AS ROUND-THE-CLOCK SECURITIES TRADING moves closer to reality, the biggest headache for regulators is how to police the world's investment markets.
The Memorandum of Understanding signed this week between Britain and the United States is an important first step toward cracking down on one of the world's biggest growth industries, financial fraud. The memorandum provides a framework for the exchange of information between the Department of Trade and Industry in the United Kingdom and the Securities and Exchange Commission and the Commodity Futures Trading Commission of the United States. Should one of the authorities suspect insider dealing, market manipulation or some other illegal practice, it can request assistance from one of the other signatories, which may help in its investigation.Later this year, Britain plans to host a meeting of senior officials from some of the world's major supervisory bodies to discuss the whole matter of international regulation further. Hopefully, more bilateral agreements similar to the one reached between the United States and the United Kingdom will be signed, eventually leading to a whole network of memoranda in an effort to plug the gaps.
The negotiations will be far from easy. A top official involved in drawing up the Anglo-American Memorandum complained of being divided by a common language. "It may have been easier if we had carried out the negotiations in French," he joked. What is illegal in one country may be perfectly acceptable in another. Definitions of market terms, concern about breaches of confidentiality, worries about market jurisdiction and cultural differences will ensure that reaching agreements and eventually formal treaties will be a long drawn out affair.
Nevertheless, if investor confidence and market reputation is to be retained as securities trading becomes fully globalized, then stricter and more comprehensive supervision of the finan cial markets is essential.
Despite a few well-publicized cases, officials admit the number of successful prosecutions for insider trading and such is far too few. Regulators from all the major money centers should follow the example of the United States and Britain and put cooperative arrangements on a formal footing, showing financial marauders they really mean business.