Proposed Change in Global Trading Rule Raises Risks
The Securities and Exchange Commission has proposed a new rule that might have passed you by. I'm alerting you here because it speaks volumes about where trading is going in the United States. For many, it offers new opportunities. We'll also be importing new risks, in the future, that we may regret.</br></br>The proposal allows overseas broker-dealers to solicit business directly from U.S. clients -- individuals as well as institutions -- with $25 million or more to invest. That's down from $100 million under the current rule.</br></br>Any broker-dealer will be able to join the fray as long as it's regulated by a securities administrator in its home country. The broker-dealers won't have to register with the SEC and won't be regulated for net capital and other requirements under U.S. rules. They will be able to pitch any debt, equity and derivative security listed on their home exchanges, even though those securities aren't registered with the SEC.</br></br>Before you say, "That has nothing to do with me" and scroll on, note the implications: The door is opening to more direct global trading. This first step simplifies cross-border selling and reduces costs for large investors who are already trading abroad. Smaller U.S. broker-dealers will be able to open electronic windows to world investing for larger clients.</br></br>In the background, however, something is happening that we need to think about. We're injecting other countries' accounting, disclosure and regulatory standards into our system, on the theory that they are good enough, although generally not as rigorous as our own. It's an unstated form of financial deregulation that Wall Street has been pushing for some time and has strong support in the SEC.