Securities Markets:

Challenges to Harmonizing International Capital Standards Remain

GGD-92-41: Published: Mar 10, 1992. Publicly Released: Mar 10, 1992.

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GAO reported on international efforts to harmonize capital standards for securities firms and for banks' securities activities, focusing on the implications of those harmonization efforts for U.S. capital standards.

GAO found that: (1) securities market regulators in such major markets as Japan, the United States, and the United Kingdom generally support efforts to harmonize capital standards; (2) challenges facing harmonization involve investor and financial system protection during the development of emerging markets, the integration of securities and banking capital standards for foreign and U.S. banks already involved in the global market, and the establishment of specific capital standards that adequately ensure investor protection and safety for all market participants; (3) the International Organization of Securities Commissions is focusing on developing capital standards for securities firms; (4) the Basle Committee on Banking Supervision has been attempting to harmonize capital requirements for the securities activities of international banks; and (5) the European Community has proposed a plan for harmonizing capital standards for securities markets in its 12 member countries. GAO also found that U.S. securities: (1) regulators have not had to alter U.S. capital standards to satisfy international harmonization initiatives, and the ultimate effect of the harmonization efforts on U.S. standards is difficult to predict; (2) firms have expressed concerns about U.S. standards' recognition of the value of uncompleted foreign trades, treatment of foreign securities, and treatment of hedged market positions; and (3) regulators emphasize customer protection in establishing and modifying their capital standards.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: SEC is allowing broker-dealers to hold more foreign securities without capital penalties under a temporary method for calculating the ready marketability of foreign securities. SEC is seeking comments on this change as it contemplates a permanent rule change.

    Recommendation: With respect to the implications of international efforts for U.S. securities markets and the U.S. securities capital standards, the Chairman, Securities and Exchange Commission (SEC), should consider revising its capital rule to recognize more foreign markets and more foreign securities as readily marketable under the SEC 1975 criteria and develop a mechanism to recognize additional foreign securities and markets as they develop.

    Agency Affected: United States Securities and Exchange Commission


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