To protect consumers, share trading regulations have tightened during the past decade. The goal is to provide a market place that is fair and efficient, allowing investors to feel comfortable that there money will be allowed to grow with the risk of fraud. Regulators throughout Europe, Asian and South America have created regulatory frameworks that provide these protections. Here is an overview of those frameworks.
In Europe, the “Markets in financial instruments directive – MiFID” was initially introduced in 2007 and modified in June 2014. The European Commission adopted new rules revising the MiFID framework. This created a new directive (MiFID 2) and a regulation (MiFIR). MiFID 2, went into effect in January of 2018, ensuring that organized trading takes place on regulated platforms, and incorporates rules for algorithmic and high frequency trading. Addition the new regulations focus on improving the transparency and oversight of derivatives markets. The miFID also focuses on enhancing investor protection and improving conduct of business rules. This is accomplished by introducing requirements on the organization and conduct of actors in these markets.
The regulations require disclosure of data on trading activity to the public as well as disclosure of transaction data to regulators and supervisors. It also removed barriers between trading venues and providers of clearing services to ensure more competition. There are also new supervisory actions regarding financial instruments and positions in derivatives.
There is no centralized regulatory body that covers stock trading in Latin America. Each nation’s stock market adheres to different standards, so it’s important to be aware of how they could affect your investments. The fragmented nature of government in the region creates unique challenges for investors. The Mexican and Brazilian stock markets are the largest in the region.
If you are interested in trading these markets, some regions have ADR’s that allow you to access certain stocks with regulatory oversight from the country that offers these products. An American depositary receipt (ADR) is a negotiable certificate representing a specified number of shares— of an investment in a foreign company’s stock. The ADR trades on markets in the US as any stock would trade. This allows the United States to regulate the shares but not the company in a region. For example, a US bank will purchase a specific number of foreign shares. These shares will then be placed in an ADR and offered to the public. The regulation of the ADR will be overseen by the US securities bodies, while the company will be regulated by the local governments.
Regulatory oversight can be centralized or localized. Within the EU, there is a centralized regulatory body that provides specific rules and methods to protect investors. The rules are updated, with the most recent iteration put into effect in January of 2018. South American stock trading rules are localized. A way an investors to protect themselves is to trade ADR’s that are regulated by a centralized organization like the Securities and Exchange Commision.