Barrister Tureen Afroz

At the same time, we have to keep in mind that the success of harmonized uniform regulation will always depend upon the continuous cooperation among national participants to establish a "Global Government". The world will have to frame suitable harmonized global rules and continue developing the same for accommodating the constantly changing notions of the global securities market. IN the late 20th century, the world has experienced certain radical changes in the global securities markets. Some of the major changes can be identified as rapid technological development, increasing use of innovative hybrid financial products, adoption of new automated trading systems, growing volume of cross-border securities investment and trading and emergence of financial conglomerates. Regulators all over the world, are now posed with a choice question, "Globalism or Nationalism?" which echoes in every market they want to deal with. However, in the securities market a possible solution has been unanimously reached by the regulators and financial architects of almost all of the leading nations and that is "progressive harmonization of securities laws and regulations across the national borders". What they propose are that there should be a uniform set of laws and a common code of conduct in the global securities market, national participants should change their respective national laws to eliminate harmful regulatory discrepancies and there should be a regulatory convergence in the long run. Benefits of having uniform regulation

Let us find out what are some of the benefits of having a uniform regulation for global securities market:

Uniform standards of providing comparable necessary information will enable the investors to make the best decision of their choice and as such the investors will be protected no matter where they invest their funds. As the information asymmetry will be gradually removed from the market, chances of market failure will be less. Different rules produce growing confusion among the market participants. If uniform rules are implemented, any such legal uncertainty will be weeded out efficiently. As the securities markets will be operating under a single set of rules, the transactions in the securities market will take place in a fair, efficient and transparent manner. Distant markets will be linked together without much problem. This will increase the global market capitalization and the movement of otherwise idle investment funds. In the long run, economies will perform better and the pareto optimal level of global welfare will be achieved. It will be easier to diversify the risk as opportunities to venture new markets will not be much of a problem. As the barriers to entry into the market will be removed, competition will increase among markets and of course, in the services provided by market operatives. More competition will mean better services to the investors.

Because of following a uniform standard of regulatory and supervisory approach, any emerging risk will be easily detected and avoided. In other words, it will be easier to detect any emerging risk in the securities market and to take necessary preventive measures as only one set of criteria will be followed across the world. Essential features of uniform regulation

Social Optimality: Global regulation should be a socially optimal one. It should be the one, which is better than all individually practiced rules and regulations at the national level. Consistency: The global rule should be a consistent one. Consistency is not only a static concept but also a dynamic one i.e. uniform global rule should be consistent over the time as well. Flexibility: Financial market is always prone to technological innovation and instrumental inventions. Therefore, a uniform global rule should be such that it can accommodate changing notions of the financial markets with limited period of transition and minimum level of disruption. Adaptability: Uniform global rule should be easily adaptable by each of the markets. It should not be such that to comply with the same, the different markets will have to undergo a radical change at the cost of their internal financial market crisis. Cost effectiveness: Global rule should be such that only a moderate amount of national budget be required to update the present national systems to adopt the same. A costly global rule has very little chances to succeed its way across the world as many countries, posed with financial hardships, will find themselves in a disadvantaged stage to comply with it. Reduced transaction cost: Uniform global rule should be very much user-friendly. Such rule should act as an economic incentive to every participants of the securities market to the investors, securities dealers, brokers, other relevant intermediaries, regulators, self-regulatory bodies and of course, to the national economies, in general. Legal certainty: Uniform global rule should enhance legal certainty. Not only the investors but also the securities dealers want a secured and legally certain securities market. The global rule should aim at clearly stating rights and duties of each of the market participants vis-a-vis others. Enhancing competition: Uniform global rule should enhance quality competition for a healthy development of global securities market. Competition among service providers brings in better quality in securities trading markets. By removing barriers to entry, the global regulation should aim at achieving the best possible outcome at any particular point of time.

Balance between regulation and self-regulation: The big-stick regulation will be a complete failure if the market participants remain ignorant. Hence, policies and strategies should be devised to encourage "mass-awareness" among market participants so that they can adopt the best Codes of Conduct, come up with conscious market-watch mechanisms and can indulge themselves in 'industry gossips' and 'informal securities market chit-chats'. Such measures along with sound regulatory provisions would ultimately result in higher standards of behavior and would achieve the long-term policy objectives of stability and growth for the global securities market. Identified obstacles

There are certain obstacles in achieving a uniform regulation for the global securities market, such as:

Differences in different national disclosure requirements; Different national approaches to regulate market operatives; Disparity in different national accounting and auditing standards; Different settlement period; Differences in legal systems; Supervision problem of the global financial system; Cross-border law enforcement problem; Diplomatic nature of cooperation; Nationalism as a countervailing force; Lack of experienced personnel

How to remove the obstacles?

