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Remarks of

David S. RuderChairman

united states securities and Exchange Commission

Before the 14th Annual Conferenceof the

International Organization of securities Commissions

Venice, ItalySeptember 19, 1989

COOPERATIVE INTERNATIONAL SECURITIES REGULATION

The views expressed herein are those of Chairman Ruder and donot necessarily reflect those of the Commission, otherCommissioners, or the staff.

~

COOPERATIVE INTERNATIONAL SECURITIES REGULATION

It is a great pleasure for me to be here in venice at the14th Annual Conference of the International Organization of -Securities Commissions ("IOSCO"). At last year's IOSCO meetingin Melbourne, Australia, I presented the u.s. Securities andExchange Commission ("SEC") policy statement regarding the"Regulation of International securities Markets."]J In itsstatement, the SEC urged cooperation between the world'ssecurities regulators in seeking solutions to the problemsposed by the internationalization of the world's securitiesmarkets. My purpose today is to revisit that policystatement, to review the progress-made to date by internationalsecurities regulators in promoting a coordinated approach tointernational securities regulation, and to report on somerecent SEC initiatives.

The SEC's policy statement suggested that an effectiveregulatory structure for an international securities marketsystem would include:

Efficient structures for quotation, price andvolume information dissemination, order routing, orderexecution, clearance, settlement, and payment, as well asstrong capital adequacy standards;

Sound disclosure systems, inclUding accountingprinciples, auditing standards, auditor independence standards,

]J Policy statement of the u.s. Securities and ExchangeCommission, "Regulation of the International SecuritiesMarkets," Securities Act Release No. 6807 (Nov. 21, 1988).

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registration and prospectus provisions, and listing standardsthat provide investor protection yet balance costs and benefitsfor market participants; and

Fair and honest markets. achieved throughregulation of abusive sales practices, prohibitions againstfraudulent conduct, and high levels of enforcement cooperation.

Over the past year, securities regulators, acting both ona bilateral basis and through multilateral forums such asIOSCO, have taken great strides towards developing coordinatedresponses to these important issues. Major cooperative effortsare underway seeking to achieve greater comparability anduniformity among the world's securities market regulatorystructures. Significant progress has been made in all of themajor areas outlined in the SEC policy statement.Market Structure Developments

with regard to market structure, important jointinitiatives are underway involving capital adequacy standardsfor securities firms, information sharing and monitoring amongsecurities regulators, and creation of an efficient andcompatible worldwide clearance and settlement system. Advancesin technology increasingly are leading the world toward thedevelopment of global trading systems.

capital AdequacyAdequate capital requirements for market professionals are

basic to the safe functioning of all securities markets.Consistency among countries in their regulatory approach to

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capital requirements will serve to promote stability andliquidity in the international marketplace, and also willassist regulators in exchanging information regarding thecross-border activities of domestic securities firms.

IOSCO has taken a lead role in promoting adequate capitalrequirements for securities market participants. since 1987, aworking group of IOSCO's Technical Committee has been studyingissues related to capital adequacy for non-bank securitiesfirms from a global perspective. The working group hassurveyed the capital requirements of various countries and hasconsidered in detail the risks faced by securities firms.This year's work culminated in a Report on Capital AdequacyStandards for Securities Firms 11 that was adopted by the.Technical Committee at its meeting in Montreal, Canada in June,1989. The report will be presented this week forconsideration by IOSCO members. It endorses the concept ofinternational risk-based capital adequacy standards, andrecommends that capital requirements be reinforced by adequaterecordkeeping, reporting, and examination programs.

The report of the Technical committee represents animportant first step in increased harmonization ofinternational capital adequacy standards. Continuing effortswill be required, however, in order to develop a more detailed

11 IICapitalAdequacy Standards for Securities Firms," Reportof the Technical Committee of the InternationalOrganization of Securities Commissions, August 10, 1989.

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common framework. In particular, consultation withinternational banking regulators must be sought in order toreconcile the differences between the capital requirements ofbanks and non-bank securities firms.

Some effort in this area has begun already. The committeeon Banking Regulations and supervisory Practices, formed underthe auspices of the Bank for International Settlements ("BIS")located in Basel, Switzerland, is exploring various issuesrelated to a risk-based capital approach for the securitiespositions of banks and has sought the assistance of securitiesregulators from several countries.

