Objectives and Principles
ofSecurities Regulation

International Organization of Securities Commissions

June 2010

CONTENTS
Page
Foreword and Executive Summary

3A

Principles Relating to the Regulator

4

B

Principles for Self-Regulation

5

C

Principles for the Enforcement of Securities Regulation

6

D

Principles for Cooperation in Regulation

7

E

Principles for Issuers

8F

Principles for Auditors, Credit Rating Agencies, and otherinformation providers

9

G

Principles for Collective Investment Schemes

10

H

Principles for Market Intermediaries

11

I

Principles for Secondary Markets

12Foreword and Executive SummaryThis Document sets out 38 Principles of securities1 regulation, which are based upon
three Objectives of securities regulation. These are:

protecting investors; 2
ensuring that markets are fair, efficient and transparent;
reducing systemic risk.

The 38 Principles need to be practically implemented under the relevant legal
framework to achieve the Objectives of regulation described above. The Principles aregrouped into nine categories.

2For convenience, in this Document, the words “securities markets” are used, where the context
permits, to refer compendiously to the various market sectors. In particular, where the context
permits they should be understood to include reference to the derivatives markets. The sameapplies to the use of the words “securities regulation.” (See IOSCO By-Laws, Explanatory
Memorandum).
The term “investor” is intended to include customers or other consumers of financial services.

3

A.

Principles Relating to the Regulator
1

The responsibilities of the Regulator should be clear and objectively stated.

2The Regulator should be operationally independent and accountable in theexercise of its functions and powers.

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

4

The Regulator should adopt clear and consistent regulatory processes.

5

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

6

The Regulator should have or contribute to a process to monitor, mitigate andmanage systemic risk, appropriate to its mandate.

7

The Regulator should have or contribute to a process to review the perimeter ofregulation regularly.

8The Regulator should seek to ensure that conflicts of interest andmisalignment of incentives are avoided, eliminated, disclosed or otherwise
managed.

4

B.

Principles for Self-Regulation
9

Where the regulatory system makes use of Self-Regulatory Organizations(SROs) that exercise some direct oversight responsibility for their respective
areas of competence, such SROs should be subject to the oversight of theRegulator and should observe standards of fairness and confidentiality when
exercising powers and delegated responsibilities.

5

C. Principles for the Enforcement of Securities Regulation
10 The Regulator should have comprehensive inspection, investigation andsurveillance powers.
11 The Regulator should have comprehensive enforcement powers.
12 The regulatory system should ensure an effective and credible use of
inspection, investigation, surveillance and enforcement powers andimplementation of an effective compliance program.

6D.

Principles for Cooperation in Regulation
13 The Regulator should have authority to share both public and non-public
information with domestic and foreign counterparts.
14 Regulators should establish information sharing mechanisms that set out whenand how they will share both public and non-public information with theirdomestic and foreign counterparts.
15 The regulatory system should allow for assistance to be provided to foreign
Regulators who need to make inquiries in the discharge of their functions andexercise of their powers.

7

E.

Principles for Issuers
16 There should be full, accurate and timely disclosure of financial results, risk
and other information which is material to investors’ decisions.
17

Holders of securities in a company should be treated in a fair and equitablemanner.

18 Accounting standards used by issuers to prepare financial statements should beof a high and internationally acceptable quality.

8F.

Principles for Auditors, Credit Ratings Agencies, and other information
service providers
19 Auditors should be subject to adequate levels of oversight.
20 Auditors should be independent of the issuing entity that they audit.
21 Audit standards should be of a high and internationally acceptable quality.
22 Credit rating agencies should be subject to adequate levels of oversight. The
regulatory system should ensure that credit rating agencies whose ratings areused for regulatory purposes are subject to registration and ongoingsupervision.
23 Other entities that offer investors analytical or evaluative services should be
subject to oversight and regulation appropriate to the impact their activities
have on the market or the degree to which the regulatory system relies on them.

9G.

Principles for Collective Investment Schemes
24 The regulatory system should set standards for the eligibility, governance,organization and operational conduct of those who wish to market or operate acollective investment scheme.
25 The regulatory system should provide for rules governing the legal form andstructure of collective investment schemes and the segregation and protectionof client assets.
26 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 thescheme.
27 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.
28 Regulation should ensure that hedge funds and/ormanagers/advisers are subject to appropriate oversight.

10hedge

funds

H.

Principles for Market Intermediaries
29 Regulation should provide for minimum entry standards for market
intermediaries.
30 There should be initial and ongoing capital and other prudential requirements
for market intermediaries that reflect the risks that the intermediaries
undertake.
31 Market intermediaries should be required to establish an internal function thatdelivers compliance with standards for internal organization and operational
conduct, with the aim of protecting the interests of clients and their assets andensuring proper management of risk, through which management of theintermediary accepts primary responsibility for these matters.
32 There should be procedures for dealing with the failure of a market
intermediary in order to minimize damage and loss to investors and to containsystemic risk.

11I.

Principles for Secondary Markets
33 The establishment of trading systems including securities exchanges should besubject to regulatory authorization and oversight.
34 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 thedemands of different market participants.
35 Regulation should promote transparency of trading.
36 Regulation should be designed to detect and deter manipulation and otherunfair trading practices.
37 Regulation should aim to ensure the proper management of large exposures,default risk and market disruption.
38 Securities settlement systems and central counterparties should be subject toregulatory and supervisory requirements that are designed to ensure that they
are fair, effective and efficient and that they reduce systemic risk.

12