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U.S. Securities and Exchange Commission

Speech by SEC Chairman:
Videotaped Remarks at The Other Russia Conference


Chairman Christopher Cox

U.S. Securities and Exchange Commission

Moscow, Russia
July 12, 2006

Доброе утро! Меня зовут Кристофер Кокс.

In my role as Chairman of the US Securities and Exchange Commission, I’m responsible for maintaining fair and orderly securities markets, and promoting capital formation — the life blood of a free economy.

I’m honored to have the opportunity to join you this morning as you discuss how best to promote freedom and free markets in Russia.

Just 15 years ago, the entire world celebrated when Russia won the Cold War. I will never forget the days I spent in Russia meeting with your national leaders who led the fight against totalitarianism. No one looking back on those events can doubt that Russia, the largest of the captive nations suppressed within the Soviet Empire, and Russians themselves defeated that cruel and oppressive system.

Since then, Russia has experienced an exceptionally difficult transition to a market economy. Instead of immediate relief from economic hardships and government abuses, the 1990s were a time of rampant corruption, when government monopolies were stripped of assets to become private fiefdoms for a privileged few. Poverty and disease weren’t conquered, they flourished. Despite all of this adversity, Russia and Russians never looked back. You have always known that freedom is your destination, and I have every expectation that as Russia’s freedom grows in the future, so will Russia’s wealth, prosperity, and culture.

Free, open, and transparent capital markets are an essential element of the freedom that is the key to Russia’s future. But just as importantly, freedom in all of its meanings — including particularly the freedom to say, write, publish, broadcast, and think the truth as one understands it, without fear of persecution — is essential to a free capital market.

That is because buyers and sellers in any market need information in order to trade. The better the information, the more efficient the market. Public disclosure of all material information is a basic ingredient of an efficient market. It is what separates investing from roulette — and if Russia restricts the flow of information about publicly owned companies, it will be playing Russian roulette with the economy’s future.

And indeed, this is not merely an academic point. Russia has large companies that interest investors around the world, but many of them are owned by the government in whole or in part. If all that investors can buy is a minority share in such a government controlled enterprise, and if critical information about the controlling shareholder and ultimate parent is restricted by that very government, a key component of a genuine market will be missing. Not only that, but a key component of investor protection will be missing as well.

That is why Russia's restrictions on the media directly concern the capital markets. Controls on news and information — including information about the very government that controls the companies in which investors are being asked to put their money - obstruct the transparency that investors and efficient markets demand.

Another essential ingredient of a genuinely free market is marketplace actors who make decisions based on economic motives of profit and loss. This assures that the market will perform its most critical function — allocating resources efficiently across the economy. But governments act for reasons of national interest, which — while important — can be very different. So by vindicating political and strategic concerns instead of purely economic motives, government owned companies can distort the proper functioning of markets. Shareholders will naturally wonder whether actions are taken because of an economic rationale or because of political calculations.

Conversely, if a company is owned by shareholders, and not by the government, then the normal workings of shareholder democracy will ensure that the business is run in their economic interest. It is a powerful check against corporate management becoming complacent or — much worse — corrupt. Private shareholders insisting on their economic rights is the best way to establish corporate accountability and efficiency. Russia's progress in transforming state-controlled or state-affiliated companies into genuinely private enterprises will be key to determining whether Russian companies ever have genuine shareholder democracy.

There is, however, one very important role for the government in ensuring free, open, and efficient markets. The rule of law is the final necessary ingredient. A share in a company is a property right, and it must be enforceable in law. So not only honest, independent courts, but also a tough, independent regulator is absolutely essential to investor confidence. But when the regulator and the regulated are one and the same, there is an inherent conflict of interest. The role for government is tough, independent, and neutral policeman — not player and referee at once.

The Securities and Exchange Commission is committed to assisting Russia to build strong, fair, free and open markets in any way that we can. For several years, we have trained Russian securities regulators both in Russia and the United States, in subjects ranging from money laundering to insider trading to market manipulation. And there is much more to do. In particular, as Russian companies prepare to issue securities to American investors and in markets around the world, we will redouble our efforts to promote shareholder democracy, access to material information, and tough, independent regulation.

Every Russian and every American has a stake in our working together. And I’m confident that the answers to all of the challenges we face can be found right here in this room, with all of you. Thank you for your leadership. Every one of you is already working to make certain that our future is one of cooperation, growth, and mutual understanding. Your example is an inspiration-and because of your dedication to the future of Russia, not only Russia, but the world will be a far better place.

Спасибо большое и всего хорошего!



Modified: 07/12/2006