Latin American Capital Markets

62 REENA AGGARWALHow should ATSs be regulated? ATSs perform functions similar to those ofan exchange, but they are not an exchange and are not typically regulated as an exchange.Exchanges sometimes might seem to be at a competitive regulatory disadvantagerelative to ATSs. ATSs pose a number of regulatory issues, and the approachtaken by the U.S. SEC might be a good starting point.The regulation of ATSs shouldbe approached carefully to ensure that innovation is not stifled.What role should SROs play in regulating capital markets? If SROs play a rolein regulation, there may be conflict of interest issues, which can be more pronouncedin emerging markets than in developed markets. Financial resources are also needed tocarry out the SRO function, and many SROs are not able to do their job effectively becauseof these constraints.The alternative to SROs is to allow the securities commissionto carry out all regulatory functions. However, securities commissions are not wellsuited to carry out all regulatory functions and can best serve in an oversight role. AsKarmel shows, demutualization has made the SRO debate even more complex and theconflict of interest issues more severe (chapter 10, this volume). An option would beto consider the creation of one SRO for several markets (instead of each exchange andeach clearance and settlement organization having its own SRO). However, this wouldcreate a monopoly, and there would be no other options available.Capital market development must be supported because it plays an importantrole in the long-term economic growth of a country. This process is complex andwill take years to implement, but it does require both a short-term and a long-termstrategy. The strategy adopted will vary from country to country and region to region,depending on the unique situation of the economy and markets.BibliographyAsian Development Bank (ADB) and World Bank Joint Research. 1999. ManagingGlobal Financial Integration in Asia: Emerging Lessons and Prospective Challenges.Working Paper World Bank, Washington, D.C.Aggarwal, Reena. 1999. Stock Market Development: Role of Securities Firms and NewProducts. Presentation at the World Bank workshop on Non-Bank Financial Institutions:Development and Regulation, World Bank, Washington, DC., February2000.. 2001. Integrating Emerging Market Countries into the Global Financial System:Regulatory Infrastructure Covering Financial Markets. Presentation at theBrookings-Wharton Papers on Financial Services 4th Annual Conference, BrookingsInstitution,Washington, D.C.January.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub