Cross-Listings and the New World of International Capital: Another Look at the Efficiency and Extraterritoriality of Securities Law

Article excerpt

  I. INTRODUCTION: INTERNATIONAL AND DOMESTIC DIMENSIONS OF SECURITIES
     LAW DEBATES
     A. National Law Debates: Disclosure, Enforcement, and
      Private Actions
     B. Overview of the Article

 II. MECHANISMS AND ECONOMIC BENEFITS OF CROSS-LISTINGS
     A. An Overview of Cross-Listings
     B. The Costs and Benefits of Cross-Listings

III. RISK OF PRIVATE LITIGATION AND CASE LAW ANALYSIS
     A. The Conduct and Effects Test
        1. History, Fears, and Reforms
        2.  Review of Sample Cases: Reality Check on Legal Imperialism
     B. The Mighty Morrison

 IV. DEREGULATION AND HARMONIZATION REFORMS
     A. Foreign Private Issuers: Basic Regulatory Requirements
     B. New Deregistration Rule and Barriers to Exit
     C. A Global Market Watchdog or Secondary Regulator?

  V. QUINTESSENCE OF THE CURRENT POLICIES: JUSTIFICATION AND
     EVIDENCE
     A. Policy Justifications: Theory and Practice
     B. A Generalized Decision-Making Model
     C. Evidence: Regulations and Litigation
        1. Statistics: Registration and Deregistration Trends
        2. An Interplay between Litigation and
           Deregistration: A Jurisdictional Overview
        3. Primary Policy Targets
        4. The Foreign Law Factor

 VI. POLICY PROPOSALS
     A. International Cooperation
     B. Revisiting the Ex Post Factors: Litigation and
        Enforcement
     C. Improvisation with a Limited Issuer-Choice Option: An
        Opt-Out Procedure

VII. CONCLUSION

     APPENDIX I
     APPENDIX II
     APPENDIX III
     APPENDIX IV
     APPENDIX V
     APPENDIX VI
     APPENDIX VII

I. INTRODUCTION: INTERNATIONAL AND DOMESTIC DIMENSIONS OF SECURITIES LAW DEBATES

Capital markets are not America-centric anymore. (1) Although the United States still has the largest securities exchanges, (2) many foreign jurisdictions, including developed and developing economies, are catching up with the leader in terms of their infrastructure and capital market institutions. (3) Despite the potentially greater susceptibility of emerging economies to the global recession, the trading volume, number of IPOs, and capitalization of their exchanges have been steadily increasing, often at the expense of U.S. exchanges. (4)

This newly integrated and highly competitive market for capital forces sovereigns to vie for companies by improving the quality of all their domestic products, including law. (5) Striving to eradicate the inefficiencies and following the Weberian maxim that the "[r]ationality of the regulation of markets has been historically associated with the growth of formal market freedom and the extension of marketable goods ...," (6) scholars and practitioners are searching for the optimal level of national regulation within the internationalized market. This Article will continue this search exploring why and if the U.S. regulatory regime is possibly contributing to the outflow of issuers and what U.S. policymakers could do to improve the quality of their "goods" to bolster the competitiveness of U.S. securities markets.

One of the typical pragmatic explanations of the outflow of capital and issuers from U.S. markets to alternative trading venues is the onerous barriers to entry and the costs associated with U.S. securities law. (7) The pertinent theoretical concern is whether and to what extent the U.S. legal structure, including the uniquely active plaintiffs' bar, the opt-out class actions regime, the strong SEC, and its extensive mandatory reporting requirements, imposes excessive costs not only on issuers as such, (8) but most importantly on the issuers whose economic center of gravity is located in a foreign jurisdiction. (9)

Unfortunately, the results of the pertinent policy debates on disclosure, enforcement, and private litigation may seem both ambiguous and disconcerting to private and public observers alike, (10) while the debates themselves may appear somewhat dichotomous, split between two policy camps: pro-regulatory and pro-market. …