the SEC. 21 Will the United States lose market share to EEC exchanges in the future? The dangers of trading US equities in a secondary market such as London, which lacks the depth of the US market for US equities will prevent firms from defecting from the United States, 22 thus capital requirements will be higher for positions in the United States and consequently on almost all US equities than for equity positions on EEC markets and almost all EEC equities. However, this should not subsume the vast importance of the market-risk proposal that creates an international standard for capital requirement for debt instruments. Obviously, debt has always been more liquid than equity and more international in its marketability.
The specific application and implementation of the consultative paper will be pursuant to an SEC regulation which is in early stages of consideration by SEC staff. However, the restrictions on what constitutes eligible debt instruments will derive from various SEC no-action letters, which, for example, determine what constitutes eligible commercial paper, which, under the proposal, can be traded with 1/4 of a percent risk-weighting as opposed to the 8% that a bank would require to hold against a similar instrument. Thus, in current practice and under future implementation, securities firms and universal bank trading books enjoy a considerable advantage over banks holding identical assets. 23
Under US rules, there is no consolidation requirement for broker dealers and their unregulated affiliates. Thus, capital adequacy treatment of foreign currency risks, interest rate swaps and financial futures and options that will apply to banks and regulated broker dealers will not apply to the unregulated affiliates of broker dealers.