Talking the Talk, or Walking the Walk? Outcome-Based Regulation of Transnational Investment

76 Pages Posted: 25 Jul 2008 Last revised: 27 Jul 2009

See all articles by Jerry Ellig

Jerry Ellig

George Washington University - Regulatory Studies Center (deceased)

Houman B. Shadab

New York Law School


Today, individual U.S. retail investors have virtually limitless opportunities to invest their money, with a notable exception: they cannot directly invest in securities of foreign issuers and still be protected under U.S. law. This missing opportunity deprives U.S. investors of the ability to fully diversify their investments and also imposes undue costs and risks upon investors seeking to invest directly overseas. This Article shows that a Securities and Exchange Commission ("SEC") policy of "mutual recognition" of foreign regulatory regimes that achieve investor protection outcomes comparable to those of the SEC would solve this problem. A foreign issuer or other entity seeking to access U.S. capital markets should be permitted to substitute compliance with its home country's investor protection regulations for compliance with U.S. regulation, as long as it agreed to submit to SEC antifraud jurisdiction in its dealings with U.S. investors. The foreign entity would thereby not have to comply with federal securities law to have access to individual U.S. investors, as is currently the case. Similarly, U.S. entities should be permitted to enter foreign markets without subjecting themselves to a second layer of regulation on top of what the SEC already requires.

Under an outcome-based approach to transnational investment, U.S. companies could then opt for foreign regulation and sell securities to U.S. investors as foreign-regulated issuers, as could foreign entities with respect to their home regulator. Allowing firms to choose a regulator from the set of nations with comparable investor protections would intensify the regulatory competition already taking place around the globe, and help to ensure that such competition serves the interests of investors.

Keywords: mutual recognition, investor protection, securities and exchange commission, regulatory competition, substituted compliance, international diversification

JEL Classification: G18, G28, G38, G11, G15

Suggested Citation

Ellig, Jerry and Shadab, Houman B., Talking the Talk, or Walking the Walk? Outcome-Based Regulation of Transnational Investment. New York University Journal of International Law and Politics, Vol. 6, pp. 265-340 (2009), Available at SSRN:

Jerry Ellig

George Washington University - Regulatory Studies Center (deceased) ( email )

805 21st St. NW
Washington, DC 20052
United States
703-375-9410 (Phone)

Houman B. Shadab (Contact Author)

New York Law School ( email )

185 W. Broadway
New York, NY 10013
United States


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