Stock Exchanges and the New Market for Securities Laws

Abstract:     
Leading scholars have lamented for nearly a decade the absence of what can be termed a market for securities laws. In contrast to U.S. corporate law, which is said to prompt competition among states for charters, no competition for issuers animates the enactment of federal securities laws. Indeed, the conventional view is that the U.S. government has enjoyed a virtual monopoly over securities laws since the passing of the 1933 Securities Act. In response, academics such as Roberta Romano, Andrew Guzman, and Stephen Choi have proposed a variety of reforms aimed at generating competition among securities regulators by giving either issuers or stock exchanges expanded choice as to the legal regime governing their securities transactions.

This Article argues that these proposals fail to take account of dramatic changes in the structure and operation of stock exchanges that are already making possible a vibrant market for securities laws. First, the Article identifies what can be viewed as a 'public' market for securities laws. In this market, the services offered by stock exchanges are increasingly commoditized as exchanges transition from floor trading to electronic trading. As a result, national regulators eager to protect or expand their financial centers are incentivized to provide attractive rules for securities issuances. Second, the Article demonstrates how the acquisition of foreign competitors by U.S. stock exchanges has created a nascent 'private' market for securities laws. The Article shows that by merging with foreign competitors, stock exchanges are now able offer firms greater choice as to where their securities will be sold, and, as a result, greater choice over the regulatory regime governing their offerings. The Article then assesses the degree of regulatory competition created by these new markets for securities laws by comparing them to the reform proposals advanced by the critics of the current securities law regime.

Keywords: Regulatory Competition, Stock Exchanges, ECNs, NYSE, Euronext, Nasdaq, Issuer Choice, Substituted Compliance

Accepted Paper Series