Latin American Capital Markets

140 KAREN GOLDSTEIN ROSSOTTOBox 5-4 I Capital Market Integration in the European UnionIn 2000, the European Union appointed the "Group of Wise Men," chaired by Alexandra Lamfalussy,to review issues surrounding securities market regulation. The group's final report, theLamfalussy report, acknowledges that a single European Union securities market is expected tobring about key economic benefits to all member states and sets forth an implementation plan.The development of an integrated European securities market has been hindered for severalinterconnected reasons, including the absence of clear Europe-wide regulations on a large numberof issues, such as prospectuses and market abuse; an inefficient regulatory system; inconsistentapplication of existing rules; and the inadequate development of funded pension schemes inmost member states.To accelerate the integration process, the report recommends a new four-level regulatoryapproach and the prioritization of goals that are believed obtainable in the near future. Thesegoals include:• A single prospectus for issuers• Modernization of listing requirements and a clear distinction between listing and trading• Modernization and expansion of investment rules for investment funds (investment companies)and pension funds• Adoption of International Accounting Standards• A single passport for recognized stock markets.tion of ownership and control. Good corporate governance provides incentives forthe board and management to pursue objectives that are in the best interests of thecompany and shareholders and facilitates effective monitoring, thereby encouragingfirms to use resources more efficiently (OECD 1999).Corporate governance has long been a key policy issue in the United Statesand in Europe, where the development and implementation of principles of good corporate governance have been a priority. It has more recently become a significantissue in Asia. In Korea, for example, traditional corporate institutions are characterizedby large groups of related, family-controlled companies. Weak corporate governanceand the influences of these groups, or chaebol, on the national economy have led tothe structural defects surrounding the country's economic crisis in 1997. Corporategovernance was one of the first sets of financial sector reform efforts after the crisis(Kyu-sung 2000).The role of institutional investors as monitors of the companies they own isgrowing in the OECD countries, although they follow various models of governance.In the United States, governance is focused on the role of equity shareholders andprovides a system of proxy voting and minority shareholder protections. Until recently,institutional investors often have chosen to simply sell their shares in responseto an undesirable corporate event Institutional activism has increased, partially due toCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub