Erik R. Sirri, the Director of the Division of Market Regulation of the Securities and Exchange Commission, recently proposed a “cooperative approach” to easing the registration requirements applicable to the activities of foreign broker-dealers and foreign exchanges in the U.S.
Under the “cooperative approach,” U.S. brokers could join foreign exchanges in jurisdictions with exchange regulation and oversight standards comparable to those in the U.S. and market securities that trade on those foreign exchanges in the U.S., and the foreign exchanges would not have to register with the SEC. In addition, the SEC would ease the requirements of SEC Rule 15a-6 to allow foreign brokers to deal directly with U.S. Qualified Institutional Buyers in the U.S. (but only in foreign securities and U.S. government bonds) without registering as broker-dealers. Mr. Sirri’s proposal conditioned the recognition of foreign regulators and registration status as the substantive equivalent to the U.S. standards on: (i) the existence of a supervisory cooperation, investigative and financial memorandum of understanding between the SEC and the foreign regulatory authority; (ii) compliance by foreign broker-dealers with specific U.S. regulatory requirements, including notice and record access requirements; and (iii) reciprocal treatment of U.S. broker-dealers by the home jurisdiction of the foreign broker-dealer.
With respect to foreign exchanges accepting U.S. members, Mr. Sirri proposed the following additional conditions: (i) notice to U.S. investors that their trading is effected in a foreign marketplace; (ii) U.S. persons can only trade foreign securities that do not have an ADR program on foreign exchanges; (iii) U.S. persons could trade through registered U.S. broker-dealers that have access to the foreign exchange; (iv) no discrimination by the foreign exchange in granting access to services.