The Securities and Exchange Commission (SEC) is the primary regulatory authority over the capital markets and their participants. A joint World Bank and International Monetary Fund (IMF) mission visited the Republic of the Philippines in 2002 and concluded that overall, the Philippines scores "very well" against the International Organization of Securities Commissions (IOSCO) Principles, which the mission attributed to regulatory and legislative efforts in the recent past. Improvements were encouraged in the areas of collective investment schemes and secondary market regulation, which were partially thought to be addressed with the Revised Investment Company Act, which has been in the draft stage since 2001, but as of August 2007, is still awaiting parliamentary approval. Also, despite the positive assessment of regulatory conditions in the Philippines, more needs to be done to make its capital markets an efficient source of funding for economic growth. In recognition of these limitations to effective private sector growth, the Philippine government has made capital market development a priority. The 2006 Article IV consultations with the IMF noted that the authorities are promoting the development of domestic capital markets through their public debt management as well as legislative initiatives, including bills to create credit information bureaus and promote retirement saving vehicles.

General Overview

A joint World Bank and IMF mission visited the Republic of the Philippines as part of the Financial Sector Assessment Program (FSAP). The aim was to assess the effectiveness of securities regulation, soundness of market intermediaries, and development prospects for the capital markets, including observance of the International Organization of Securities Commissions (IOSCO) Objectives and Principles of Securities Regulation. The assessment was concluded in July 2002 and published in 2004. The overall conclusion of the report was that the Philippines "scores very well against the IOSCO Principles, thanks to the conscious efforts having been made in the recent past. Some improvements are needed in the areas of collective investment schemes and secondary market regulation. Remaining issues in other areas are either currently being addressed or relatively minor" (p. 51).

Capital markets are primarily regulated by the SEC, as well as by the Central Bank of the Philippines (BSP), which supervises non-bank financial institutions (NBFIs) if they have ownership links with banks. The Securities Regulation Code is the main legal basis for the regulation of the markets. The 2004 IMF assessment notes that the Code "narrowed and redefined the scope of responsibilities of the SEC to enable the regulator to focus on regulation of the securities market and its enforcement in particular. However, further rationalization of the scope seems necessary and is expected". (p. 3) The demutualization of the Philippine Stock Exchange (PSE) was also enabled by the Code. Furthermore, the Code also addressed the PSE's potential conflicts of interest as a self-regulatory organization (SRO). Overall, the IMF assessment asserts that the Philippines' regulatory and supervisory framework is, while comprehensive in coverage, complex. This stems from the increasing size and universal character of financial conglomerates, which do not follow the functional segregation of powers between regulators. For example, as in the case noted above of the separation of areas of responsibilities between the SEC and the BSP. The IMF notes that generally, "the SEC's regulation and supervision tend to emphasize investor protection and fair market conduct while those of the BSP tend to emphasize financial soundness of the intermediaries. Finally, the PSE is working as a front line regulator of the market as an authorized SRO" (p. 9).

However, despite these positive assessments of the regulatory environment for securities markets in the Philippines, a 2005 Asian Development Bank (ADB) assessment of the Philippine private sector highlighted that one of the main constraints to private sector growth is the low level of local debt and equity financing available, caused not only by borrowers' capacity and the shortage of collateral assets but also by the preference of commercial banks for short-term loans, the thin capital market, the absence of venture capital, and the relatively undeveloped leasing subsector. In recognition of these limitations for effective private sector growth, the Philippine government has made capital market development a priority. The 2006 Article IV consultations with the IMF noted that the authorities are promoting the development of domestic capital markets through their public debt management as well as legislative initiatives, including bills to create credit information bureaus and promote retirement saving vehicles.

Furthermore, in November 2006, the Asian Development Bank (ADB), which has assisted the government of the Philippines in implementation of financial sector reforms since 1995, approved "The Republic of the Philippines: Financial Market Regulation and Intermediation Program (FMRIP)" which will complement the Government's Medium-Term Philippine Development Plan (MTPDP) 2004-2010. The objective of the FMRIP, as defined in the 2006 ADB report, is to "increase the contribution of the financial sector to economic growth and development of the Philippines by promoting a more efficient financial sector that can finance profitable private investment projects at lower cost and risk than at present" (p. i). Anchored on the MTPDP is the Government's Capital Market Development Plan (CMDP)--a blueprint developed for growth and expanded contributions to the Philippine economy, 2005-2010. The CMDP articulates a series of 11 strategic objectives intended to stimulate the growth, efficiency, and competitiveness of the capital market over the next 5 years. Preparation of the CMDP involved soliciting input from a wide range of stakeholders via public forums including workshops, the SEC website, and the news media. SEC also sought input from the Capital Market Development Council of the Philippines, an important policy body comprised of relevant policy makers from the public sector. On October 20, 2006, the Department of Finance (DOF) approved the CMDP.

Currently, the equity market is built around the PSE and is supported by the Philippine Central Depository (PCD) and the Securities Clearing Corporation of the Philippines (SCCP) for clearance and settlement of trades. The 2004 IMF assessment noted that in 2002, market intermediaries included 44 Investment Houses, 174 Financing Companies, 176 Broker- Dealer firms, 19 Mutual Funds and 15 Investment Management Companies. Of those, seven Investment Houses and seven Financing Companies can have a quasi-banking function, which is defined by the General Banking Law as an ability to raise financing from more than 19 creditors. The 2004 IMF report notes that "the Investment Houses are permitted to conduct underwriting of new issues of securities, thus required of a greater capital base (P300 million for Investment House as compared to P100 million for Broker Dealers). As of the end of September 2001, the total assets of the mutual funds amount to slightly less than P10 billion. Most of the NBFIs are owned or affiliated to commercial banks" (pp. 3-4). The debt market is dominated by the government securities, which are traded in the over-the-counter (OTC) market except for one series of Small Denomination Bonds.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

FC

The IMF's 2004 FSAP report rated this principle as "Implemented." The broad regulatory scope of the Securities and Exchange Commission (SEC) that includes market participants, market instruments, and the investing public arises from the provisions of the eight laws it is mandated to implement. Five of these laws are the Securities Regulation Code (RA 8799 or SRC), Financing Company Act (RA 8556), Investment Houses Law (RA 8366), Corporation Code of the Philippines (BP 68), and Investment Company Act (RA 2629).

The regulatory environment for the securities market and industry consists of the SEC, the Central Bank of the Philippines, and the Philippine Stock Exchange, which functions as a self-regulatory organization. The responsibilities and powers of the SEC are defined in Section 5 of the Securities Regulation Code. The powers include a broad rulemaking power as stipulated in Section 72 of the Code, and the SEC issued Implementing Rules and Regulations to further provide detailed provisions for each section of the SRC for its implementation. The 2004 FSAP report goes on to note that the Philippines' financial sector is complex, and clarity of its regulations and responsible authorities to the regulated is crucial in ensuring effectiveness of the regulation. The Memorandum of Agreement which was signed between the SEC and the BSP in June 2001 clarified each regulator's role not only between the regulators but also for the regulated and together with the Code and the New Central Bank Act not only filled loopholes and rationalized the responsibility sharing arrangements.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

FC

The IMF's 2004 FSAP report rated this principle as "Implemented." The SEC is supervised and accountable to the DoF and may be required to submit reports and subject to management audit, performance evaluation and inspection to determine compliance with policies, standards, and guidelines of the DoF.. The Department of Budget and Management is responsible for holding the SEC financially accountable. The 2004 IMF report noted that "while the SEC operates independently and accountably in practice, the practice and the underlying laws could be made more consistent with each other" (p. 47)

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

FC

The IMF's 2004 FSAP report rated this principle as "Implemented." The Securities Regulation Code provides powers to the SEC. These powers include the authorization of market participants, the direct surveillance of the market and market participants and the ability to obtain information about the market, market participants, financial products, customers and parties involved in securities transactions. The Code authorizes the SEC to communicate with other regulatory bodies, to impose and to intervene in the market. The Code further provides the SEC with additional resources to its annual budget by retaining up to P100 million from its income, such as registration fees and penalties imposed. The 2004 IMF report noted that the financing system had to be tested over time. The report further noted that the Code "reorganized the SEC to focus more on enforcement activities in the securities market and industry rather than administration of corporate disputes and rehabilitation. This reorganization calls for a shift in the required expertise mix which cannot be achieved overnight" (p. 18). In 2004, the SEC was rebuilding its organization to meet these new needs.

4. The regulator should adopt clear and consistent regulatory processes.

FC

The IMF's 2004 FSAP report rated this principle as "Implemented." The report elaborates that the SEC issues an Annual Report in which it explains the accomplishments of each core department during the year, including key regulatory and enforcement actions. Further it publishes a Quarterly Bulletin which contains opinions of the SEC about inquiries. The assessment also noted that the SEC "has improved the procedures to adopt new rules and regulations; i.e., it circulates a memo circular to the affected market participants and industry for consultation and posts consultative rules in the website for public comments" (p. 19).

