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April 3, 2008

EU to SEC: No Cherry-Picking

By Nina Mehta

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  • EU to SEC: No Cherry-Picking

A top official in the European Commission delegation to the United States said in February that the Securities and Exchange Commission should not "cherry-pick" European countries when making decisions about which foreign securities exchanges should be granted easier access to U.S. investors.

Crispin Waymouth, first secretary in the economic and financial affairs section of the European Commission delegation to the U.S., said the U.S. should be cautious about creating a perception that certain countries may be favored "because of political links." If that were to happen, he said, "the political forces in Europe will, frankly, be very difficult."

Instead, Waymouth said, the European Union should be treated as a single entity, with the same standards for all nations. His comments were made at a talk sponsored by Brooklyn Law School that took place at the New York Stock Exchange in late February. The SEC declined to comment.

These comments come as the SEC is developing plans to allow exchanges and broker-dealers in certain foreign jurisdictions to access U.S. investors without registering with the SEC. The SEC refers to these plans as "mutual recognition" since they involve reliance on a foreign regulator's regulatory standards and oversight capabilities. SEC chairman Christopher Cox has said he expects the commission to consider a mutual-recognition rule proposal in late spring.

Although the SEC has not publicly discussed mutual recognition on a country-by-country basis in Europe, Waymouth's warning highlighted an issue of concern to regulatory bodies in the U.S. and the E.U.

Benn Steil, director for international economics at the Council on Foreign Relations in New York, pointed out that "there's a very real difference of views between the two sides right now. The SEC is not willing to say that London and Athens are equivalent in terms of their ability and willingness to regulate [the markets]." At the same time, Steil added, "the EC is concerned about maintaining its own power. They do not want the U.S., effectively, to chop up the E.U. into its national components--that would be the worst possible result for them."

In his February talk, Waymouth stressed that the E.U. has created a single market for financial services across Europe through the Markets in Financial Instruments Directive (MiFID), which went into force in November. In the wake of MiFID, Waymouth said, all E.U. countries are now subject to the same standards of securities regulation. MiFID was developed to provide a common regulatory framework for European securities markets, and to enable cross-border competition among European exchanges, multilateral trading facilities and brokers.

The Brussels-based European Commission is the policy arm of the European Union, a political and economic union between 27 countries across Europe. The E.U. nations range from the United Kingdom, France and Germany to the Czech Republic and Malta. MiFID applies to the 27 E.U. countries and Norway, Iceland and Liechtenstein.

However, while the rules governing trading and markets in the E.U. may be the same, there is no single European regulator. "From the SEC's perspective, the E.U. is a collection of autonomous regulatory authorities," said the Council on Foreign Relations' Steil. "There is no European equivalent to the SEC. The regulatory bodies that do the implementation and enforcement are on the national level. This is the SEC's concern."