Latin American Capital Markets

282 ROBERTA S. KARMELOversight of Markets and MembersA movement toward the displacement of self-regulation by government regulation ofexchange markets and members has been taking place in Europe, not only becauseof exchange demutualizations, but also as the result of European Union directives requiringgovernment agencies or designated SROs to enforce capital market standards.In the United States, the Securities Industry Association (SIA) has giventhoughtful consideration to how self-regulation should function in a demutualized exchangeenvironment The SIA's Ad Hoc Committee on the Regulatory Implications ofDe-Mutualization has determined guiding principles for analyzing an appropriate SROstructure and has suggested six models for future regulation of the securities industry(SIA 2000).The SIA's Ad Hoc Committee's guidelines for evaluating regulatory optionsstate that any regulatory structure should foster investor protection; preservefair competition; eliminate inefficiencies; encourage expert regulation; promote reasonableand fair regulatory costs; foster due process; and encourage industry participationand self-regulation.The six models the committee put forward are status quo;multiple exchanges with separate boards and information barriers for their regulatoryarms (NASDR model); multiple SROs with firms designated to a single SRO for examinationpurposes (DEA model); one SRO for member firms, markets regulate theirown trading (hybrid model); all-purpose single SRO (single SRO model); and singleregulatory organization (SEC-only model).The SIA's Ad Hoc Committee endorsed the hybrid model in which therewould be a central SRO responsible for firm oversight and cross-market issues, includingrules generally applicable to all markets. 20 Individual market SROs would thenbe responsible for market-specific rules, including rules regarding trading and listing.Cross-market rules would include front running, manipulation, free riding and withholdingrules, sales practice regulation, industry admission standards, financial responsibilityrequirements, training and supervision, and record keeping. Arguments in favorof the hybrid model are that this model would improve regulation, decrease regulatorycosts, preserve the synergy between markets and market-specific oversight, fostercompetition, and continue self-regulation. On March 22, 2000, the SIA board ofdirectors endorsed the hybrid model. 21 One reason for this endorsement is that the20 Securities Industry Association, Reinventing Self-regulation—Recommendations Regarding Self-regulatory Structure(last modified March 23,2000) http://www.sia.com/demutualization/htmv/recommendations-regarding-self.html.21 Securities Industry Association press release, Securities Industry Board Endorses "Hybrid" Model to Enhance Benefitsof Self-Regulation for Investors, (last modified March 22, 2000) http://www.sia.com/html/pr993.html.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub