dateline..........Boston..........March 01, 2007
Technology has changed the global playing field for broker-dealers as well, as it has reduced the communication barriers that once separated markets. As U.S. institutions' appetite for foreign securities has grown, so has the global reach of securities firms. U.S. "bulge bracket" firms have developed a multinational footprint, with operations that span the globe. There has been cross-border consolidation among broker-dealers as well.
solicited contacts limited to:
(a) providing research reports to large institutional investors;
(b) effecting transactions for large institutional investors, if the trade is booked through a US-registered broker or dealer; or
For example, can you, as an individual, own interest in an E.U. company, XYZ Company, today? The answer is yes, and it can be done many ways. You can buy a mutual fund or an ETF with a large stake in XYZ Co., obtaining the benefit of the expertise and acumen of the mutual fund adviser. You can buy XYZ Co. American Depository Receipts under certain ADR programs. You could buy XYZ Co. ordinary shares from your broker who may sell it out of inventory, or buy it from U.S. market makers in XYZ Co. Or, the U.S. broker may buy the shares on a foreign exchange though a foreign affiliate that is a member of that exchange or though a non-affiliate correspondent broker-dealer.
In thinking about a cooperative approach, it would not be my aim to forego all protections, enabling foreign exchanges and foreign broker-dealers to conduct business within U.S. borders without any conditions or regulation. This approach may be inconsistent with the SEC's legal obligations and would erode the investor protections that have contributed to the preeminence of the U.S. financial markets. In fact, the integrity of the U.S. system likely would be jeopardized: facing competition from lightly regulated foreign firms, U.S. financial services provides may chose to relocate overseas.
We need a different solution.
While the SEC raised the concept of mutual recognition for brokers 17 years ago, it still is a novel approach for it. In thinking it through, the SEC needs to be deliberate, for much is at stake. The SEC also needs to think about how investors are informed about the destination of their orders given the many ways that an order for foreign securities can be executed as the world becomes more closely linked. But there is much to be gained from a cooperative approach. Through greater communication and cooperation between international regulators and comparison of regulatory regimes, a degree of harmonization may result that produces stronger protections for investors in many jurisdictions. At the same time, this approach offers the promise of reducing the costs of trading around the globe.
1The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publications or statements by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission or the author's colleagues on the staff of the Commission.
2U.S. Bureau of Economic Analysis, available at http://www.bea.gov/bea/industry/gpotables/gpo_list.cfm?anon=138®istered=0.
3U.S. Bureau of Labor Statistics, available at http://www.bls.gov/oes/current/naics3_523000.htm.
4U.S. Census, available at http://www.census.gov/popest/cities/tables/SUB-EST2005-01.xls (noting population estimate of 559,034 for Boston and 550,521 for Washington, D.C. as of July 2005).
5Investment Company Institute and the Securities Industry and Financial Markets Association, Equity Ownership In America, 2005, available at http://www.sia.com/research/pdf/EquityOwnership05.pdf.
7Nielsen Media Research, Nielsen Television Index Ranking Report (Feb. 19, 2007), available at http://www.nielsenmedia.com/
8See supra note 5, Equity Ownership In America, 2005.
9Sugato Chakravarty, Venkatesh Panchapagesan, and Robert A. Wood, Has Decimalization Hurt Institutional Investors? An Investigation into Trading Costs and Order Routing Practices of Buy-side Institutions (2003), available at http://news-info.wustl.edu/pdf/venkatesh_may28_final.pdf.
1015 U.S.C. 78c(a)(1).
11Pub. L. No. 29, 89 Stat. 97 (1975).
12SEC, Report of Special Study of Securities Markets, Pt. I, H.R. Doc. No. 94, 88th Cong., 1st Sess. 588 (1963).
13See supra note 5, Equity Ownership In America, 2005.
14Exchange Act § 36, 15 U.S.C. 78mm, enacted as part of the National Securities Markets Improvement Act of 1996, Pub. L. 104-290 (Oct. 1996).
15SEC, Report of the Special Study of the Securities Markets of the Securities and Exchange Commission, H.R. Doc. No. 95, 88th Cong., 1st Sess. Pt. 1 (1963), at 6.
16S. Rep. No. 792, 73rd Cong., 2d Sess. (1934) at http://www.sec.gov/news/speech/2007/spch030107ers.htm