In search of ... regulatory convergence.

As the financial world has become truly global, there is a growing desire to coordinate regulatory structures to standardize how business is conducted. And now an analysis of financial regulations in the European Union and the United States by global law firm Clifford Chance LLP, calls for "regulatory

"The existence of a transatlantic marketplace in equities and equity derivatives is in spite, rather than because, of the regulatory frameworks on either side of the Atlantic," the study says, while detailing extensive regulatory duplication and conflict between European and U.S. regulators.

One example from the report illustrates the difficulties U.S. firms encounter in Spain, which include requirements to obtain a Spanish investment firm license, which in practice involves establishing a branch or subsidiary in Spain, contrasted with requirements in the U.K., which are described as straight forward. This lack of consistency makes it difficult for U.S. firms to conduct equities and equity derivatives business on a pan-European basis. Conversely, in the United States, individual state laws govern securities in addition to federal law creating a substantial barrier to entry for non-U.S. firms.

The authors of the document call for a set of common client, customer and counterparty definitions for classifying and soliciting customers. It also calls for the creation of a common set of Know Your Customer and risk-based Anti-Money Laundering standards and requirements; the creation of a program to identify and simplify key areas of regulation for wholesale equities and equity derivatives; and a simplification of best execution, trade allocation procedures and the distribution of research.

"If the critically important economic and commercial objectives of facilitating innovation, enhancing efficiency and liberalizing customer choice are to be achieved, then, as the market and trading environment has 'gone global,' so must the way in which it is regulated," says Anthony Belchambers, CEO of the Futures and Options Association.

"The report is not designed to be a domestic political tool, but instead an international dialog tool," says a spokesperson for the Securities Industry Association.

The study is available for down-load at www.futuresindustry.org.