An independent and freely-functioning stock market is an important element in a vibrant and growing economy. In a speech at a Tsinghua University conference in Beijing, Christopher Cox, Chairman of the independent U.S. Securities and Exchange Commission explained his view that there are three essentials to a well-functioning stock market.

The first is shareholder democracy. It is the means to insure that the rights of individual investors are protected. “Every shareholder has to know that his or her economic interests will be protected both by corporate management and by the legal system,” Mr. Cox said. “China’s progress in transforming state-controlled and state-affiliated companies into genuinely private enterprises will be key to determining whether Chinese companies ever have genuine shareholder democracy.”

The second essential is access to information. Investors need information about the firms in which they invest. “Private companies, unlike national governments, can be forced by regulators to disclose key information to shareholders. This is not necessarily true of state-owned companies,” S-E-C Chairman Cox said. “Today’s highly competitive global capital markets require that information travel freely and instantaneously. Any restrictions on access to information in the press, in the electronic media, and on the internet are a serious obstacle to. . . .investor protection.”

The third essential is regulation. It is critical to the maintenance of investor confidence. “For regulation to be truly effective. . . .it must be independent,” Mr. Cox said. “If the regulator and the regulated are one and the same, there is an inherent conflict of interest.”

Speaking to the U.S.-China Joint Economic Committee in Hebei, S-E-C Chairman Cox emphasized that capital markets “rely on trust.” “One of the keys to building trust in China’s capital markets is a sound securities regulatory regime,” Mr. Cox said. “Ensuring that China’s listed companies have financial statements that accurately reflect their true financial picture is essential to an economy where investments are going to be made for sound financial and economic reasons, and not for political motives.”

The preceding was an editorial reflecting the views of the United States Government.