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

CP

The IMF's 2004 FSAP report rated this principle as "Implemented." The SRC Rule 6.2 provides the Rules of Conduct for Commissioners, Officers, and Employees, including, per the FSAP, "detailed and comprehensive rules and procedures for avoidance of conflict of interest, including disclosure of financial interest. Staff in positions with discretionary authority is particularly required to be free from "any" conflict of interest which is to help ensure procedural fairness" (p. 20). The IMF does note, however, that some clarification regarding the indemnification of SEC staff and commissioners regarding the disclosing confidential or commercially sensitive information to other regulatory authorities would be useful. The problem of potential liabilities and which regulator would be held responsible should be addressed in Memoranda of Understanding.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

CP

The IMF's 2004 FSAP report rated this principle as "Partially Implemented." The PSE was the only formally recognized SRO under Section 39 of the SRC. The IMF further reports that in March 2000, the PSE's SRO status was suspended for a time due to alleged trading irregularities arising from the BW scandal. There was then a massive resignation of the staff of its Compliance and Surveillance Group over protests on the investigation of the BW case. In the words of the FSAP, "provisions of the SRC related to Exchanges and other SROs reflect lessons learned from this experience" (p. 21). According to the IMF, the new rules of governance required of the PSE should significantly enhance the PSE's credibility as an SRO, when fully implemented. The IMF assessment cautions, however, that full implementation of this principle requires first the diversification of the ownership of the PSE and that the establishment of the Commodity Futures Exchange (CFE) and the Fixed Income Exchange (FIE) may call for a review of the self regulatory policy.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

FC

The IMF's 2004 FSAP report rated this principle as "Implemented." Section 39 of the SRC provides the SEC with power to register, license, and regulate SRO's and supervise their operations. The IMF report asserts that "The SRC and its Rules are well elaborated with respect to the SEC's oversight of an SRO.... However, the SEC is encouraged to develop a strategy to consistently implement SRO provisions of the SRC in an environment of emerging competition among Exchanges which are to be for-profit corporations" (pp. 22-23).

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

FC

The IMF's 2004 FSAP report rated this principle as "Implemented." The IMF notes that the SEC's "powers to inspect and investigate are comprehensive and strong" (p. 24) and continuous efforts are being made to make it even stronger via the use of electronic filing systems and upgrades of the surveillance and monitoring system. Section 53 of the SRC empowers the SEC to obtain, when justified to protect investors, records and other documents necessary, with the exception of books and records of banks, which are protected under the Bank Secrecy Law. The MOA between the SEC and the BSP does not cover this area, as the BSP is bound by the same law.

9. The regulator should have comprehensive enforcement powers.

FC

The IMF's 2004 FSAP report rated this principle as "Implemented," The SRC gives the SEC comprehensive enforcement powers regarding all market participants. As mentioned under Principle 8, the Bank Secrecy Law makes a court order necessary for the SEC to get bank records, but the Anti-Money Laundering Law gives the SEC the power to freeze bank account of securities transactions are involved in the investigation. The 2004 IMF report deemed this law "an important addition to make the SEC's enforcement power fully comprehensive" (p. 24).

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

EN

The IMF's 2004 FSAP report rated this principle as "Partially Implemented," but noted that the assessment was near "Implemented" (p. 48). To strengthen the enforcement capabilities is a top priority of the SEC, and the ongoing electronic filing and subsequent computerization of documents will make this more feasible. However, the IMF assessment noted that the SEC might still encounter difficulties proving intentional violations that involve conduct which may, on its face, appear to comply with SEC/PSE rules, but clearly violates the spirit of the rules. This is a common difficulty found in jurisdictions with a civil code legal tradition, where forms of violations need to be specified in the law. This provides loopholes for a creative violator to work around. To overcome it, "a system of securities jurisprudence needs to be strengthened in the Philippines" (p. 25).

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

FC

The IMF's 2004 FSAP report rated this principle as "Implemented." The legal framework provides the SEC with clear and comprehensive authority to share information with domestic and foreign regulators. Furthermore, the Anti-Money Laundering Act defines suspicious transactions for the purpose of prohibiting money laundering. The Implementing Rules and Regulations issued by the Anti-Money Laundering Council necessitates the reporting of suspicious transactions no matter of the amount.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

CP

The IMF's 2004 FSAP report rated this principle as "Partially Implemented." but noted that the assessment was near "Implemented" (p. 48). According to the report, the MOA signed between the SEC and the BSP clarified the distribution of responsibilities in regulating financial institutions.

In May 2002, the International Organization of Securities Commissions (IOSCO) endorsed a comprehensive multilateral memorandum of understanding (MMOU) to facilitate and reinforce international cooperation among securities regulators. The IOSCO MMOU is based on the thirty IOSCO Objectives and Principles of Securities Regulation adopted in 1998, and on the experience gathered by securities regulators in using bilateral MOUs. The IOSCO MMOU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMOU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMOU. The Ontario Securities Commission website explains that IOSCO members who complete the screening process but are found to lack the legal authority to fully comply with the terms of the IOSCO MMOU will be invited to become signatories to Annex B of the IOSCO MMOU, provided that they express their commitment to obtaining the necessary legal authority to become full signatories The IOSCO website lists the SEC as a signatory to Annex B.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

FC

The IMF's 2004 FSAP report rated this principle as "Implemented." The report elaborates that the SEC is empowered "to provide assistance for any foreign enforcement authority authorized to provide reciprocal assistance. The assistance includes the disclosure of any information filed with or transmitted to the SEC if the requesting authority is conducting a securities- or commodity-related investigation to determine violation of securities or commodity laws" (p. 27) and further notes that the SEC has been informally providing assistance even to those without reciprocity clauses.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

FC

The IMF's 2004 FSAP report rated this principle as "Implemented." According to the report, the legal and regulatory requirements are solid, however, the IMF report suggested that the SEC should focus on the enforcement of the disclosure requirements and standards to implement the disclosure regime fully.

15. Holders of securities in a company should be treated in a fair and equitable manner.

EN

The IMF's 2004 FSAP report rated this principle as "Implemented." However, in its 2006 Corporate Governance Country Assessment of the Philippines, the World Bank rates the Philippines observance with all three sub-principles of Principle III regarding the "Equitable Treatment of Shareholders" of the Organization For Economic Cooperation and Development's Principles of Corporate Governance as "Partially Observed," indicating that while the legal and regulatory framework complies with the Principle, practices and enforcement diverge.

The 2005 ADB report confirms that problems with minority shareholder rights protection are related to the effective implementation of protective provisions, difficulties which are related to the generally high ownership concentration in Philippine companies. The report states that "shareholders' rights, in particular those of minority shareholders, are not effectively protected in the Philippines. While existing laws contain standard provisions for protecting minority shareholders, the presence of dominant shareholders in so many Filipino companies makes these provisions more difficult to uphold" (p. 16).

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

CP

The IMF's 2004 FSAP report rated this principle as "Implemented." In 2001, the World Bank conducted an assessment of the accounting and auditing framework; to evaluate the weaknesses and strengths of the accounting and auditing requirements, and to review the reporting requirements against actual practices. International Financial Reporting Standards (IFRSs) and International Standards on Auditing (ISAs) were used as the benchmarks for assessing national standards. According to the subsequent Update released by the World Bank in 2006, most of the shortcomings identified in the 2001 assessment were addressed. The World Bank commended the Philippine authorities for their achievement. However it was noted that there were certain problems with the actual implementation of the accounting requirements. It was recommended that an oversight board for quality control be created, and the technical strength and resources of the Philippine Institute of Certified Public Accountants (PICPA) built up to improve compliance with the accounting requirements.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

EN

The IMF's 2004 FSAP report rated this principle as "Partially Implemented." The existing Investment Company Act (ICA) of 1960 provides most of the necessary elements of investment company regulation. However, a variety of parts needed to be rationalized and clarified to be up to international standards. The Revised Investment Company Act (RICA) has been drafted to address these issues, but as of August 2007, is still pending before Congress.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

ID

The IMF's 2004 FSAP report rated this principle as "Partially Implemented." As for Principle 18, the IMF noted that the existing ICA needs clarification as the requirement of segregation is not entirely clear. The RICA is supposed to address the segregation of client assets, but as noted above, it is still awaiting approval by Congress.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

ID

The IMF's 2004 FSAP report rated this principle as "Partially Implemented." Existing legislation is deficient regarding the requirements for disclosure of sufficient information to evaluate investments and powers to enforce disclosure requirements and again are expected to be addressed with the stalled RICA.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

ID

The IMF's 2004 FSAP report rated this principle as "Partially Implemented." According to the IMF, "More detailed standards for asset valuation need to be developed. The existing Investment Company Act addresses the issue. Improvements are needed for, among other things, requirements for valuation and disclosure of the value of interests in a CIS, capacity to enforce disclosure requirement, and requirements for pricing and redemption of units" (p. 36) At the time of the assessment, the SEC was awaiting the passage of the RICA to address the issue.

21. Regulation should provide for minimum entry standards for market intermediaries.

EN

The IMF's 2004 FSAP report rated this principle as "Implemented." According to the IMF, the legal infrastructure for regulating market intermediaries has been enhanced in the SRC which, among other things, raises capital requirements provides a disciplinary bar to registration, provides for indefinite registration, and clarifies that all regulated intermediaries must register under the new law. The IMF cautions that the scope of SEC's "regulatory responsibility with respect to the variety of financial institutions is somewhat overly broad relative to its capacity and resources" (p. 37). It therefore encourages that the SEC to make efforts to ensure the public's easy access to the information regarding eligibility and qualification of intermediaries, their management and staff.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

CP

The IMF's 2004 FSAP report rated this principle as "Implemented." The report noted that the SEC plans to improve the monitoring of the net capital positions by computerization to achieve daily reporting/monitoring. It is also committed to taking enforcement actions.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

FC

The IMF's 2004 FSAP report rated this principle as "Implemented." The report further noted that the SRC "clarified the protection available by requiring associated persons of brokers and dealers to register with the SEC, imposed attendant liability thereon, provided the SEC with rulemaking power thereunder, and expanded the types of sanctions available for violation of such standards" (p. 39).

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

FC

The IMF's 2004 FSAP report rated this principle as "Implemented." Section 33.1.(d) of the SRC, SRC Rule 33.2(d)-1 provides for Protection of Customer Accounts in Case of Business Failure of an Exchange Member. Under the rule, notes the IMF, an Exchange may be ordered by the SEC, "to suspend failed intermediary's membership, immediately arrange for another member to take over the outstanding contracts relating to securities and simultaneously notify the SEC of such suspension and take-over. The Securities Investor Protection Fund (SIPF) is funded with monthly member contributions of P10,000 plus one 0.0002 percent of each member's gross trading volume. The SIPF is to cover up to P100,000 per customer. The SIPF has so far not been mobilized to act on a broker dealer insolvency" (pp. 40-41).

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

EN

The IMF's 2004 FSAP report rated this principle as "Partially Implemented." The report adds that it is unclear if the current regulatory framework for an Exchange is sufficient for complex market structures and notes that the SEC's control of the PSE as a trading platform is less stringent than of the PSE as an SRO. The report notes that "general definition of an Exchange may be intended to accommodate various innovative forms of exchanges, the regulation can provide more aspects or qualities of a sound market. The regulation could define more clearly the concept of Exchange in order to differentiate better an Exchange and other quasi organized market" (p. 43).

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

EN

The IMF's 2004 FSAP report rated this principle as "Partially Implemented." The assessment criticized that the SEC's oversight authority over the PSE is limited and inadequate. It urged that "the SEC should gain more control in authorizing and supervising an Exchange when there will emerge more than one exchange competing for profit. When new exchanges with different trading algorism and market structure emerge, different surveillance procedures will have to be developed for those markets" (p. 44).

27. Regulation should promote transparency of trading.

CP

The IMF's 2004 FSAP report rated this principle as "Implemented." Section 33.2(i) of the SRC expressly requires the transparency of transactions as part of the registration requirements for an Exchange. The IMF assessment notes that, while the "price transparency of the current PSE system is adequate, there should be more specific rules of transparency which differently structured markets can adopt.... However, the market should provide pre-trade anonymity with regard to the identity of the investors or intermediaries, while the market operator and the SEC should have access to the pre-trade information on the identity of the market participants for the purpose of surveillance" (p. 44).

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

EN

The IMF's 2004 FSAP report rated this principle as "Partially Implemented." The SEC has the sufficient administrative capacity and sanction power to administer the SRC and other laws under its supervision. The IMF report asserts that "the legal and regulatory prohibitions, administrative powers, and civil liabilities are sound" (p. 44), and reckons that the new market surveillance system of the PSE, which was being tested at the time of the assessment, would be an improvement to the existing system, but cautioned that the SEC should obtain direct monitoring access to the system to ensure its enforcement powers.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

CP

The IMF's 2004 FSAP report rated this principle as "Implemented." The assessment reports that the Securities Clearing Corporation of the Philippines (SCCP), to which all broker dealers are members, has a 'fails management system' wherein any undelivered shares will have to be bought by making use of the Trade Clearing and Guarantee Fund (TCGF). In the same manner, any unpaid shares are sold in the market to close out the exposure. Incidental costs incurred are charged to the defaulting broker. There is also a "credit ring agreement" between the SCCP and its participants wherein the latter agree that they will contribute should the TCFG be insufficient to cover the deficiency incurred" (p. 45).

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

FC

The IMF's 2004 FSAP report rated this principle as "Implemented."