Memorandum Of Understanding

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A memorandum of understanding (MOU) is a legal agreement between two parties that carries less weight than a formal contract but more than an informal agreement, and outlines the parties' rights and responsibilities under the memorandum. MOUs are commonly used in international agreements and the term is sometimes used as a synonym for "letter of intent".

First step

While an MOU does not have the same legal standing as a formal contract, it is often used as the first stage of the contract process, since it is legally enforceable if one of the parties fails to meet its obligations.[1] MOUs are commonly used in international public law on place of treaties, since their terms can be kept confidential, don't require ratification and can be modified without lengthy negotiations.[2]

In the U.S. financial services industry, an MOU negotiated between an institution and its regulator or supervisor indicates that the bank, while not admitting any wrongdoing, will refrain from a practice deemed unsound by the regulator and take future action to correct the practice.[3]

Exchange MOUs

Many financial industry exchanges have signed MOUs with other exchanges in an effort to position themselves for a more global environment. These agreements between exchanges provide the opportunity to develop products that will benefit market users and enhance resources to educate individuals on the specific services of each exchange. Non-exchange MOUs have been agreed upon for the sharing of information and partnership opportunities.

CME Group

CBOE

ISE

NASDAQ

Singapore Exchange

  • Singapore Exchange Limited (SGX) and Karachi Stock Exchange (KSE) signed an MOU on October 22, 2008 to collaborate for the benefit of the financial services industries in Singapore and Pakistan. The MOU aims to foster a closer relationship between both exchanges. This includes sharing best practices regarding each exchange’s products as well as the operation and governance of their respective markets.[9]
  • Singapore Exchange Limited (SGX) AND FUJIAN PROVINCIAL GOVERNMENT SIGN LISTING MOU[10]
    The MOU aims to further promote the listings of Fujian enterprises on SGX.

Regulatory MOUs

  • The Securities and Exchange Commission and the College of Euronext Regulators, which includes; The Netherlands, France, Belgium, Portugal, the United Kingdom and the United States, entered a memorandum of understanding, in January of 2007, when Euronext combined with the New York Stock Exchange in order to create the new group, NYSE Euronext. The MOU expresses each parties willingness to cooperate with each other in the interest in fulfulling their respective regulatory mandates particulary in the area of investor confidence and systemic stability.[13]

Broker/Dealer MOUs

  • Reliance Money, the largest brokerage house in India, signed a memorandum of understanding with OptionsXpress to provide access, custody and execution services for their customers looking to trade in the U.S. markets.[14]

References

  1. Memorandum of Understanding - MOU. Answers.com.
  2. What is a Memorandum of Understanding?. WiseGeek.com.
  3. Memorandum of understanding. Allbusiness.com.
  4. Press Release. CME.
  5. Press Release. CBOE.
  6. Press Release. CBOE.
  7. Press Release. Reuters.
  8. Press Release. NASDAQ.
  9. SINGAPORE EXCHANGE AND KARACHI STOCK EXCHANGE SIGN MOU FOR COLLABORATION. Singapore Exchange.
  10. SGX AND FUJIAN PROVINCIAL GOVERNMENT SIGN LISTING MOU. Singapore Exchange Limited.
  11. Press Release. SEC.
  12. Press Release. CFTC.
  13. Press Release. SEC.
  14. Press Release. The Hindu.