The differences in disclosure requirements can be removed by setting a common criterion for listing requirements and requiring common prospectus for all the markets.

The problem of different approaches to regulate market operatives can be resolved (i) by requiring common professional exams to enter the market; (ii) by framing best-practices rule to maintain universal professional standards; (iii) by imposing universally adequate and ongoing capital and other prudential requirements as licensing criteria; and (iv) by taking necessary measures to prohibit excessive risk-taking. In addition, an effective system of global market monitoring and supervision will have to be developed. Disparity in accounting and auditing standards can be done away with by adopting IASC (International Accounting Standards Committee) rules as unified global accounting standards and ISA (International Standards on Auditing) rules as global auditing practices. To tackle the problem of differences in settlement period, a universally efficient and accurate clearing and settlement process will have to be developed and the same should be properly supervised. A short settlement period will decrease risk. T+3 is the standard settlement timeframe recommended by the Group of 30 for equities market. Differences in legal system are real threats to have a uniform global rule. It is really difficult to have a complete unification of all legal systems. However, there can be harmonization in relevant legal areas as long as that is essential for the uniform global securities regulation to be operative. The supervision problem can be handled in three stages: (i) the geographical fragmentation aspect of global supervision should be addressed through cooperation among different international groupings of functional supervisors; (ii) the functional separation aspect of global supervision should be dealt by cooperation among international groupings of banking, securities and insurance supervisors in a joint forum; and (iii) there should be an emergence of a totally new international body, which will look at the matter in all aspects. The effective enforcement of the uniform global rule can be a serious hurdle. It is true that till date the law enforcing agencies are essentially national in character, i.e. territory specific. This has been a major impediment to enforce any international law as such. However, the practice of UN peace-keeping measures tried to make a breakthrough in the prevalent territory specific law enforcing system but it has its own limitation of being politically motivated and arbitrarily decided. Therefore, at least for enforcing global securities market regulation the responsibility will be primarily restored upon the national agencies of every nation state. What is necessary then is a cooperation among the countries to regard the notion of uniform regulation at any cost within their respective national boundaries. In other words, if every nation-state becomes respectful and committed to guard the global interest, the problem can be solved very easily. The very notion of diplomacy should be construed under contemporary realization. In this global world, political diplomacy should give way to economic diplomacy. If economic models are right, then the present world should move in harmony as the markets are becoming increasingly integrated. "Cooperate or die" should be the national and global slogan for diplomacy across the world. The campaign for globalisation should be strengthened more. The importance of uniform global rule for securities market should be highlighted all over the world. Debates should be initiated at the national and international level so that common people become aware of its significance. Once mass awareness is created, the demand for a uniform rule will be generated among the common people and soon after they will force their national leaders to move in the desired uniform direction.

To increase expertise, major human resource development programs should be undertaken at the international level in different phases Interaction between professional groups can be organized through global seminars, symposiums, conferences, workshops and exchange visits. Also, training courses be initiated. A global fund shall be maintained to promote such human resource development programs. Possible dangers

It may be mentioned that having a uniform regulation for global securities market might lead to certain dangers in the global power balance, at least in the short run. Some such dangers are as follows:

There will be massive power transfer from national regulatory bodies to undemocratically controlled international institutions, which have no answerability to the common people. One set of mandated international rules may be very inflexible to incorporate the changing notions of financial markets, in particular the securities market. If the uniform rule requires to undergo very radical changes, then it may not be possible for certain countries to adopt it at all, at least in the short run. Therefore, these countries will cause willful delay in adopting the uniform standard.

Because of the problem of less adaptability of uniform global rule, there will emerge "regulation havens" at least in the short run. This will increase the tendency of regulatory forum shopping. No doubt in the long run there will be regulatory convergence, but for the transition period this will inevitably cause much global tension and risk. Whatever be the short run dangers, the dynamics of the global securities market should still be analyzed and appreciated only in the mosaic of long term perspective, for which harmonization of regulation is a necessary condition. We should not forget that the risky financial fantasia is the greatest ever threat to the contemporary world economy. Every single minute, financial engineers from different parts of the world are innovating new financial instruments to averse the risk in the securities market but unfortunately, they are finding themselves in more and more risky situations. Therefore, 'moving together' is the only way out and for that, having a harmonized uniform set of regulation for the global securities market is the necessary pre-condition. At the same time, we have to keep in mind that the success of harmonized uniform regulation will always depend upon the continuous cooperation among national participants to establish a "Global Government". The world will have to frame suitable harmonized global rules and continue developing the same for accommodating the constantly changing notions of the global securities market. In other words, "harmonization" is not a substitute for "international cooperation". Rather both should go hand in hand, as the success of one will depend upon the success of the other.

January 13, 2002 Published at Daily Star, Dhaka