Financial Information Sharing and MonitoringFinancial information sharing 'and monitoring play an

important role in worldwide securities regulation. Securitiesregulators share the goal of preventing defaults of overseasaffiliates from jeopardizing the financial integrity of firmsin their own countries. In this area, the SEC has begun todevelop information-sharing relationships with foreignsecurities regulators on a bilateral basis in order to promotethe exchange of financial information regarding the overseasoperations of securities firms.

For example, the SEC recently entered into an agreementwith regulators in the united Kingdom which provides that theywill waive their capital adequacy requirements for u.S. broker-dealers that have branches in the United Kingdom, if the SECprovides them with certain information. The SEC has agreed to

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notify U.K. regulators if it becomes aware that a particularbroker-dealer's financial or operational condition is impaired,and U.K. regulators have agreed to notify the SEC if theybecome aware that a U.K. branch of a U.S. broker-dealer has asubstantial problem. A similar agreement was entered intobetween the U.S. Commodity Futures Trading Commission and itscounterpart in the U.K.

The U.S.-U.K. agreement, which involves sharing financialinformation relating to foreign branches of securities firms,is a necessary first step towards the exchange of informationregarding securities affiliates operating abroad. While theseaffiliates may be separately capitalized, it is clear that thefailure of a U.S. secur~ties firm would have a significantimpact on the ability of its affiliates to obtain the short-term financing necessary to meet their daily obligations.Early warning of financial problems in an affiliate doingbusiness abroad may help regulators avoid the contagion ofmultiple failures around the globe. Accordingly, securitiesregulators should seek to extend financial information-sharingagreements to affiliated broker-dealers operating in ourvarious jurisdictions.

The SEC also has begun to develop information sharingrelationships with foreign regulators for the purpose ofmonitoring the activities of U.S. investment companiesinvesting abroad. To accomplish this, over the past year theSEC has encouraged foreign regulators to enter into informal

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information sharing arrangements regarding investmentcompanies. Under such arrangements, information obtained by aforeign regulator through an inspection of investment companyoperations abroad would be shared with the SEC, and informationobtained during an SEC inspection of an investment company'sU.S. operations would be shared with the company's foreignregulator. The SEC also has entered into formal memoranda ofunderstandings ("MOUs") with foreign regulators that providefor joint inspections of investment company operations. Forinstance, pursuant to the SEC's MOU with Brazil, a routineinspection of an American investment company's operations in

Brazil and the U.S. was conducted in late 1988 in conjunctionwith.the Brazilian Securities Commission. The SEC wouldwelcome similar arrangements with other foreign regulators.

Clearance and SettlementA truly international securities market will require

efficient and comparable automated national and internationalclearance, settlement, and payments systems, achieved throughthe reduction of differences between various national systemsand the development of clearing linkages among major nationalmarkets.

In 1989, several significant reports were published that

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should help further this goal. 1/ The Report of the Group ofThirty, a private sector group that includes internationalentrepreneurs and bankers, made nine recommendations designedto achieve a minimum level of efficiency and safety in nationalsecurities clearance and settlement systems that will serve asthe base for improved cross-border settlements. The Group ofThirty recommendations include speedier comparison andsettlements, establishment of central securities depositories,delivery versus payment as the method for settling all trades,use of trade netting where market volume would make thisbeneficial, and use of same day funds for settlement payments. ~In June of this year, the Ioseo Technical committee consideredthe Group of Thirty's recommendations and voted to 'recommend aresolution to the Ioseo membership encouraging rasea members tofacilitate implementation of these recommendations in theirmarkets.

1/ In addition to the two reports discussed in the text, theEuropean Economic community commissioned a study of theinter-depositary facilities required to settle cross-border trades within the Community (~ Dr. Jorg-RonaldKessler, study on Improvements in the Settlement of Cross-Border Securities Transactions in the European EconomicCommunity (July 1988», and the International Society ofsecurities Administrators ("ISSA") publishedrecommendations on the topic of "Global securitiesInvestments -- Processing Issues and Solutions" (~ ISSA,4th Symposium Report (May 1988».

