Globalization, regionalism and - the regulation of securities markets.

This article examines the relationship between the phenomenon known as 'globalization', on the one hand, and the regional integration process undertaken by European Union (EU) member states, on the other. Bearing in mind that the EU single market programme was a more deliberate and radical act of integration than the more haphazard globalization process, the article argues that the relationship between the two is a complex mix of convergence and conflict. The argument is applied to the financial services sector, and in particular the securities industry. The first conclusion is that the EU integration process is compatible with global financial integration. The EU single financial area has not led, and will not lead, to the emergence of a separate European 'bloc'. Indeed, on a number of regulatory issues, the combination of globalization and EU integration has induced convergence and a degree of harmonization between the EU and other jurisdictions such as the United States and Japan. The second conclusion is, however, that this progress towards convergence and harmonization is inherently conflictual and is currently blocked on the key issue of capital adequacy for securities firms. The US, supported by Canada and Japan, has resisted convergence, or indeed compromise, with what it views as unduly lax EU capital standards. Internal EU dynamics, domestic considerations within the US, market-driven pressures and the temptations of regulatory arbitrage have all contributed to the conflictual aspects of the convergence process. The EU and the Basle banking supervisors have now accepted the EU approach to capital adequacy, and the pressure is on the US regulatory authorities to conform to these lower standards or take the risk that trading activity will migrate to where standards, and therefore transaction costs, are lower. [ABSTRACT FROM AUTHOR]