John G. Moon


Market participants, academicians, and governmental officials debated how the United States government should structure multiple securities exchanges for several years before Congress mandated the establishment of the National Market System in the 1975 Amendments to the Securities Exchange Act of 1934. During the intervening twenty-five years, recurring issues concerning the transparency, fragmentation, and fairness of the National Market System have remained unresolved. Recently, the globalization of securities markets and the development of Internet technology that permits cost-effective transnational securities trades and markets have exacerbated these issues. In fact, Internet technology makes the development of an integrated global securities market not only feasible, but optimal. This essay reviews the SEC's approach to the National Market System with an emphasis on developments since the advent of the Cyber-age. The review shows that, despite technological developments that have propelled markets towards globalization, the SEC has taken a distinctly territorial approach in creating a safe harborf rom registrationf or foreign stock ex-changes that utilize the Internet. At present, the SEC is considering the conditions under which such a foreign exchange must register. This essay argues that the SEC should focus more on the systems architecture offoreign securities exchanges and less on its present territorial approach. While maintaining the National Market System and the existing safe harbor, this essay argues that market participants should apply for, and the SEC should consider, granting registration to an Internet-based securities market. The SEC should not base this grant of registration upon the geographic locus of the exchange, or of its members or issuers. Rather, the SEC should grant the registration upon a showing that the exchange's systems architecturefu rthers the objectives of thef ederal securities laws. The proposed integrated global securities market ("IGSM") would serve as a SRO/exchange that would accept listings from an issuer as long as the issuer meets the disclosure requirements of its home jurisdiction. An issuer listed on the IGSM could not be traded on another exchange, unless that exchange participated in the price/time priority order book of the IGSM. This condition would resolve many of the difficulties that have plagued the National Market System. The IGSM proposal takes account of considerations of regulatory competition because: (1) the price of an issuer's shares traded on the IGSM would reflect the issuer's home country standard of disclosure; (2) the IGSM would compete for listings against other exchanges with higher or lower mandatory levels of disclosure, including those in the National Market System; and (3) the IGSM prevents the listing of an issuer from a strict regulatory regime being traded on an exchange from a lax regulatory regime, i.e., regulatory free-riding