Cross-Border Access – A Cooperative Approach

Last week, Erik R. Sirri, SEC Director of Division of Market Regulation, gave a speech offering suggestions and discussion points for a cooperative approach to enable foreign exchanges and foreign broker-dealers to conduct business within U.S. boarders. Mr. Sirri set the stage for discussing the issue, which the SEC originally raised 17 years ago, by highlighting the economic realities of the financial services industry and its continued growth, pointing to the recent alliances and mergers among exchanges; the advancements in technology in leveling the global playing field; and the evolution of regulatory oversight in foreign jurisdictions. He outlined the US securities structure and its three major components, corporate issuers, securities exchanges, and broker-dealers focusing on the SEC’s mandate to protect investors. The tension, of course, is how to satiate US investors’ growing appetite for foreign securities, which they can already obtain, and adhere to the SEC’s mandate. Mr. Sirri suggested that it is time for the SEC to consider a cooperative approach that would “reduce costs and frictions of obtaining foreign securities in the US, without jeopardizing investor protection for US investors. In fact, we may be able to work cooperatively with foreign regulators to raise standards for investors in all of our markets.”

The proposed approach relies on the SEC’s authority to provide exemptions to the securities laws. As Mr. Sirri explained, in 1996, Congress gave the SEC exemption authority from “any of the provisions of the Exchange Act and impose appropriate conditions on their operation.” The SEC could, therefore, determine whether in the public interest and consistent with its investor protection mandate, certain foreign exchanges and broker-dealers should be exempt. Mr. Sirri set forth several suggestions for conditions that should apply to any exemption: recognized jurisdiction; notice to investors; foreign securities only; US membership limited to broker-dealers; fair access; coordinated oversight; and recordkeeping, reporting and disclosure. Mr. Sirri’s comments are further detailed in a paper authored by Ethiopis Tafara, SEC Director of the Office of International Affairs, and Robert J. Peterson, Senior Counsel for the Office of International Affairs. Ethiopis Tafara and Robert J. Peterson, “A Blueprint for Cross-Border Access to U.S. Investors: A New International Framework,” 48 HARV. INT’L L.J. 31 (2007) (forthcoming, Winter 2007) available at

In essence, it is not difficult to imagine that any resulting rules for such exemptions will require successful applicants to submit to or already be governed by some system designed to ensure investor protection.