SEC sees mutual recognition of rules step by step

A landmark move by the US Securities and Exchange Commission to accept the market rules of a foreign operator's country would be done on a selective basis first, a senior SEC official said on Tuesday.
The SEC is reviewing how to allow banks, brokers and exchanges from the European Union and elsewhere to operate on the US market more easily, without going through a full, cumbersome US authorisation process.
The switch to so-called "mutual recognition" would mark a huge shift in how the SEC regulates its markets. It has traditionally insisted foreign bond and share trading operators meet all its requirements even though they were fully supervised in their home market.
"The Commission believes that the time has come for mutual recognition at the SEC. It's just a question of how," the SEC's director of office of international affairs, Ethiopis Tafara, told a stock market conference.
"We have not decided how to do it yet. It will be outcomes driven. I do think you will have some comparisons of rules and laws," Tafara said.
A key concern was to avoid regulatory arbitrage or where a broker or other operators plays off one regulator against another to obtain a competitive advantage, he said.
The shift comes amid concerns the US market is becoming less competitive, with foreign companies preferring to list where regulation is less draconian.
Ties between the European Union and the United States financial markets have also deepened with a merger between pan-European bourse Euronext and the New York Stock Exchange.
EU Internal Market Commissioner Charlie McCreevy welcomed moves to transatlantic mutual recognition of trading rulebooks. "In the EU, EU rules apply. There should be no cherry-picking. Brokers and exchanges from any jurisdiction meeting the agreed criteria should be given access and there should be full reciprocity," McCreevy said. Healthy regulatory competition should not be excluded where it made sense, McCreevy said. A rapid, wholesale shift appeared unlikely, however.
"I believe the SEC will have to tread carefully in this area because of our historical mandate," Tafara said. The stock market crash of 1929 in the United States left deep scars on the market, leading to heavy consumer protections.
Selective mutual recognition would be "the next best solution", perhaps through bilateral agreements, Tafara said. "Regulatory philosophy" was key to forging mutual recognition rather than simply what rules were being enforced in the other countries, he added.