[Internationalization: A Regulatory Perspective]

GAO discussed the internationalization of the world stock markets. GAO noted that: (1) the advantages included risk diversification, a wider variety of markets and products to hedge against exchange and interest-rate risks, higher profit opportunities from increased commissions, and cheaper funds from additional suppliers and differing regulatory requirements; (2) the risks included worldwide panic due to interlocking relationships among international investors; (3) converting loans into securities for trade changed the credit intermediation process, since financial intermediaries acted more as principals than brokers; (4) liquidity or solvency problems at some institutions that make a practice of converting loans into securities that can be traded freely in the international markets could cause payment backlogs, reduced or no credits, and possible chain-reaction defaults; (5) the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) primarily regulated U.S. markets and relied on foreign regulators to offer guarantees on international transactions; (6) securities and futures firms active in international markets were not subject to banks' risk-based capital requirements or regulatory oversight; (7) SEC authority was limited to registered entities trading only on domestic markets, but many were subsidiaries of international conglomerates with worldwide exposure; (8) although there was recent progress in international cooperation in securities trading, the guidelines were voluntary and not legally binding; and (9) despite such progress, major differences continued among global market regulatory authorities