(March 23 – 16:15 ET) – The U.S. Securities Industry Association has endorsed the so-called “Hybrid Model” of regulation under which one regulator would be designated to supervise most activities of securities firms while each stock market will handle market regulation.
Under the model, all dealer regulation would go to a single self-regulatory organization responsible for cross-market trading, sales practices, industry admission standards, financial responsibility requirements, training and supervision, and record-keeping. There are currently nine of them splitting the duties, counting all the exchanges.
“The SIA board of directors believes the Hybrid Model would facilitate a more efficient regulatory structure for the benefit of all market participants and would reduce the potential for conflicts of interest,” the board said in a resolution.
The SIA is concerned about streamlining regulation in the face of regulatory changes that are coming to the U.S. business. Stock exchange demutualization is likely to bring a separation of regulation functions from market units. While the destruction of legal barriers between securities firms, banks and insurers is likely to bring industry convergence and even more byzatine regulation.
Several years a go the Toronto Stock Exchange made a similar move by hiving off its member regulation duties to the Investment Dealers Association in Canada. Yet the SRO community remains fragmented between the IDA, the fledgling Mutual Fund Dealers Association and the firms that don’t belong to any SRO. The TSE, which is also planning to demutualize, has yet to say whether it would also spin out its regulatory function to avoid conflict of interest.
“By minimizing duplication and eliminating inconsistent regulation a new regulatory framework should improve the quality, uniformity, and comprehensiveness of today’s system of self-regulation,” said James Brinkley, chair of the SIA.
-IE Staff