~ The full Group of Thirty recommendations are set forth inthe Group of Thirty "Clearance and Settlement Systems inthe World's Securities Markets," at 3-19.

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The SEC generally supports the Group of Thirty.

recommendations as a blueprint for important improvements inclearance and settlement systems, ~ and is coordinating withthe private sector efforts in the u.S. to implement thesegoals. united States equities markets have made substantialprogress over the past two years in moving to next day tradecomparison, and already satisfy most of the other Group ofThirty recommendations. The recommendations concerning tradesettlement by the third day after trade date and use of sameday funds may require more time to implement in the UnitedStates principally because of active individual investorparticipation in our markets. As a matter of logistics, thesimplest means to facilitate earlier trade settlement may be toimmobilize, in central depositories, physical securitiescertificates, if not eliminate physical certificates entirely.As a legal, political, and indeed emotional matter, however,this solution offers its own special set of complexities.

The Group of Thirty recommendations cover the basicingredients of efficiency and safety that any national marketshould aspire to, particularly if it seeks to maintain andattract cross-border order flow in volume. In this area, therecent report of the Task Force of the FederationInternationale des Bourses de Valeur (FIBV) is complementary to

2/ See Testimony of David S. Ruder, Chairman of the u.S.Securities and Exchange Commission, before theSubcommittee on Securities of the Senate Committee onBanking, Housing, and Urban Affairs, June 15, 1989.

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the Group of Thirty Report. &I starting from a generalendorsement of the Group of Thirty recommendations, the FIBVTask Force recommends increased cross-border clearance andsettlement linkages as a means to improve the settlement ofcross-border transactions. The FIBV report correctlyrecognizes that, initially, linkages between national clearingand settlement systems likely will benefit medium- and smaller-sized firms that do not have the resources to create their owninternal global clearance and settlement systems. The FIBVReport also correctly predicts, however, that in the long runsuch linkages may prove to be beneficial even to the largestfirms that already are active in global securities markets.The FIBV Task Force's recommendations are broadly consistentwith the position adopted by the SEC in its policy statementthat securities regulators should encourage the development ofa network of sound linkages between individual market clearanceand settlement systems to facilitate cross-border settlements.

Global Trading SystemsAny discussion of market structure developments must take

into account continuing developments in the area of automatedtrading systems. This year, the pace of internationalizationof our trading markets continued to accelerate and several newproposals were introduced that bring the world closer to thedevelopment of automated global 24-hour trading systems.

£I The FIBV is expected to adopt the Task Force's report inOctober, 1989.

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In the futures markets, the two major u.s. markets, theChicago Mercantile Exchange ("CHE") and the Chicago Board ofTrade (IICBT"),have made substantial strides towards theintroduction of an after hours, global computer tradingnetwork called "Globex". The Globex system would permit theautomated dissemination of buy and sell interests as well asproviding the capability to automatically execute against thatinterest. The CME has had discussions with other futuresexchanges regarding their participation in Globex and Iunderstand that, thus far, the CME has reached an agreement in

principle with the Paris Financial Futures Exchange-MATIF 1/

regarding its participation in this system. The CME also hashad discussions with the New York Mercantile Exchange and theSydney Futures Exchange regarding their participation inGlobex.

On the securities side, the Instinet trading system andthe Cincinnati stock Exchange have operated automated tradingsystems during u.s. trading hours for a number of years. Inaddition, the Chicago Board Options Exchange ("CBOE") andReuters recently announced plans to introduce an after hours,global computer trading network for options and stocks. TheMidwest Stock Exchange also has proposed an after-hours tradingsystem so that its members can execute portfolio trades whichthey now execute in London. ~

1/ MATIF is an acronYm for "Marche a Terme d'InstrumentsFinanciers."

~ Securities Exchange Act Release No. 26887 (June 2, 1989).

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These existing and proposed trading systems representexciting market developments that offer special regulatorychallenges. The proper regulation of global trading systemswill be one of the principal issues regulators will confrontover the coming years.Registration and Disclosure Issues

The second general area outlined in the SEC's policystatement relates to the development of sound disclosuresystems. Inconsistent disclosure requirements, accountingprinciples, auditing standards, and auditor independencestandards between countries are impediments to a truly globalmarketplace for securities. Over the past year, securitiesregulators have made substantial progress in seeking ways toresolve such regulatory impediments, without compromisinginvestor protection.

