With global markets growing apace, SEC Chairman Christopher Cox recently addressed the benefits and the challenges posed by global competition among exchanges. He said that it is time for regulators to take collaboration to the next level; from information-sharing, which has traditionally been focused on enforcement, to supervisory matters. Regulators must see each other as partners when it comes to ensuring sound regulation and efficient markets.
Among the regulatory challenges posed by the demutualization of exchanges is the integrity of the self-regulatory function, Cox said. The SEC looks at the control structure of the exchange and its approach to conflicts of interest, with particular concerned about the risks of a member controlling an exchange. The SEC has supported the functional separation of regulation from an exchange’s business activities through the creation of an independent regulatory operation within the exchange.
With global exchange alliances and mergers, the SEC must work closely with its counterparts overseas. Cox reviewed a number of combinations where the SEC and its counterparts have coordinated their efforts. He reviewed the NYSE Euronext combination in which the exchange agreed to refer possible rule violations to NYSE Regulation and to provide adequate funding for NYSE Regulation.
Chairman Cox noted that his international responsibilities are much greater than any of his predecessors. He serves as the vice chair of IOSCO; and will become the chair next year with the assent of the other members.
The chairman also emphasized that the SEC has developed relationships enabling the regulators to address concerns in Europe that the NYSE Euronext transaction would result in the export of U.S. laws such as the Sarbanes-Oxley Act. The SEC quickly issued a statement to make clear that common ownership of the markets would not trigger SEC registration or the application of the U.S. federal securities laws.
Enforcement is a key focus of international securities regulatory cooperation, according to Cox, but regulators can also serve investors by reducing duplicative and overlapping regulation, as well as by sharing information to ensure the effective regulation of cross-border market operations. The creation of a global securities regulator is unlikely, in his view, but the coordination of national regulators is a positive development.