making the financial market insubstantial as a place on which the supply and demand are generated by different assessments of participants, and not by accumulating buying and selling orders, more than ninety percent of which is not based on real business decisions, their only purpose being to be immediately withdrawn from the market after placement.Druge pojave, naprotiv, koje ugrožavaju samo tržište i razloge njegovog nastanka i održanja, urođene su i, kao takve, predstavljaju mnogo veći izazov za regulaciju.Izazov tim veći što je lakše uticati na prirođene pojave, nego na urođene -potonje ne mogu da se eliminišu u potpunosti, već će uvek pratiti osnovni fenomen, u našem slučaju tržište kapitala.Jedna od najopasnijih pojava po njegovu održivost jeste neravnomerna raspoređenost informacija.Informativna simetrija uvek se ističe kao conditio sine qua non njegove efikasnosti i, uopšte, funcionalnosti, pa i same svrhe postojanja.Otuda je svaka njegova regulacija posebno posvećena eliminaciji takozvanog insajderskog trgovanja, odnosno trgovanja na osnovu povlašćenih informacija, koje nisu dostupne pod jednakim uslovima svim zainteresovanim učesnicima (Investopedia).
Nijedno zakonodavstvo, međutim, ne upušta se u urođeni problem tržišta kapitala, jasno vidljiv kada se ono posmatra kao mrežna struktura, a koji se svodi na to da će svaki investitor, sledeći svoje legitimne interese, nagrađivati brokere koji imaju bolji pristup ključnim informacijama.Zakonska rešenja za ovako dubinski problem bilo bi teško razviti, a da se ne rizikuje pad u jednu od dve krajnosti: ili da norme budu deskriptivne, da ne bi prečile tržišne tokove, pa samim tim i nepotrebne jer ne bi ništa regulisale, već bi samo opisivale problem; ili, pak, da pokušaju da isprave samu This kind of trading, or better yet trading simulation, is something that arrived at the market subsequently, since it was previously created outside of it.High frequency trading, therefore, is not inherent to the capital market, is not its inevitable and integral part, but is inherent to it as a phenomenon.According to its possible side effects, it approaches the phenomenon of reflexivity.
Other phenomena, on the other hand, which endanger only the market and the reasons for its creation and maintenance, are inherent and, as such, pose a much greater challenge to the regulation.The challenge is higher since it is easier to influence subsequent occurrences than the inherent ones -the latter cannot be eliminated completely, but will always follow the basic phenomenon, in our case, the capital market.One of the most dangerous occurrences for its sustainability is the uneven distribution of information.Information symmetry is always emphasised as the conditio sine qua non of its efficiency and, in general, its functionality, and the very purpose of its existence.Hence, each of its regulations is specifically dedicated to the elimination of the so-called insider trading, i.e. trading based on privileged information, which is not available under equal conditions to all interested participants (Investopedia).
The investors, however, approach the capital market through a network of intermediaries.Each investor chooses their way of approaching a portfolio investment based on twofold information: the first relates to their own business policy, their own assessment and ambitions; the other relates to the choice of intermediaries, the most important requirement being their position on the market, i.e. their connections within a network of intermediaries.A better connectedness of an intermediary will tie him to many new investors, as we have already explained under the Matthew Effect.
A better connectedness of an intermediary means, above all, the disposition of better information and their larger scope.This is the basic comparative advantage of each intermediary, because the capital market is above all a network for the dissemination of information.In such an environment, one who has better information is better off.It is precisely for this reason that investors approach them, paying the commission for these better connections they possess, or paying them because their position within this information network is more favourable than the position of others.Investors choose and pay intermediaries on the basis of an estimate of their privilege, in other words, motivate them and reward them to acquire privileged information, based on which they will get better investments and, consequently, higher profits.
And here lies one of the basic tasks of regulation, and also the biggest contradiction of the capital market: how to establish such an order that would enable a level playing field in this flow of information, while leaving enough room for securing the profit by providing more substantial services, as the main drive of the intermediary activity?There is no simple answer to this question, nor has it been described in theory in a generally accepted manner.
The practice of regulatory agencies, again, depending on the jurisdiction, addresses this problem in different ways.There are general recommendations, the problem as such is noted, considered and described, and concrete solutions are left to individual regulators.Laws dealing with insider trading precisely determine which types of information must be public and, thus, available to all interested parties and in which cases and what kind of information does not need to be.The International Organisation of Securities Commissions (IOSCO) gave an overview of the various regulatory practices on newly established capital markets, from country to country, in a study done in March 2003 (IOSCO, 2003) The European Union has provided a legal framework to deal with the problem of insider trading in the form of a separate Market Abuse Directive.Four years ago this directive was amended with new provisions (Directive 2014/57), and on that occasion a special regulation (Regulation (EU) No 596/2014) was adopted.The explanations of these legal documents state that the improvement of the legislation is necessary in order to respond to new challenges of the capital markets brought about by the development of technology, such as trading platforms, or high-frequency trading.
Legal solutions to such a deep problem would be difficult to develop without risking falling into one of the two extremes: either norms should be descriptive, so as not to limit market flows, therefore becoming unnecessary because they would not regulate anything, but only describe the problem; or one should, in turn, try and correct the very nature of market behaviour based on the satisfaction of interest, thereby attacking the very essence of the market.Hence, the only possible approach is to impose a legal framework solution, with additional regulatory measures that an independent regulatory body will place within that legal framework.In doing this, one should always keep in mind another phenomenon, known in practice, and, again, insufficiently theoretically explored, which refers to the measure of regulation.It is colloquially called "sand-in-hand", because it conveys through allegory that the market should not be burdened by excessive regulation, as this causes the opposite effects, in the end even diminishing the market.If you want to keep as much sand as possible on your palm, your hand must be open; if you begin to clench it, in order not to allow the sand to trickle out of your palm, the exact opposite will happen: the more you tighten, the more sand will scatter, and in the end, it will completely trickle out from the palm of your hand.
In order for the regulator to find the right measure, it is necessary to be independent from daily politics, from the executive power, from the pressure of various lobbies, as prescribed by the IOSCO documents (Objectives and Principles of Securities Regulation, May 2003, p. 2), and as it has already become a global standard.Independence provides an active approach to the problems of the capital market at any time, and a timely reaction by changing or supplementing the game rules.Only in this way can the fine network of relations between the members of the network -participants in the capital market, as well as the function of the market itself -be preserved.In such a setting, with full independence, the capital market regulator becomes part of the network, one of the special hubs, and not a force beyond that structure, whose intervention is threatening to disturb it.