SEC considers ‘mutual recognition’ regime

The Securities and Exchange Commission should launch a proposed new regime of “mutual recognition” with other global financial watchdogs by starting with the European college of securities regulators, NYSE-Euronext said yesterday.

The call comes as the SEC considers sweeping reforms to the way it deals with its overseas counterparts amid rapid cross-border exchange consolidation.

This includes allowing foreign stock exchanges and broker-dealers to provide products and services to US investors without having to register with the SEC.

Instead, the SEC would allow them in based on their home regulator’s regime being “substantively comparable” with that of the SEC.

It marks a radical departure for a regulator that has long considered its rules paramount, and could set the stage for a new global regulatory framework in financial markets.

The shift at the SEC has been brought about by the emergence of transatlantic exchanges such as NYSE-Euronext and the recent purchase of the International Securities Exchange, an options market, by Deutsche Börse.

Catherine Kinney, chief operating officer at NYSE-Euronext, told an SEC conference that a first step should be to agree on mutual recognition with the college of regulators in Europe, which oversees Euronext.

“It would be an excellent starting point,” she said, pointing out that the SEC had recently developed a dialogue with the college of regulators as a result of the NYSE-Euronext merger.

Ms Kinney said the SEC should also move towards mutual recognition of registration standards so that listings could be more harmonised, offering cross-border investors greater transparency about companies in which they were investing.

“If retail investors are going to those [foreign] markets, the notion that they will be able to trade in markets where you have a regulatory framework that’s comparable, that would be a plus to the competitive environment.”

She said that if the SEC were to allow foreign screens into the US, the regulator should also “extract from other regimes reciprocity in terms of us taking our screens to their environment”.

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