Latin American Capital Markets

174 RUBEN LEEbeing achieved. 19 These problems are not just theoretical. As noted above, they havebeen deemed so important that the European Union's Council of Economic and FinanceMinisters has appointed a so-called Committee of Wise Men with three broadmandates: to assess the current conditions for implementation of the regulation of thesecurities markets in the European Union; to assess how the mechanism for regulatingthe securities markets in the European Union can best respond to developmentsunder way on securities markets; and, in order to eliminate barriers and obstacles, topropose scenarios for adapting current practices to ensure greater convergence andcooperation in day-to-day implementation, taking into account new developmentsin the market This section discusses five major sets of problems with the EuropeanUnion's legislative and regulatory structure for European capital markets.Lack of competition. The underlying goal of the Single Market program in Europeancapital markets is one of economic liberalism: the essence of the freedoms of movementand of establishment is that they are pro-competitive. However, the Single Marketprogram has actually been used to obstruct competition, primarily by national authoritiesattempting to protect their own financial markets.This may occur when directives are first being created and passed into law.Many attempts, for example, were made to create in the ISO a legislative tool to limitcompetition between the trading markets of the European Union, all in the name ofenhancing fairness and investor protection. The lack of transparency in the agendas,discussions, and procedures meant that important discussions concerning the substanceof the ISD remained confidential and that the way to influence the decisionmakingprocess was through informal lobbying and privileged access. The politicalprocess of negotiation and the qualified majority-voting scheme also allowed protectionisttendencies to flourish.Once passed, there are many ways in which European Union secondary legislationmay allow a member state to establish national law in a manner that suits itsown markets, but not those of other member states. The ISD, for example, may beused to support anticompetitive behavior through the implementation of the conductof business rules for investment firms. The establishment of such rules is one of theareas of supervision that remain the responsibility of a host member state, rather thanthe home member state of an investment firm. Given that there is no statutory definitionof what the general good means, interpretation of the phrase has to rely onthe European Court and its judgments. Five principles have been developed to de-Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub19 See Committee of Wise Men (2000), Lee (1996), and Steil (1996).