Financial markets today are connected much the same way other markets were in the days of the Great West Indies Trading Co., though now the ties are vastly more complex.
What has remained since the 1600s is the enormous benefit from trading between countries: access to a wider variety of goods and services at lower costs. What is new is the growing interdependence of economies; the demand for capital in one market, for example, is supplied increasingly by investors based elsewhere.
Securities trading occurs 24 hours a day, seven days a week, as firms' "books," detailing customer trade demands, rotate from one financial center to another.
The growth in cross-border financial activity is enormous. U.S. transactions (purchases and sales) in foreign securities climbed more than 100-fold since 1980, from $53 billion to $5.8 trillion in 2001. Likewise foreign gross activity in U.S. securities expanded exponentially, from $198 billion in 1980 to $20.2 trillion last year. This vast availability of capital worldwide helped fuel the revolution we've seen in technology and the resulting economic growth and job creation.
The reduction and, in some cases, elimination of barriers to financial services -- particularly the most recent round of trade concessions achieved through the World Trade Organization in 1997 -- have helped drive the globalization of capital markets. But the WTO is embarking on a new round announced in Qatar last November, so far more remains to be done.
More work, too, is needed to harmonize accounting standards worldwide and provide the President with more authority to negotiate and enter into trade agreements with U.S. trading partners. Trade policy should promote economic growth through open financial-services markets.
Since 1997, in emerging and developed markets, regulatory structures covering financial services have evolved unevenly -- often at odds with the "market access" and "national treatment" commitments of WTO members.
That is why, as the WTO and trade ministers of 130-plus member countries focus on the next round, nothing will be more important than to make the process of financial-markets regulation far more transparent and, secondly, to foster fair regulatory systems that promote liquid, efficient capital markets and protect investors.
In developing and enforcing rules, it seems obvious that regulations, licensing requirements, and governments should be fair and equitable, adhering to clear, understandable policies that result from open, public processes. However, perhaps surprisingly, in today's global markets public consultation seems to be the exception rather than the rule.
For domestic economies to leverage the benefits that accrue from open, competitive financial markets most effectively, it is imperative that all regulators adopt procedural …