Assessment of Securities Market Regulation
Securities markets are a critical component of many economies, and the regulation of securities markets can be fundamental to a country’s financial development and integration into the global market. Consequently, securities market regulation is an important element of financial stability. This section looks at the objectives and principles of securities regulation (core principles), which were developed by the International Organization of Securities Commissions (IOSCO)33 as the key global standard for securities regulation. The section briefly reviews the development of the core principles and examines the ways in which they reflect the broad responsibilities of securities regulators and the nature of IOSCO as a whole. The section then looks at the preconditions for effective securities regulation, which, though fundamental, can be both difficult to achieve and challenging to assess. The section next turns to the IOSCO methodology, which is the principal tool used to assess securities market regulation, and addresses key considerations in conducting an assessment. After reviewing assessment experience to date and discussing some of the key findings, the section concludes by addressing three key topics in securities market regulation and development: (a) demutualization, (b) creation of an integrated regulator or supervisor, and (c) enforcement and the exchange of information.
Securities markets are tremendously varied, both in terms of their legal framework and their level of development. The specific responsibilities of securities regulators are equally varied. Therefore, it is not practical to set forth a single legal or institutional framework suitable for securities market regulation or to identify typical country practice. Indeed, this limitation was a major challenge for the drafters of the IOSCO core principles. Therefore, instead of presenting a single, unified regulatory framework, the core principles identify three key objectives that “form a basis for an effective system of securities regulation” (IOSCO 2003b, 1). Those objectives, which are discussed in greater detail next, are (a) protecting investors; (b) ensuring that markets are fair, efficient, and transparent; and (c) reducing systemic risk. After identifying the three objectives, IOSCO sets forth 30 principles that are intended to give “practical effect” to the objectives. IOSCO then elaborates on the principles through extensive discussion, while noting that, as markets change, the strategies for implementing the principles also will necessarily change. The principles state that “there is often no single correct approach to a regulatory issue. Legislation and regulatory structures vary between jurisdictions and reflect local market conditions and historical development” (IOSCO 2003b, 3). As a result of those factors, assessing securities market regulation can be fraught with numerous challenges. This section seeks to shed light on some of those challenges.