Latin American Capital Markets

DESIGNING A DERIVATIVES COMPLEMENT TO CASH MARKETS 373Information SharingGiven the increasingly international nature of contemporary derivatives markets, regulatorshave concluded that it is vital for the enforcement authority to be effective incross-border situations. Many cash markets span more than one jurisdiction, and, typically,these markets have international trading interests. Accordingly, IOSCO (2002b)recognizes that "the regulator should strive to ensure that it or another authority inits jurisdiction has the necessary authority to obtain information, including statementsand documents, that may be relevant to investigating and prosecuting potential violationsof laws and regulations relating to securities transactions and that such informationcan be shared directly with other regulators or indirectly through authorities intheir jurisdictions for use in investigations and prosecutions of securities violations," includingthose that cross borders. 53Market Oversight and Self-RegulationDevelopment IssuesThis chapter assumes that the nature of derivatives markets is that they tend to growbest in a legal and regulatory framework that supports existing commercial practices.Experience demonstrates that financial markets have succeeded best where therewas a culture of honoring commercial obligations and an enthusiasm for trading activities.Mandated self-regulation is a feature of U.S. market regulatory systems for financialmarkets at least in part as a result of these observations. Such self-regulationis required as part of a framework intended to ensure that markets enforce theirrules or contractual arrangements fairly and equitably and have market and financialintegrity programs in place. Mandated self-regulation is not unlike rendering privatecompanies increasingly subject to requirements to maintain internal and operationalcontrols.But self-regulation will not work without an effective oversight framework,both because the public may lack confidence in its fairness and evenhandedness andbecause of the potential market power that derivatives markets have. Self-regulation53 IOSCO (1998, p. !7).Twenty-six countries have signed a special arrangement commonly known as the Boca Declarationto permit requests for information on related exposures in different markets. See http://www.cftc.gov/oia/oiabocadec0398.htm and IOSCO (1998).Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub