Latin American Capital Markets

DEMUTUALIZATION OF EXCHANGES 283securities industry would like to avoid duplication of examinations and inconsistentregulation. In that connection, the white paper advocates a single, independent arbitrationforum.The NASD has come out in favor of a single SRO model, and the chairmanof the SEC briefly embraced this model, 22 but the NYSE has opposed it. 23 The SECdoes not have the statutory authority to impose corporate governance requirementson listed companies, and neither would a freestanding single SRO. 24 Although the SECmight find it convenient to oversee a sole self-regulator the SEC might be temptedto make it an arm of the government, rather than a true self-regulator Yet, SROsdo not afford those they discipline the protections of persons who are investigatedor prosecuted by government officials. 25 These problems might not emerge in LatinAmerica, where there is only one dominant exchange in a particular country, but similarproblems could emerge in countries that have more than one exchange, whereATSs develop in competition with exchanges or where there are cross-border mergersor alliances.In the United States, one of the goals of the Exchange Act is "fair competitionamong brokers and dealers, among exchange markets, and between exchangemarkets and markets other than exchange markets." 26 For the SEC to suppress oreliminate competition among SROs could be contrary to this goal because an importantfunction of an exchange is self-regulation. 27 However, an ATS regulated as amember of an exchange could complain of unfair competition and yet find it uneconomicalto become a full-service SRO. Furthermore, although the benefits of regulatorycompetition are often touted, regulatory competition can be unseemly and destructiveof public confidence in the regulators. Given the serious fissures within theU.S. securities industry at the present time, the hybrid model seems the most likelysolution to self-regulation after demutualization.One of the many difficulties with any new SRO structure is adequate funding.Currently, U.S. SROs rely on four primary sources for their funding: regulatory feesand assessments paid by SRO members, transaction service fees, listing fees, and marketinformation fees (SIA 2000).The continued viability of these fees in rapidly chang-22 Garten (1999); Schroeder (1999); The Wall Street Journal (1999); NASD (1999).23 Fried (1999); testimony of Richard A. Grasso before the Senate Banking Committee, September 28, 1999, availableat 1999 WL 27594853.24 Business Roundtable v. SEC, supra note 58.25 See, for example, in the matter of Stephen j. Gluckman, Exchange Act Release No. 41628,70 SEC DOC. 323 (July20, 1999).26 Exchange Act, § I IA(a)(l)(Q(ii), 15 U.S.C.§ 78k-l(C)(ii).27 Exchange Act § 6(b).Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub