Consolidation of fragmented global order flow through exchange-based information technology

Despite technological developments that have propelled markets towards globalization, the SEC has taken a distinctly territorial approach in creating a safe harbor from registration for foreign stock exchanges that utilize the Internet. At present, the SEC is considering the conditions under which such a foreign exchange must register. This article argues that the SEC should focus more on the systems architecture of foreign securities exchanges and less on its present territorial approach. While maintaining the National Market System, 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 architecture furthers the objectives of the federal securities laws. This article proposes an integrated global securities market (IGSM) to serve as an exchange, depository, and self-regulatory organization, on an automated order-match systems platform with remote access for intermediaries and investors. The IGSM proposal constitutes an efficient alternative to extending the National Market System’s regulatory obligations to foreign exchanges through the SEC’s territorial approach. Moreover, the concept of an IGSM promotes regulatory competition and correlates to the efficiencies produced by the low-cost, transnational medium of the Internet.