1 SECURITIES REGULATION: TRENDS AND CHALLENGES Washington D.C., April, 15 th 2003 Dr. Doğan CANSIZLAR Chairman of the Capital Markets Board of Turkey Chairman of the Emerging Markets Committee (IOSCO)

2 I.ROLE OF IOSCO PRINCIPLES AND OBJECTIVES OF SECURITIES REGULATION II. EVENTS TRIGGERING FUTURE OF SECURITIES REGULATION September 11 th Corporate Collapses III. OTHER MAJOR ISSUES Investor education, The role of securities analysts Demutualization of exchanges OVERVIEW

3 I. IOSCO PRINCIPLES AND OBJECTIVES OF SECURITIES REGULATION

4 IOSCO 30 Core Principles and Objectives of Securities Regulation Aims to meet the need of international consensus on sound prudential principles and practices for Securities Regulation Provides information for effective Securities Regulation Need to be implemented under relevant legal framework

5 THE OBJECTIVES OF SECURITIES REGULATION The protection of investors Ensuring that markets are fair, efficient and transparent, The reduction of systemic risk

6 II. EVENTS TRIGGERING THE FUTURE INITIATIVES FOR SECURITIES REGULATION II. EVENTS TRIGGERING THE FUTURE INITIATIVES FOR SECURITIES REGULATION

7 Globalisation Technological Improvements Political, Social and Economic Factors Dynamic Securities Regulation

8 6 EVENTS TRIGGERING FUTURE INITIATIVES FOR SECURITIES REGULATION A. The Effects of September 11th B. The Effects of Corporate Collapses

9 A. THE EFFECTS OF SEPTEMBER 11th 1. Importance of sound contingency planning 2. Need for cooperation among industry and regulators 3. Necessity of client identification

10 1. Contingency Planning Aims to minimize systemic disruptions in the event of unforeseen problems Keeps the confidence of market participants

11 2. Cooperation and Information Sharing Globalization brings the increasing interdependence of financial regulators It helps to improve developing financial markets IOSCO has several resolutions on cooperation and mutual assistance - Rio Declaration (1986) * Resolution Concerning Mutual Assistance - Istanbul Meeting (2002) * IOSCO Multinational MOU IOSCO MOU facilitates cross-border cooperation and information sharing

12 3. Client Identification Has critical importance for international cooperation Has great importance to combat money laundering and financing of terrorism

13 B. THE EFFECTS OF CORPORATE COLLAPSES 1. Improvement of transparency and disclosure standards 2. Auditor oversight 3. Independence of external auditors 4. Sarbanes- Oxley Act 5. Accounting reform 6. Corporate governance

14 1. Improvement of Transparency and Disclosure Required in order to rebuild investor confidence Full, timely and accurate disclosure of information is vital for investor protection IOSCO endorsed a paper recommending a set of ongoing disclosure and material development principles

15 2. Auditor Oversight Independent auditors have a critical role for the reliability of financial information Problems of self-regulation of accounting and audit profession Oversight of auditors: peer reviews, oversight by professional bodies, governmental oversight IOSCO has developed a list of general principles for oversight of audit firms and auditors

16 3. Auditor Independence Vital for the objective decision-making Auditor should be independent not only in appearance but also in actual fact IOSCO encourages to strengthen existing national and international standards governing independence

17 4. Sarbanes-Oxley Act A big step taken towards the improved protection of investors Various issues regulated including governance of accounting profession, disclosure by public companies, corporate governance and enhanced criminal penalties for securities fraud.

18 5. Accounting Reform Convergence of US GAAP and the IAS EU requires the use of IAS by 2005 The use of IAS will enhance the quality of financial disclosure

19 6. Corporate Governance Corporate Governance is essential to the development of robust, well-regulated capital markets Emerging Markets Committee prepared a report on Corporate Governance Practices and trends among emerging markets Emerging Markets Committee approved a resolution recommending members to adopt Corporate Governance principles using OECD Principles as a benchmark Corporate governance index for listed companies is discussed widely in many markets

20 III. OTHER MAJOR ISSUES

21 OTHER MAJOR ISSUES A. Investor Education B. Securities Analysts and Management of Conflicts of Interests C. Demutualization of exchanges

22 A. Investor Education Different investor profile in developing countries requires unique strategies The use of internet has facilitated the sharing and processing of information Many new and complicated frauds and crimes

23 B. Role of Securities Analysts and Management of Conflict of Interests Investors rely on the recommendations of Securities Analysts conflict of interests arise between - clients and financial institution - Issuer and investment bank - Client and analyst - Within the financial institution Some jurisdictions adopted new rules to prevent and disclose possible conflicts of interests

24 C. Demutualization of Exchanges To better cope with more competitive and global business environment Exchanges converted from a non-profit member owned organization to shareholder owned corporation Stockholm Stock Exchange, Borsa Italiana, Deutsche Börse, London Stock Exchange, Kuala Lumpur Stock Exchange, Athens Stock Exchange etc. More capital to finance modernization Run by a management team driven to generate profit Separation of trading privileges and the ownership IOSCO Technical Committee has prepared a report on demutualization and EMC is working on the challenges of demutualization for emerging markets

25 THANK YOU!