A European Solution to the Regulation of Cross-Border Markets
Brooklyn Journal of Corporate, Financial & Commercial Law, Vol. 2, Fall 2007
35 Pages Posted: 27 Nov 2007 Last revised: 28 Sep 2011
This Article examines the problem of regulating a transatlantic exchange and argues that the recently adopted Markets in Financial Instruments Directive (MiFID) - the new EU directive that provides a regulatory structure for European markets to operate in and among the various EU member states - offers an appropriate model for allowing exchanges and alternative trading systems in the United States and European Union to conduct business in both jurisdictions.
Consideration of the MiFID as a model for the Securities and Exchange Commission (SEC) is not merely an academic exercise. The MiFID's potential to increase the competitiveness of European exchanges compels the SEC to incorporate some of the MiFID's best features in the way it regulates the operation of exchanges and other trading centers in the United States. To this end, this Article sets forth and examines three changes in how the SEC regulates exchanges: the separation of self-regulatory responsibilities from exchange operations, the redefinition of best execution in the trade-through rule to permit exchanges to compete on a variety of services - not only price - and the opening of the US market to foreign financial services providers, which includes allowing foreign exchanges to place trading screens in the United States. Each of these changes will move the US markets closer to the European markets and make it easier for US and European markets to combine and share services across the Atlantic.
To put in place the type of regime envisioned in this Article, the SEC will have to reconsider some of its long-held views about the role and obligations of exchanges in our securities markets. While the SEC has announced in recent months that it intends to adopt the basic principles of mutual recognition in limited areas, the SEC's current proposals do not go far enough to resolve the regulatory differences that exist between the US and European markets or to ensure that there would be adequate coordination of regulation and enforcement between US and EU authorities. Consequently, much still can be learned from following the more ambitious blueprint for the regulation of US and foreign exchanges laid out by the MiFID.
Keywords: securities regulation, stock exchanges, mutual recognition, European Union, markets in financial instruments directive, international finance
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