Latin American Capital Markets

PROMOTING REGIONAL CAPITAL MARKET INTEGRATION 173tual recognition, and home country control for the provision of investment servicesare to operate. It specifies how, once an investment firm is appropriately authorizedin its home member state, the firm must be allowed to offer its services in all othermember states without the need for further authorization. Member states must permitinvestment firms to become members of, or be given access to, all regulated markets,as defined in the ISD, in their jurisdictions. National restrictions on the numberof members of regulated markets must also be eliminated.The ISD identifies a range of activities denoted as investment services andlays out various criteria that member states' competent authorities must require afirm to satisfy, both in its initial authorization and in its ongoing operations, before thefirm can obtain the European passport.These include that the firm's directors be sufficientlyexperienced; that it have appropriate measures for administrative and accountingprocedures for safeguarding clients' securities and funds and for record keeping;that it avoid any conflicts of interest in its operations or that, if such conflicts doarise, it provide for the fair management of them; and that its employees act fairly andhonestly.There are several so-called general good provisions in the ISD that allow amember state to justify the application of national regulations that restrict the fundamentalEuropean freedoms. In particular a member state may justify the establishmentof particular rules of conduct for investment firms in the general good, if such rulesprotect the stability and sound operation of the financial system or if they protect investors.The ISD also allows member states to create restrictive rules governing theform and content of advertising by investment firms, again in the interest of the generalgood.In certain circumstances, the ISD allows a member state to require that alltrades by residents or established investors be concentrated in a regulated market. Ifa member state applies the concentration principle, however, it is obliged to give themarket participants to whom the principle applies the right not to comply with theprinciple and thereby to have their transactions executed away from a regulated market.Member states must allow a regulated market from another member state to establishautomated trading facilities in their jurisdiction, without any additional regulatoryapproval other than the recognition the regulated market received in its homemember state.ProblemsCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pubThere are many problems in the European Union's legislative and regulatory structurefor the European capital markets, which mean that its intended goals are not