Internationalization of Primary Public Securities Markets

Abstract:     
This article posits that it would be desirable for issuers in public primary securities markets to be able to issue securities to investors worldwide using one set of optimal distribution procedures and disclosure documents, and one set of liability standards and enforcement remedies. It points out that this state of affairs is currently not possible because the United States conditions public issuance in its territory?and to some significant extent to U.S. investors outside its territory?on compliance with its unique set of distribution procedures, disclosure requirements, and enforcement rules.

Harmonization of world rules is not the answer to this problem. There is no reason to assume that the world would choose an optimal level of disclosure, particularly because the United States will push for world rules that are closely equivalent to its own. Moreover, there is substantial doubt as to whether worldwide agreement can be reached on the issue of disclosure, let alone distribution and enforcement rules. Nor is mutual recognition the answer. The approach creates basic inequities for domestic issuers and has not worked well in the European Union, which has the advantage of supranational institutions, despite much fanfare about the single passport. Broader versions of mutual recognition, such as portable reciprocity, founder on problems of enforcement.

The article proposes instead the establishment of an offshore free zone. This would require that the United States, like other countries, permit its investors to participate in the offshore market for primary distributions of foreign issuers free of restrictions other than minimum disclosure requirements. One major benefit of this approach is that it would permit the use of common distribution procedures.

Accepted Paper Series