Approaches to Market Regulation
JAMES H. CHEEK III
The 20th century has seen radical changes in global financial markets and these changes are relentless as we approach the 21st century. Rapid technological development, innovative hybrid financial products, new automated trading systems, and concentration of investment power within institutions are late 20th century phenomena that have led to a true globalization of financial markets, with a record level of cross-border investment and trading. Firms providing financial services and products are increasingly operating and offering their services and products in multiple countries with the result that investors are increasingly willing and able to channel their capital across national boundaries and borrowers and securities issuers are increasingly seeking sources of funds across the same national boundaries. The ease of capital flow alone places tensions on historical approaches to capital market regulation and rekindles the debate over regulatory competition giving new life to the concern regarding an international 'race to the bottom' in the market for securities regulation.
It is impossible to overstate the impact of technological progress on the global securities markets. Technology has made possible computerized markets that instantaneously link traders without regard to their physical location or institutional affiliation. Technology also makes possible the use of novel forms of market-clearing mechanisms, such as the large-scale single price auctions conducted by the fully computerized Arizona Stock Exchange. Market entrants continue to find ways to leap-frog existing market structures and regulatory constraints by introducing services and products that take advantage of the latest technological developments. Global securities markets and regulatory forces in those markets must anticipate and respond to technological changes, preserving the positive benefits of market regulation, whether it be domestically or internationally focused.
Closely related to the challenges presented by technological change are