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SEC Goes Global; SOX Relief; More

Melissa Klein Aguilar | April 1, 2008

The Securities and Exchange Commission is forging ahead with plans for mutual recognition of securities firms and regulators overseas, which would give U.S. investors direct access to foreign markets and foreign broker-dealers.

The SEC says it is exploring initial agreements with one or more foreign regulatory counterparts, based on a “comparability assessment” by the SEC and the foreign authority of each other’s regulatory regimes.

The Commission is also developing a framework to allow mutual recognition in jurisdictions where multiple regulators operate under a common legal umbrella, such as Canada—with its provincial regulators—or the European Union.

The SEC plans to propose reforms to Rule 15a-6 to loosen rules that govern U.S. investor contacts with foreign broker-dealers and is also considering adoption of a formal process to talk with other national regulators about mutual recognition, according to a plan unveiled last week.


SEC Chairman Christopher Cox said the steps are designed to improve how the agency coordinates its oversight of U.S. capital markets with regulation by its counterparts around the world.

“By beginning to build a sturdy basis for cooperation among securities regulators who share the same concerns, we can greatly improve investor protection and market efficiency worldwide,” Cox said in a statement.

Mutual recognition would allow foreign exchanges and broker-dealers to sell products and services to U.S. investors without first registering with the SEC, provided that their home countries’ regulatory regimes are substantially similar to that of the United States. It would be a major policy departure for the SEC, which currently requires foreign exchanges that conduct business in the United States to register both the exchange itself and the securities trading on it with the Commission, even if the exchange operates outside the United States and the securities it lists are registered in their home countries.

The concept of mutual recognition has gained traction as the cross-border consolidation of stock exchanges has accelerated; technological advances eliminate barriers to cross-border access between U.S. and foreign markets, and U.S. investors are demanding greater foreign investment opportunities. The U.S. Commodity Futures Trading Commission already relies on a mutual recognition approach.

At an SEC roundtable on the topic last summer, participants supported the development of a framework to open the U.S. capital markets to direct access for some foreign exchanges and broker-dealers as necessary for the United States to remain competitive. Advocates say U.S. investors will benefit from more investment choices, lower transaction costs, increased efficiency of transactions, and more access to information about foreign investment opportunities.

The move toward mutual recognition follows changes to SEC rules to allow certain foreign issuers to file their financial statements according to International Financial Reporting Standards without reconciling them to U.S. accounting. The SEC has said it will formally propose an updated “roadmap” that lays out a schedule for allowing domestic filers the same option.

Dole Proposes SOX Relief for Banks

Washington lawmakers have introduced yet another bill seeking relief from certain requirements of the Sarbanes-Oxley Act, this time for banks.

Senator Elizabeth Dole, R-N.C., on March 5 introduced the Regulatory Relief and Fairness Act (S. 2703), which would allow qualified insured depository institutions, bank holding companies, and savings and loan companies to opt out of preparing Section 302 certifications and Section 404 internal control management reports and auditor attestations required by SOX.


Dole said the costs of the requirements outweigh the benefits, since they overlap previously existing regulations for insured banks and savings institutions.

Section 302 requires the chief executive and financial officers of public companies to make certifications about their financial reports filed with the Securities and Exchange Commission, including assessments of internal controls. Section 404 regulations require company management and external auditors to report annually on the adequacy of their internal controls over financial reporting.

The bill has been referred to the Committee on Banking, Housing, and Urban Affairs.

SEC Smoothes Path to Faster SRO Proposals

The SEC has amended its rules and related forms to modernize the process self-regulatory organizations like stock exchanges use to propose changes to their own rules.

The SEC adopted amendments to its rules to require SROs that submit proposed rule changes under Section 19(b)(7) of the Securities Exchange Act, so that SROs instead will file those changes electronically and post them on their Websites.

While SROs are already required to file electronically and post to their Websites any proposed rule changes submitted to the SEC under Section 19(b)(1) of the Act, proposed rule changes submitted under Section 19(b)(7) must still be submitted in paper and aren’t required to be posted online.

Once the rule takes effect on April 28, SROs will have to post proposed rule changes filed pursuant to Rule 19b-7 to their Websites no later than two business days after filing with the SEC and keep the changes posted until 60 days after the SRO files a written certification with the CFTC. The CFTC will then determine if that review of the proposed rule change is not necessary, or it will approve the proposed rule change.

SEC Approves Amex Change for Smaller Cos.

The SEC has approved a proposed rule change by the American Stock Exchange to amend its Company Guide to conform to recent SEC amendments to its rules and forms relating to smaller reporting companies.

The changes amend provisions that refer to the small-business issuer rules and forms, to make the references consistent with the Smaller Reporting Company Amendments adopted by the SEC in December. Those amendments became effective in February. The Amex changes also amend or delete portions of sections in its Company Guide that have become obsolete or otherwise need to be updated.