Latin American Capital Markets

DESIGNING A DERIVATIVES COMPLEMENTTO CASH MARKETS 379Box 11 -1 |COSRA's Principles of Effective Market OversightAuthorization, Responsibility, and Accountability• Market operators and market intermediaries should be required to receive authorization fromthe government authority before they may lawfully engage in the securities or futures business.The government authority should impose appropriate conditions before granting such authorization,such as an obligation to comply with applicable laws, regulations, and rules anddemonstration of the absence of past misconduct.• The goal of an effective market oversight system is fain honest, and orderly markets.To achievethis goal, a regulatory system requires a mechanism for imposing responsibility and accountabilityon market operators and market intermediaries.• The government authority should consider creating a regulatory system where market operatorsor market intermediaries exercise direct oversight responsibility over their respectiveareas of competence, subject to appropriate government supervision and to the extent appropriateto the size and complexity of the markets.• The government authority should require a self-regulatory organization to meet appropriateconditions before allowing the organization to exercise its authority. Moreover once the selfregulatoryorganization is operating, the government authority should assure itself that the exerciseof this power results in fair and consistent enforcement of applicable securities and futureslaws, regulations, and appropriate self-regulatory organization rules.• The government authority and/or self-regulatory organization should develop enforceablestandards, including standards of business conduct for market intermediaries, based on highstandards of commercial honor, just and equitable principles of trade, and standards of financialintegrity.• Where a government authority allows market operators or market intermediaries to exerciseoversight authority in a system of self-regulation, the government authority should retain directauthority over all market operators and market intermediaries, to be exercised at its discretion.Monitoring for Compliance• An effective market oversight system must have a mechanism for monitoring compliance withlaws, regulations, and self-regulatory organization rules.Enforcement• An effective market oversight system requires a strong enforcement program. An enforcementprogram safeguards the integrity of the marketplace by deterring market participants from violatinglaws, regulations, and self-regulatory organization rules, by providing an effective mechanismfor compliance, and by enhancing investor confidence in the integrity of the markets andmarket intermediaries.Source: http://www.cvm.gov.br/ingl/inter/cosra/interasp.tor should step in if a self-regulatory organization shirks its responsibilities or if itsmembers endanger customer funds or engage in fraud, manipulation, or other illegalconduct. 56Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub56 In the United States, an SRO can have numerous regulatory responsibilities and can be sanctioned if it does notperform them properly.