MUltijurisdictional Disclosure SystemIf a truly international securities market is to develop,

differing disclosure and reporting requirements need to bereconciled and an integrated disclosure system must beestablished. Under a mUltijurisdictional disclosure system,issuers would be able to use their own jurisdiction'sdisclosure documents for offerings in other countries. Thispast summer, Canada and the united States proposed amUltijurisdictional registration experiment, ~ an event which

21 Securities Act Release No. 6841 (JUly 24, 1989).

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hopefully marks an initial step towards the establishment of amUltijurisdictional disclosure system on a multi-nation basis.

Under the proposal, public offers of securities byCanadian issuers could be made in the united states on thebasis of disclosure documents prepared in accordance withCanadian law. The system would cover multijurisdictional andCanadian cross-border offerings that meet specified size tests,certain rights offerings, certain exchange offers, and somecash tender offers. concurrently with the publication of theSEC's release on this subject, the ontario SecuritiesCommission and the Commission des valeurs mobilieres du Quebechave issued for comment counterpart proposals 10/ that wouldprovide for the implementation of a similar disclosure systemfor U.S. offerings in Canada. Their proposals would permitU.S. issuers to make public offerings and tender offers inCanada using disclosure documents prepared in accordance withSEC requirements.

In developing the proposed multijurisdictional system, itwas necessary to reexamine the basic premises of each homecountry's registration and disclosure system in order to assessthe comparability of foreign disclosure documents. This hasbeen a critical (and time-consuming) part of the process.Canada is the first partner for the United states in this

10/ See 12 ontario Securities Commission Bulletin 2919 (July28, 1989) and Quebec Weekly Bulletin Volume 20, Issue 20,p.1 (July 21, 1989).

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effort because of the similarities between the U.S. and Canada,both in terms of their securities laws and regulatorystructures, and because of the sophistication of both markets.Also of importance is the existence of an extensive MOUbetween the U.S. and Canada concerning cooperation inenforcement matters. I would publicly like to thank our goodfriends at the ontario securities Commission and the Commissiondes valeurs mobilieres du Quebec who have joined the SEC inthis experiment for their demonstrated cooperation, hard work,and goodwill as we have moved forward in this joint endeavor.

The regulations and forms developed in the U.S.-Canadianexperimental project have been designed in a manner which mayprovide a foundation for a mUltijurisdictional disclosuresystem that could encompass a wider class of issuers andadditional jurisdictions. The SEC would like to discuss withother countries the possibility of participation in theproposed mUltijurisdictional system. Because of the importanceof financial information in U.S. disclosure documents, a keyelement in such discussions will be consideration of thesimilarity of accounting principles and auditing standards.

International Equity OffersOther efforts also are underway to coordinate registration

and reporting systems in different countries. Last June, theTechnical Committee approved the report of an IOSCO workinggroup on multinational offerings of equity securities. This

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report, entitled "International Equity Offers," ll/ is beingcirculated at this 14th Annual IOSCO Conference. It makes anumber of thoughtful recommendations designed to promoteanalysis of current practices and issues that have arisen in

the context of international offerings of equity securities.One of the report's key recommendations is that an issuer

desiring to sell securities would be benefitted if it couldprepare one disclosure document which could be used in alljurisdictions in which the issuer chose to sell securities.The report encourages regulators, where consistent with theirlegal mandate and the goal of investor protection, tofacilitate the use of such single disclosure documents, whetherby harmonization of standards, reciprocity, or otherwise. Thereport also has made a number of other recommendations andconclusions regarding:

(1) the need to develop adequate internationally-acceptable accounting, aUditing, and independencestandards in order to facilitate the development of theuse of a single disclosure document;(2) the importance of providing information to investors(inclUding all existing shareholders) on a continuingbasis;(3) the need to coordinate timetables for listing,registration, and other clearance procedures in order to

11/ "International Equity Offers," International Organizationof Securities Commissions, september, 1989.

