Agreement was reached in Geneva on 13 December 1997 to liberalise
the worldwide financial services sector. The new pact should make
it easier for banks, insurers, brokers and other financial services
providers to set up foreign subsidiaries, and more difficult for
governments to impose regulations that favour local rivals.
Pressure on the US and the Far Eastern financial crisis both helped
seal the pact.
The intention is to create a predictable and transparent
international regime for financial service companies, insurance
houses and banks.
According to US estimates, the agreement covers services involving
US$18 trillion (ECU 16 trillion) in global securities assets, $38
trillion in global bank lending and about $2.5 trillion in world
wide insurance premiums.
Meanwhile, the Council has signed up to the Fifth Protocol to the
WTO General Agreement on Trade in Services (GATS), one of the
agreements constituting the WTO intended to contribute to the
liberalisation of world trade. The Fourth Protocol applying the
GATS to telecommunications services was agreed in early
Acceptable conduct in relation to Stock
Borrowing and Repo Markets
Stockborrowing is the process whereby one party
"borrows" securities from another party for a period and provides
that other party with collateral in the meantime. A repo is a
"repurchase agreement" whereby one party agrees to sell stock under
an agreement and to repurchase it at a later date.
Last year, the then Chancellor announced his intention to extend
stamp duty relief to stock borrowing and repo transactions in UK
equities conducted on-exchange. He received advice from the SIB on
the regulatory implications of this proposal, the main thrust of
which was that stock borrowing did not require regulation, but that
there should be some standards of market conduct in place to ensure
that potentially abusive activities were prevented. The SIB also
asked for advice from the Market Conduct Group and on 24th October
it issued a press release stating that it accepted the advice which
the Group had given.
The advice was in step with the Government's intention to
liberalise the stock borrowing market, allied with a need to keep
on top of potentially abusive practices. The Group
- Stock borrowing can be beneficial to the trading process and
thus contribute to market efficiency. However, it is essential that
the stock borrowing practice does not distort the market itself.
- It is possible to employ stock borrowing to restrict the supply
of a stock in order to manipulate its price. The Group thinks that
the regulators should keep this possibility in mind, and the
creation of rules to combat it under review.
- Stock borrowing may be used by firms seeking to profit from
on-lending. If this on-lending does not take place reasonably
quickly, the Group expects regulators to take an interest in why a
firm was continuing to hold stock, and whether it had changed its
on-lending policies so as to secure an improper benefit.
- Short selling is an acceptable feature of the market and one
which can usually benefit it by adding to its liquidity. However,
regulators should be aware of the possibility that short selling
might create a disorderly market.
Whilst accepting the above advice, the (now) FSA has said that it
will keep the developing market under review, and address the
question of formal action or rules in the light of these