Latin American Capital Markets

54 REENA AGGARWALCross-Border TradingInternational organizations such as IOSCO have played an important role in settingregulatory standards for capital markets. IOSCO has long promoted the importanceof interdependence among regulators in dealing with the increasing globalization andintegration of securities markets (IOSCO 1998). Harmonization of rules with regardto qualifications of financial intermediaries, capital requirements, registration of newsecurities, listing requirements, trading systems, and clearance and settlement willmake it less costly for market participants to transact business. Howeven it is importantfor each country or region to adopt principles that suit its own markets.In 1998, IOSCO established 30 principles of securities regulation that areaimed at achieving three objectives:• Protecting investors• Ensuring that markets are fain efficient, and transparent• Reducing systemic risk.These objectives form the general foundation for effective regulation.The challengesbecome particularly complicated for emerging markets that lack liquidity and face severalhuman and financial constraints.There is no one supra-regulator that would havejurisdiction over global capital markets.This idea has been suggested, but would be extremelydifficult to implement. In the European Union, these issues have been difficultto resolve in spite of the common social, political, and economic background of theEuropean Union countries. Europe is the only region in the world that has issuedthe Investment Services Directive, which spans several countries and lays down provisionsfor cross-border trading. Hence, it is difficult to imagine agreement on a supraregulatorat an international level.Exchanges and regulators are forming alliances/partnerships to reduce barriersto trading within member countries.These alliances include harmonization of regulation,adoption of similar trading platforms, and clearance and settlement systems. Ifeach country has its own regulator several issues arise (Domowitz and Lee 1998).Which country should have jurisdiction over what institutions? What if a trading systemis physically located in one jurisdiction but is incorporated in another? Where aresecurities listed? Which country are investors from? Which country do the financialinstitutions involved in the transaction belong to? Several approaches have been suggestedfor dealing with the regulatory framework in the global marketplace, but noconsensus has been attained.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub