There are many linkages between international securities
organizations and emerging capital markets in East Africa: how financial
globalization encourages financial integration in the global economy: which
institutions influence that integration in the African capital markets: and
what kinds of inequalities might be understood or unearthed in the context of
that current arrangement.
Securities related
international organizations such as International Organization of Securities
Organizations, the World Federation of Exchanges, promulgate best practices in
the securities industry regulation for world stock exchanges and are part of an
interrelated network of international organizations that influence stock
exchange activity and regulation including: the World Bank, the International
Monetary Fund and the Organization for Economic and Co-operative Development.
Similar to the establishment of Stock Exchanges in economies with no financial
infrastructure or investment culture to support them, these best practices are
implemented wholesale by East African Exchanges with the promise of membership
in a global economic community. Functionally, however, the best practices do not
take into account local capacity or conditions.
As Professor Andrew
Hurrell stated, “Institutions reflect, but also actively shape, communities.”
This paper describes the international securities organizations and considers
how they influence regulation in emerging markets and is a preliminary attempt
to understand that role in terms of inequality.
This year the International Organization of Securities Commissions
published its first Securities Market Risk Outlook[1] with
a narrow focus on securities markets and the potential systemic risks currently
existing or could develop, threatening the financial system as a whole. International
organizations promulgate best practices in the securities industry regulation
for world stock exchanges. Frontier, emerging, and developing exchanges comply
with these recommendations wholesale frequently without the resources to
customize them.[2]
Currently, the developed exchanges and international organizations setting
those best practices are dominated by the West. African financial markets have
lagged behind others for most of the twentieth century.[3]
The global financial crisis underscored the need for the
developed world to review its existing legal and financial frameworks and
changes were enacted: Dodd-Frank, establishment of the Financial Stability
Board to name a few. However, those same organizations still serve as
gatekeepers to entrance in the global financial markets. The world realized the
fragility of the governance of its banking system and the global connectivity
we already existed in. The rules and regulations that governed our capital
flows were connected to our mortgages and our jobs: law, society and economy in
complete overlap. The reforms addressed multiple layers of that overlap. (FSB,
IOSCO) The powerful nations who caused
the crisis struggled, and continue to struggle, with their legal response to
it. And yet, that response will have ramifications for developing markets who
may or may not have had the same risk factors leading to the crisis, but may
need to adopt reforms, for example new rules for derivatives[4],
as a new standard for best practices. Those regulations reflect a political and
social reality that does not yet exist for many developing exchanges and for
most of the markets considered in this Article. Securities regulation for
emerging markets is best understood as the confluence
of sociological, economic, political and legal discussion. Markets involve
investors, companies, brokers,
The very existence of markets in developing economies raises
questions about development, political will of the society and the rules that
will regulate those markets presumably creating investor confidence and
ultimately attracting outside investors to further support growth and
development. The overlap of disciplines are
belied by the literature. Capital markets in the developing world and the
regulation of them are frequently written about from an economic or wealth
maximizing perspective.[5]
This literature focuses on the markets as vehicles for growth or economic
development as well as quantifying that growth. Indeed, much of the economic
literature is from the World Bank whose economic publications, researched by
Economists from the United States and Europe, have served to promote and drive
the debate over economic policies.[6] How
do concepts of law fit into this discussion and what role does law play in this
arena? The rules and regulations, promulgated by international organizations,
are surely more than just orders or commands with respect to markets.[7]
I will be writing about these ideas and thoughts in the next
few weeks and will share them here.
[1] IOSCO Securities Market Risk
Outlook 2013-14 available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD426.pdf
(last accessed..........) The purpose of the report is to “assist national regulators in
implementing IOSCO’s two new principles on identifying,assessing and mitigating
systemic risk (Principle 6), and on reviewing the regulatory perimeter
(Principle 7) Id page 6.
.
[2] Cite my
paper
[3]
Financial Regulation in Africa: An Assessment of Financial Integration
Arrangements in African Emerging and Frontier Markets, Iwa Salami, Ashgate 2012. Foreward by Rosa
Lastra
[4] IOSCO
new principles
[5] Pistor
and the La Plante
[6]
Sebastian Edwards, as well as The Global Diffusion of Markets and Democracy,
Eds Beth Simmons, Frank Dobbin, and Geoffrey Garrett, Chapter Introduction: the
diffusion of liberalization, p 16.
[7] H.L.A.
Hart, The Concept of Law, Claredon, 2nd edition, 1997, p.13.
