Issuer Choice After Morrison
Daniel Jacob Hemel
University of Chicago Law School
March 26, 2011
Yale Journal on Regulation, Vol. 28, 2011
In June 2010, the Supreme Court handed down a sweeping decision in Morrison v. National Australia Bank Ltd. that dramatically limited the geographic reach of U.S. securities fraud laws. Reversing four decades of circuit court jurisprudence, the Morrison majority held that § 10(b) of the Securities Exchange Act applies only to “transactions in securities listed on domestic exchanges” and “domestic transactions in other securities.” At the time, the Morrison majority’s “transactional test” was widely praised for its “clarity.” However, in the months since Morrison, a vibrant debate has emerged in courtrooms, blogs, and academic journals regarding the application of Morrison’s transactional test. Judges, lawyers, and commentators alike have acknowledged that if taken at face value, the Morrison majority opinion seems to suggest that § 10(b) still applies to all transactions in securities that are listed on U.S. exchanges - whether or not the transaction itself occurs in the United States. Yet the U.S. District Court for the Southern District of New York has consistently rejected that reading of Morrison because (according to the Southern District judges) it would conflict with the policy thrust of the Morrison majority opinion.
Contrary to the Southern District’s conclusion, this Comment argues that the plain text of Morrison’s transactional test should be given full effect. It draws on modern finance theory to show why applying § 10(b) to transactions in all securities that are listed on U.S. exchanges - even transactions that themselves occur on foreign markets - may lead to large gains in shareholder value. It demonstrates that the Morrison majority opinion, if followed faithfully, creates an environment in which foreign firms can choose the legal regime that minimizes their capital-raising costs. Enabling foreign firms to opt into § 10(b) through cross-listing will also yield clear advantages for the U.S. financial sector. By integrating modern finance theory into the analysis of Morrison, this Comment shows how the majority’s transactional test can best advance widely shared policy objectives.
Number of Pages in PDF File: 19
Date posted: March 27, 2011 ; Last revised: April 24, 2011
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