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minimize the delay in sales of securities, where this isconsistent with regulatory goals;(4) the need for further study of securities marketstabilization practices in order to determine whethersuch practices can be more c~osely aligned, and toeliminate uncertainties wherever possible;(5) the need for further study of restrictions on resaleapplicable to privately placed securities in order toassess the potential for a greater degree ofstandardization; and(6) the preparation of an annual report regarding theregulatory changes which have been made in eachjurisdiction that could affect multinational offers.This report on International Equity Offers will serve as a

useful blueprint for future discussions among securitiesregulators worldwide.

AccountingAmong the issues discussed in the SEC'S 1988 policy

statement was the problem caused by different accounting andaUditing standards existing in various foreign countries. Thedevelopment of mutually agreeable international accountingprinciples and auditing guidelines would reduce unnecessaryregulatory burdens currently reSUlting from disparities amongthe various national standards. Over the last year, securitiesregulators and members of the accounting profession throughoutthe world have been engaged in efforts to revise and adjust

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international accounting and aUditing standards in order toincrease comparability and reduce costs. While this is adifficult area and progress is necessarily slow, the existenceof international meetings on this subject and certain newly-instituted projects appear to be a harbinger of futureprogress.

In this area, another IOSCO working group is working toharmonize accounting standards in conjunction with theInternational Accounting standards committee (IIIASCII),aprivate organization supported by approximately 100 accountingbodies from approximately 70 countries. IASC is addressinginternational accounting standards that are incomplete or lacksufficient specificity, and it seeks t~ reduce the number ofaccounting options permitted under some of the standards.Where options cannot be eliminated, IASC has indicated plans tospecify one method as the benchmark (or "preferred") method forinternational filings.

At its November 1988 meeting in Copenhagen, IASC approvedpublication of an Exposure Draft of proposed amendments to theinternational accounting standards for public comment. 12/This proposal represents the first phase of IASC's project toaddress the question of accounting options. The Exposure Draftaddresses several issues, including revenue recognition,

1l/ International Accounting Standards Committee,"Comparability of Financial statements, ProposedAmendments to International Accounting Standards 2, 5, 8,9, 11, 16, 17, 18, 19, 21, 22, 23, and 25" (Jan. 1, 1989).

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business combinations, investments, retirement benefits, andforeign currency. The Exposure Draft was released for commenton January 1, 1989, with replies expected by the end of thismonth (September 30, 1989).

In an effort to provide guidance and establish disclosurerequirements currently lacking in existing internationalstandards, IASC recently formed an Improvements Steeringcommittee. IOSCO members have been providing input to thesteering Committee on this project, and IOSCO members will beparticipating in the meetings of this group, the first of whichwill be held in London in January, 1990. IASC also has takensteps to address the development of standards in areas where noprinciples exist in international literature. It has added newprojects on financial instruments, cash flows, and intangibleassets.

In addition to the IASC initiative, the InternationalFederation of Accountants ("IFAC") is working to reviseinternational auditing guidelines. Auditors in differentcountries are subject to different independence standards,perform different procedures, gather varying amounts ofevidence to support their conClusions, and report the resultsof their work differently. The IOSCO accounting working groupis participating in a project by IFAC to revise" internationalaUditing guidelines and to narrow these differences. The jointIOSCO/IFAC working group held its first meeting in May, 1988 tobegin to deal with these issues.

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with the increased internationalization of the securitiesmarkets, there will be a need to minimize the differences in

accounting principles and auditing guidelines. As I havenoted, the process will necessarily be complex and slow andmuch remains to be done. securities regulators around theworld should continue to devote substantial attention tointernational accounting and aUditing issues.

European COmmunity InitiativesOne cannot discuss cooperative efforts to facilitate

transnational capital formation without mentioning developmentsin the European Community ("EC"). While the United states is

not directly involved in the negotiations currently takingplace with respect to the plans to develop a single internalmarket for the EC's goods, services and capital by the end of1992, the joint efforts of the European securities regulatorsengaged in this herculean task certainly must be acknowledgedand applauded.

