Latin American Capital Markets

176 RUBEN LEEto have beneficial effects. This is particularly evident in the legislation governing thecapital markets, where the lack of a theory of harmonization has meant that manylaws have been passed, although the need for them is questionable. The merits ofcompetition among trading systems, listing requirements, and prospectus requirements,for example, all debatably outweigh the need for the harmonization that hasbeen attempted.Lack of harmonization and home country control. Despite the stated goal of harmonizationin the European Union Single Market program, there are many ways in whichmember states continue to impose differing regulations on the same activities.This appliesto all types of capital market participants, including issuers, investors, intermediaries,and exchanges. For example, the European Union passport for issuers is still noa reality—companies wishing to raise capital in many European Union jurisdictions areobliged to comply with different or additional requirements in order to gain the approvalof local regulatory authorities.There is no agreed definition of a public offer ofsecurities, with the result that a similar issue of securities is classified as a private placementin some member states and not in others.Rules on the disclosure of price-sensitive and relevant market and companyinformation also differ between member states. Professional investors are often subjectto multiple sets of conduct of business rules.There is still no legally agreed definitionof what constitutes a professional investor despite some recent progress. Retailinvestors are faced with different sets of consumer rules with varying levels ofconsumer protection.There is no agreed definition of market manipulation. Effectivefunctioning of cross-border clearing and settlement is still impeded by legal differencesin the treatment of collateral. Investment firms now have a European passport, butare often subject to multiple conduct of business rules.The effective lack of harmonization and of home country control in the EuropeanUnion means that market participants still have to obtain appropriate regulatoryauthorization from most of the European Union countries in which they operatewith the attendant costs this entails.Ineffectiveness of the European Court. Reliance on the European Court to resolveproblems with national implementation and enforcement of European Union legislationis ineffective. The court's workings are too slow, and it does not have the expertise necessary to evaluate the rapidly changing trading mechanisms and productsof the financial markets. Furthermore, the commission has shown a reluctance to usethe European Court to combat recalcitrant member states for several reasons: thelikelihood that the court's rulings will not be enforced and that this in turn may un-Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub