Academic journal article Law and Policy in International Business

Comments on "Barriers to Foreign Issuer Entry into U.S. Markets." (Response to Article by Roberta S. Karmel and Mary S. Head in This Issue, P. 1207) (Symposium on Managing Economic Interdependence)

Academic journal article Law and Policy in International Business

Comments on "Barriers to Foreign Issuer Entry into U.S. Markets." (Response to Article by Roberta S. Karmel and Mary S. Head in This Issue, P. 1207) (Symposium on Managing Economic Interdependence)

Article excerpt

I. INTRODUCTION

The competitiveness of the U.S. capital markets in attracting foreign issuers(1) to offer publicly and to list their securities for public trading in the United States is immensely important. The U.S. public market continues to be one of the world's most attractive markets for capital raising for a number of reasons: the depth and breadth of the issuer and investor base; the sophistication of the market professionals who have demonstrated an enormous capacity to produce innovative financial products and to respond to changing market needs; the efficiencies of the public trading market as well as clearance and settlement systems; and, importantly, confidence in the fundamental integrity and fairness of the U.S. public market.

In some senses, this last factor, confidence in the fundamental integrity and fairness of the U.S. public market, may provide the foundation and encourage development of the issuer and investor base, innovation in financial product development, and growth in the public trading market as well as clearance and settlement systems. By providing a framework, based on full disclosure of material information, U.S. federal securities regulation plays an important role in fostering confidence in the fundamental integrity and fairness of the public market.

Securities regulation, in itself, is not necessarily a benefit to the market. Moreover, greater amounts of regulation do not necessarily translate into a greater sense of confidence in the integrity and fairness of the market among market participants. Regulation should result from an assessment of costs and benefits; the degree of regulation imposed should not exceed the benefits intended to be derived from the regulation. In addition, when weighing the costs and benefits, regulators should ensure that the intended goals and benefits underlying their regulatory mandate are given full consideration, while at the same time ensuring that their considerations do not extend beyond that mandate.

In Barriers to Foreign Issuer Entry Into U.S. Markets, Roberta Karmel and Mary Head argue that the Securities and Exchange Commission (the Commission) has been unresponsive to the genuine needs of foreign issuers and that regulatory and other action taken by the Commission in the international area has been minimal and ineffectual.(2) Karmel and Head's primary criticism focuses on the Commission's current position that foreign issuers accessing the U.S. public market by listing their securities on national securities exchanges(3) comply with disclosure requirements, particularly the requirement to reconcile their financial statements to U.S. GAAP.(4) Karmel and Head assert that the requirement to reconcile financial statements to U.S. GAAP places an undue burden upon foreign issuers and has deterred them from accessing the U.S. public market.(5) Karmel and Head argue that foreign issuers are unwilling to enter the U.S. public market, which makes the major U.S. stock exchanges, particularly the New York Stock Exchange (NYSE), uncompetitive compared to non-U.S. stock exchanges in attracting foreign issuer listings.(6) At a minimum, Karmel and Head propose that the reconciliation requirement be eliminated for large foreign issuers traded in major foreign public markets.(7)

In contrast to the criticisms aired by Karmel and Head in Barriers to Foreign Issuer Entry Into U.S. Markets, the facts relating to foreign issuer participation in the U.S. public market support several very different conclusions. Over the last several years, foreign issuer activity in both the private and public markets has been significant and has grown year-to-year, indicating that foreign issuers are attracted to U.S. markets and that the Commission's rules are not a significant barrier to foreign issuers' use of those markets.(8) In addition, the Commission has repeatedly simplified its rules, to the extent possible, and has promulgated new rules that have had significant impact in attracting foreign issuers to U. …

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