Latin American Capital Markets

DESIGNING A DERIVATIVES COMPLEMENT TO CASH MARKETS 375acceptance by the market participants operating within the self-regulatory frameworkMoreover, the closeness of overseers to the marketplace ensures that therules for commerce in that particular market are continually and quickly adapted tothe evolution in trade. 54 The challenge is to get the right balance.Objectives of Self-RegulationThe broad objectives of self-regulation are the same as those identified for governmentregulation of financial markets in IOSCO (2002b): to preserve market integrity(fair, efficient, and transparent markets), to preserve financial integrity (reduce systemicrisk), and to protect investors. Many forms of self-regulation currently exist for financialmarkets to achieve these objectives. Increasingly, there is a trend for self-regulationto be provided by specialists that have been delegated quasi-government functionsand not by the markets themselves. However; a multitude of models—industryself-regulatory organizations, self-regulatory exchange frameworks, and private associations—defineand encourage adherence to standards of best practice among theirparticipants. Self-regulation may focus on oversight of the market itself, qualificationstandards for market intermediation, and oversight of the business conduct of intermediaries,including their relationship with client market users. A single SRO may performthese areas of responsibility, or they may be divided or shared among SROswithin a given country or market sectorPowers of Self-regulatorsSROs usually draw their powers by statute or by delegation from a regulatory authority.These powers may include vetting and authorizing individuals, making rules,enforcing rules, exercising a disciplinary function, sharing information with other selfregulatorsand regulators, and intervening to maintain orderly markets. The role ofself-regulation varies across countries, market sectors, and developed and emergingmarkets. Where its role is significant, it almost invariably has a demonstrated trackrecord of responsible behavior under the oversight of statutory regulators.54 In the United States, futures and securities exchanges were the first regulators in the industry, long before the federalgovernment required them to regulate themselves. These futures and securities exchange markets have a longhistory of voluntary regulation.The exchanges adopted rules of conduct governing members and member organizationsand recognized from the beginning that self-regulation was necessary in order to maintain orderly markets andpromote public confidence in those markets.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub