WASHINGTON — U.S. investors could face reduced protections if the Securities and Exchange Commission loosens restrictions to allow foreign brokerage firms to offer securities in the United States, according to some speakers last week at a daylong SEC public meeting on cross-border regulation.
“My concern for the retail market is that the consequences are unknown,” Harold Evensky, president of Evensky & Katz Wealth Management in Coral Gables, Fla., said at the meeting last Tuesday. “There’s a risk that the existing barriers are necessary. There’s a reason they’re there.”
An investor in a dispute with a foreign broker may have “no practical recourse” for getting that dispute resolved in a borderless trading environment, said Mr. Evensky, who also serves as an expert witness in securities disputes.
He isn’t alone in his concern.
“Who’s going to stand up and fight for [retail investors] if that [foreign] broker-dealer goes under?” Christopher Amato, director of international market making at E*Trade Financial Corp. of New York, asked at the hearing.
Proponents urged the SEC to move quickly to make it easier for U.S. investors to access foreign securities. They also encouraged U.S. regulators to engage foreign regulators in negotiations guided at making it easier for U.S. brokerage firms to operate in foreign markets.
Concerns about resolving investor disputes could be allayed by mandating that non-U.S. brokers be answerable to the U.S. legal system, David Aufhauser, managing director of
UBS Investment Bank, told U.S. regulators while speaking at the meeting.
Meanwhile, investor protections in the United States could be upheld by carefully reviewing the adequacy of broker regulations abroad and by examining disclosures required for foreign issuers selling securities in the United States, said Mr. Aufhauser, whose firm is based in Stamford, Conn.
For some, the trading borders have already started eroding, said Stephen Bepler, senior vice president and a director of Capital Research and Management Co. of Los Angeles.
“Market forces have kind of pushed things in the direction where for the very large institutional investor, it is not a problem” to trade in foreign securities that are not listed in the United States, he said.
But for smaller investment advisers, who cannot afford to have foreign offices and foreign trading groups, “it would be a great advantage” to have a mutual recognition system in place for foreign securities to be sold in the United States, Mr. Bepler added.
Such a system would lower costs for those investment managers, as well as for individuals who wanted to trade in foreign securities, he said.
“I think the real benefits here may be for the smaller institutions and the retail investors if the SEC goes forward with this proposal,” said Roberta Karmel, co-director of the Center for the Study of International Business Law at Brooklyn Law School in New York, and a former SEC commissioner.
