Searching for a Level Playing Field: The Internationalization of U.S. Securities Disclosure Rules
Harder, Troy L., Houston Journal of International Law
I. THE INTERNATIONALIZATION OF THE WORLD'S SECURITIES MARKETS
"The only real impediments to a global market are regulatory, not technological. Specifically, what is lacking is an appropriate regulatory framework for that market to operate in." (1)
As a result of recent technological innovations--namely the Internet and telecommunications devices--the world's securities markets have become increasingly international. (2) On-line trading of securities has broken down the barriers of space and time by allowing domestic investors access to foreign securities, (3) and cross-border securities transactions (4) have become commonplace. (5) Most of the laws governing the trading of securities, however, were developed by individual countries prior to such internationalization. (6) As a result, each nation regulates its securities markets in different ways, and the differences in the amounts and types of disclosure required by the various countries' regulatory agencies are often significant. (7) Such differences may, and often do, result in an uneven playing field for companies attempting to raise capital in a foreign market and for domestic investors who wish to diversify their portfolios by investing in foreign entities. (8)
In response, the U.S. Securities and Exchange Commission (SEC), along with the other major regulatory agencies of the world, has made attempts at internationalizing securities disclosure rules in order to provide investors with comparable information when making investment decisions. (9) Mandatory disclosure, or the movement toward "corporate transparency," has been cited by commentators as providing three main benefits: making markets more fair for investors, decreasing risk to investors, and allocating capital resources more efficiently. (10) Disclosure also imposes its own costs, (11) which at times can be so significant as to create a disincentive to companies seeking capital from securities markets. (12) Securities regulation agencies, therefore, have the task of defining what level of disclosure is necessary to confer such benefits on its constituent investors without imposing too great a burden on issuers.
This Article first provides a brief introduction into the major theories of international securities regulation. An understanding of these theories is necessary to appreciate the current disparity among the world's regulatory regimes and how a globalized market system should most efficiently be regulated.
This Article next presents a background of the current regulatory environment in the United States. Part III discusses the securities disclosure regulations to which both domestic issuers and foreign companies listing in the United States are subject. In particular, this section points out the accommodations the SEC has made to foreign issuers in an attempt to encourage them to list on U.S. markets. This part also explains what changes the current regulatory system is undergoing in an attempt to internationalize disclosure rules.
Part IV of this Article identifies the practical effects of differences in disclosure standards for domestic and foreign issuers. It does this by providing real world examples of what has happened when a foreign company, formerly subject only to its home country disclosure regime, becomes subject to the more demanding regulatory environment of the United States.
Part V analyzes in depth the SEC's recent adopted and proposed regulatory changes: the International Disclosure Standards and the International Accounting Standards. This analysis compares the international and U.S. standards and identifies the major differences. With exposure to these differences, the reader can see that the regulatory agencies of the world have much to do before a truly uniform system of securities disclosure can be adopted.
Finally, this Article proposes that the disclosure requirements of domestic and foreign issuers in the United States must be harmonized before any attempts at harmonizing securities regulations on a global basis can be accomplished. …