Academic journal article Law and Policy in International Business

Internationalizing U.S. Capital Markets in Global Context: Problems and Prospects

Academic journal article Law and Policy in International Business

Internationalizing U.S. Capital Markets in Global Context: Problems and Prospects

Article excerpt

I. Introduction

The capital markets of the United States play a central role in global

corporate finance, but perhaps not primarily as a source of equity

capital via the stock markets. The main importance of U.S. capital

markets results from their ability (1) to provide liquidity to foreign

investors, thus enabling investors to be confident that they can quickly

dispose of their investments without having to search for purchasers,

and (2) to function as a disciplinary mechanism that allocates capital to

more efficient users, penalizes managements that fail to pursue

shareholder (and other stakeholder) interests, and reduces the need for

legal intervention.(1) Although considerable controversy remains as to

how well the U.S. markets fulfill this role (particularly with respect to

the disciplinary function), there is little argument that the global

financial market -- and the myriad players in it -- depend upon the U.S.

capital markets to continue DATfunction as a leading venue for

transacting financial business.(2) The financial markets of the United States

are vast and complex. In the narrow ambit of this paper and in keeping

with the comparative goals of this conference, I shall focus almost

exclusively on the securities markets aspects of finance. However, even

after their rapid growth and diversification over the past decade and a

half, securities markets remain only a part of a far larger enterprise.

Indeed, the new securities vehicles have ironically encouraged parallel

diversification elsewhere, such as in commercial banking and finance,

and have compelled banks, commodities markets and other

institutions to grow and to adapt in response. A number of important changes

are currently transforming the U.S. financial markets, creating an

integrated, almost seamless, global financial services market. Among

these factors are:

1) increased volatility in the stock market, at least in part

resulting from new portfolio trading strategies ("program

trading") and new opportunities for arbitrage between the

securities markets and the emergent, and increasingly important,

futures markets;

2) global competitive pressures and the gradual movement

toward twenty-four-hour trading on multiple exchanges around

the world;

3) the European Union's efforts to develop a single

European financial services market by the target date for European

integration at the end of 1992 -- a possible model for future Asia

Pacific Economic Cooperation (APEC) integration; and

4) a movement on the part of the Securities and Exchange

Commission (SEC) toward greater deregulation.

All these interconnected factors are briefly reviewed below. Following

that review is a more intensive analysis of U.S. law and practice with

regard to foreign entry to, and listing on, U.S. securities markets.

II. Financial Market Overview

A. The "One Market" Concept

The Brady Commission, appointed by President Reagan in the

aftermath of the October 1987 U.S. stock market crash,(3) stressed in its

early 1988 report the need to recognize that a variety of historically

separate markets were in fact functionally interrelated:

From an economic viewpoint, what have been traditionally seen

as separate markets -- the markets for stock, stock index futures,

and stock options -- are in fact one market. Under ordinary

circumstances, these marketplaces move sympathetically, linked

by financial instruments, trading strategies, market participants

and clearing and credit mechanisms. …

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