Of particular interest in the securities regulatory areais the EC's effort to create a common market for investmentcompany products through its directive for certain"undertakings for collective investment in transferablesecurities" ("UCITS"). This directive attempts to establish aminimum regulatory standard for investment company products andto require mutual treatment of these products. The twelvemember nations of the EC have been asked to conform their lawsto the UCITS Directive by October 1989 and I understand some

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progress has been made already by EC member states aiming tomeet this ambitious deadline. Once the laws implementing theUCITS Directive are in place, securities regulators around theworld may well wish to negotiate bilateral agreements with theEC along similar lines. The SEC is currently studying theUCITS Directive and its implementation by the EC member statesto determine whether the directive can be used as a basis formutual recognition of u.S. and EC investment company products.We look forward to continuing our dialogue with the EC memberstates on this and other matters in the near future.Enforcement cooperation

As access to international markets by brokers, issuers,and securities traders from all countries has increased, theneed for access to information about foreign trading activityhas expanded. Pertinent information and evidence regardingserious securities law violations frequently are locatedoutside of a particular regulator's jurisdiction. Over thepast year, securities regulators have worked both on abilateral basis and within international organizations todevelop a systematic approach for coordinating enforcementprocedures and for sharing foreign-based information.

Memoranda of UnderstandingsIn order to improve coordination of international

enforcement efforts and to exchange information, the SEC hasnegotiated bilateral memoranda of understandings with a numberof foreign countries, including Switzerland, Japan, Brazil, the

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united Kingdom, and the Canadian provinces of British Columbia,ontario and Quebec. Building on the experience gained from thenegotiation and operation of these understandings, the SEC hassought over the last year to institute a consultative processwith our MOU partners so that we may jointly consider anynecessary changes to, or improvements in, existing MOUs. Oneresult of this review process has been the formation of aworking group composed of representatives of the SecuritiesBureau of the Japanese Ministry of Finance and representativesof the SEC. This working group, which met for the first timein May, 1989, will seek to develop further arrangements betweenthe two countries for mutual assistance in enforcement matters,as well as procedures for sharing transaction, clearance, andcustomer information.

The SEC also has sought recently to strengthen its ownauthority to enter into MOUs. In 1988, it obtained from theu.S. Congress legislation 11/ which would authorize the SEC touse its compulsory process powers for the purpose of obtaininginformation on behalf of foreign securities authorities. Thislegislation is being used by the SEC as a basis fornegotiations seeking assurance of similar cooperation fromother regulators.

ll/ section 6 of the Insider Trading and Securities FraudEnforcement Act of 1988, Pub. L. No. 100-704, 102 stat.4677 (1988).

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The SEC has been pleased with the extensive cooperation ithas obtained from other foreign securities regulators withinthe context of its MOUs and hopes to continue to negotiateadditional MOUs on a bilateral basis in the future. Inaddition, in order to attempt to develop similar cooperativeefforts in a multilateral setting, the SEC recently hassupported an IOSCO Technical committee resolution on thissubject. The resolution calls for IOSCO members to enter intonegotiations for bilateral and multilateral understandings tofacilitate mutual cooperation and assistance in securities lawenforcement, and for improved sharing of information anddocuments between countries. This resolution has been endorsedby the Technical Committee and is being submitted to IOSCOmembers for consideration at this meeting.

other Cooperative Enforcement EffortsPractical experience often may provide the foundation for

cooperation among securities regulators. Unfortunately, theadvent of cross-border fraud and the need for cooperation amongregulators has outpaced our ability to negotiate and implementagreements. However, our common need to investigate potentialsecurities law violators who operate from a number of differentjurisdictions has served to provide regulators with theopportunity to develop, on an informal basis, new lines forcommunication.

For instance, international securities regulators haveorganized and participated in a number of international

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meetings designed to foster cooperative efforts to combatinternational fraud. One example is the Wilton Park Group, aninformal discussion group convened by the U.K. Department ofTrade and Industry. This group consists of representativesfrom ten countries who meet periodically to discuss methods forimproving the exchange of enforcement information amongsecurities regulators.

Enforcement training sessions also provide opportunitiesfor cooperative enforcement efforts. In June 1989, the SECsponsored a training program for both U.S. and foreign regula-tors and prosecutors at which strategies for investigating andprosecuting penny stock fraud and manipulation cases werediscussed. Twenty-eight individuals representing eight foreigncountries were among the participants in this program.International Meetings

In addition to the substantive work we have allaccomplished over the past year, securities regulators frommany countries have consulted actively with one another on arange of issues. Regulators from more established securitiesmarkets have assisted regulators from developing securitiesmarkets by providing technical advice and assistance.

SEC representatives have met with foreign regulators in anumber of group settings. For example, in January, 1989,representatives from the Securities Bureau of the JapaneseMinistry of Finance travelled to the united States to meet withrepresentatives of the SEC. The discussions covered a wide

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range of topics and culminated in the issuance of a Joint PressRelease on Cooperation. Representatives from both countriesagreed to maintain and continue to strengthen further the closecooperative relationship between Japan and the u.s.

Similarly, in the fall of 1988, a delegation from the SECtravelled to Frankfurt, Germany to meet with securitiesregulators from the Federal Republic of Germany under theauspices of an internationalization program co-sponsored by theUniversity of Pennsylvania Law School and the Johann WolfgangGoethe-Universitat Frankfurt am Main. Regulators from bothcountries participated in panel discussions on a wide range ofsecurities topics. These discussions have served to lay thegroundwork for future cooperation between the SEC and therelevant authorities in the Federal Republic of Germany.

Other U.S. InitiativesIn addition to the cooperative international efforts

already mentioned, the SEC has embarked on a number of majorinitiatives that attempt to accommodate its regulations toforeign law and practices. These include: (i) a reproposalof Regulation 5, l&I which is intended to clarify theextraterritorial application of the registration requirementsof the Securities Act of 1933; (ii) a reproposed Rule 144A, 121

intended to enhance the ability of foreign issuers to access

14/ Securities Act Release No. 6838 (July 11, 1989).15/ Securities Act Release No. 6839 (July 11, 1989).

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the u.s. capital markets through private placements withinstitutional investors; (iii) newly-adopted Rule 15a-6, 16/which provides conditional exemptions from u.s. broker-dealerregistration for foreign entities engaged in certain activitiesinvolving the u.s. investors and securities markets; and (iv) aconcept release that solicits comment on the recognition ofcomparable foreign regulation as a substitute for U.S. broker-dealer regulation. 17/ Also in the U.S., the North Americansecurities Administrators Association, Inc. ("NASAA") adoptedits own Statement on Internationalization of the SecuritiesMarkets in April, 1989~. In its international policystatement, NASAA urges securities regulators to "encouragelegitimate cap i.tia.L raising activities across national borders,"subject to "minimum rules to ensure investor protection. IIRecognizing the interdependence of the world's securitiesmarkets, the SEC will continue to consider ways to adjust itsregulations to accommodate foreign law and practice, withoutgiving foreign persons and entities an undue advantage overu.S. persons, and without sacrificing our primary goal ofinvestor protection.

16/ Securities Exchange Act Release No. 27017 (July 11, 1989).17/ Securities Exchange Act Release No. 27018 (July 11, 1989).~ See IIResolution of the North American securities

Administrators Association, Inc., on theInternationalization of the Securities Markets,1I April 29,1989.

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ConclusionLooking to the future, world securities regulators must

continue to work together in order to meet the problems posedby the growing internationalization of the world's securitiesmarkets. In particular, we must work hard to achieve someagreement among our various jurisdictions regarding appropriatestandards of conduct for participants in internationalizedsecurities markets, including prohibitions against insidertrading and market manipulation. Special questions are raisedby the onset of automated, 24-hour trading systems in equity,debt and futures markets. At a minimum, regulators mustconsider how to apply their registration, financialresponsibility and sales practice requirements to such systems.

IOSCO is in a position to play a pivotal role in assistingsecurities regulators to meet the challenges posed by theinternationalization of our markets. Not only does IOSCOprovide regulators with the opportunity to meet theirinternational counterparts, but its working group structureencourages foreign securities regulators to work towardsachieving consensus in areas of particUlar concern. It may bethat additional IOSCO working groups should be formed toconsider more of the difficult regulatory questions we face.

While there are many challenges that remain before us,tremendous progress has been made in cooperative internationalsecurities regulation during the last year. The SEC iscommitted to continuing to work with regulators from around the

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world to create a global market system that is efficient andhonest. With this goal in mind, we look forward to seeing youall in 1991 when the SEC will host the 16th Annual Meeting ofIOSCO in Washington, D.C.