Harvard Law School Professor Allen Ferrell ’95 testified before the Senate Subcommittee on Securities, Insurance, and Investment yesterday about regulating cross-border exchanges. Ferrell described the current state of international exchanges and discussed ways for the SEC to better regulate international trading.
“The global movement of traditional stock exchanges to for-profit businesses has put pressure on the self-regulatory function of exchanges,” Ferrell said in his written testimony. “A for-profit stock exchange, burdened with expensive regulatory duties and competing with trading platforms that have lower regulatory burdens or no regulatory duties must grow its business to be successful. This emerging business dynamic may be driving a variety of fundamental changes in global regulation.”
Ferrell responded to proposed “mutual recognition” policies that would encourage cross-border exchanges by giving exemptions to the current registration process required by the SEC for foreign broker-dealers. When assessing whether or not the U.S. should allow trade with a foreign exchange, Ferrell stressed that a country’s statutes on securities regulation should not be the only factor. Instead, the SEC should examine capital markets data that would speak to the level of securities regulation enforced by a country’s government.
The issue of mutual recognition has been at the forefront of debates around securities regulation since Ethiopis Tafara, a top official at the SEC, proposed this ground-breaking policy in the Harvard International Law Journal last winter. Since then, SEC Chairman Christopher Cox ’77 has promoted the idea in speeches, and the financial media has drawn attention to the debate.
Ferrell is the Harvey Greenfield Professor of Securities Law and holds a B.A. and an M.A. in Philosophy from Brown, a J.D. from HLS, and a Ph.D. in Economics from MIT. An expert in securities regulation, he is associated with the John M. Olin Center for Law, Economics, and Business at HLS.
To view a webcast of the hearing entitled “A Global View: Examining Cross-Border Exchange Mergers,” click here. Real Player required.