In continuing sessions of the International Organization of Securities Commissions (IOSCO) Emerging Markets Committee, hosted by the Jordan Securities Commission (JSC), international securities regulators held a panel discussion on the threat and opportunity presented to investor markets by the Internet.
As financial players expand their presence in this new medium, regulatory bodies such as IOSCO struggle to reign in the unchecked forces of the Internet, attempting to strike a delicate balance between the freedom and ease of online investing and the dangers of such a new, largely unregulated arena.
If financial investing has a wild frontier, that frontier is definitely the Internet; but how to regulate such a chaotic, free, medium?
Secretary General of the Thai Securities Commission, Prasarn Trairatvorkul, noted the tremendous benefits of online investing in reducing transaction costs, but also pointed out the dangers of fraud and abuse which come hand-in-hand with the new technology.
Andrea Corcoran, of the Commodity Futures Trading Commission, argued that “technology is causing the global market place to become impersonal.” And while investors are faced with unparalleled amounts of raw information there is no one to turn to should problems arise. This is made all the more complicated by the global, cross-border nature of the new medium and regulators must meet the challenge, which, according to EU forecasts, will increase ten-fold in coming years.
In response, regulators across the world should increase cooperation and coordination and provide greater transparency in the investment process, explained Corcoran so that false information can be combated rapidly and in a coordinated manner. In addition, “customers should be adequately informed to interpret the information they have access to” and there must be more competition so that customer feedback becomes a factor in the process, she added.
Heather Ruth, CEO of the Bond Markets Association, in the US, wondered aloud if electronic trading would one day remove traders from the process and if small brokers would be empowered or disempowered by the changes. She also mentioned the complex security and legal requirements raised by the new format that has yet to catch up with business reality.
However, a positive effect of the Internet revolution particularly for developing markets like Jordan is the sudden rise in American investors reaching out to new markets. Ruth presented figures indicating nearly a 700 percent increase in investment in non-US securities since 1990.
The Internet as an emerging medium, coupled with the growth of emerging markets, offers uncertainty, risk, chaos, but also great potential, as was seen in the presentation by Zhou Xiaochuan, Chairman of the China Securities Commission, who revealed the great untapped market within his nation.
“Some emerging markets have an extremely high percentage of online trading,” said Georg Wittich, Chairman of IOSCO's Internet Task Force.
Situations like these are explained by the leapfrog phenomenon, where emerging markets are able to jump past the intermediary stage because they have no long-standing procedures to hold them back.
Wittich described the on-line investor as someone “very different” from the traditional client, “he doesn't want to invest, he wants to trade.” But he also warned of price manipulation in investment chat rooms as a possible pitfall. With that, regulators should respond by continuing to provide greater investor protection and efficient service.
Clearly, the benefits of the medium are great, but without supervision investor confidence and market stability can be threatened, agreed the panel. ― (Jordan Times)
© 2000 Mena Report (www.menareport.com)
