Latin American Capital Markets

INTERNETTECHNOLOGY AND THE DEVELOPMENT OF SECURITIES MARKETS 67will soon discount such information. In each case, the Internet's promise of freeflowinginformation is diluted or undermined.Yet, regulatory vigilance should take into account that, while the medium usedto buy and sell securities may change, the principles of securities regulation do not. Asin a paper-based environment, securities regulations, when applied to the Internetmedium, must ensure that the market is fair and transparent and that investors receivetimely and accurate information. However; regulations must be structured insuch a way so as not to constrain new technological developments or limit Internetinnovations that may prove invaluable to all market participants in the future.This chapter offers a general description of the early lessons many capitalmarket regulators have learned regarding regulation of securities activities on the InternetIn particular; the chapter focuses on those areas that recently have seen thegreatest growth and innovation and to which regulators have given the most attention—theuse of the Internet by investors, exchanges, issuers, and market intermediariesand specific areas of concern, such as system capacity resilience, and security,liability for hyperlinks and information contained on websites, the growth of day trading,and the unique enforcement concerns posed by Internet chat rooms and informationstored by Internet service providers (ISPs). Ways in which securities regulatorscan use the Internet to better protect investors and promote market efficiencyand transparency are also described.The chapter finds that the most significant lesson past experience offers isthat the fundamental principles of securities regulation do not change, regardless ofthe medium used to buy, sell, and market securities (IOSCO 1998b). Well-designedsecurities regulations protect investors; ensure that securities markets are fair; efficient,and transparent; and minimize systemic risk (IOSCO 1998a).They focus on deliveringmeaningful, complete, and timely information to investors so that they can make informedinvestment decisions. Regulations that focus on what information is madeavailable to investors—rather than the manner in which that information is delivered—notonly better achieve these goals, but also better promote technological advancementsthat themselves may better protect investors; enhance market fairness,efficiency, and transparency; and reduce systemic riskLikewise, the growing use of the Internet in securities transactions underscoresthe need for greater enforcement cooperation among securities regulatorsand law enforcement agencies of all countries. As investors increasingly rely on theInternet to access global capital markets, wrongdoers and scam artists also increasinglyuse the Internet to prey on those investors, frequently from different jurisdic-Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub