Regulatory Competition in Securities Law: A Dream (that Should Be) Deferred
61 Pages Posted: 10 Jan 2006
Proponents of regulatory competition have presented their most detailed arguments in the field of corporate law, but have made a similar case in other areas, including securities regulation. Proponents of regulatory competition in securities regulation argue that our markets would be best served if (a) states or nations competed to provide legal regimes to govern securities transactions, or (b) domestic or international securities exchanges competed for listings of companies whose transactions would be governed by the rules of the exchange. Theoretically, states and other nations would compete to provide legal regimes governing securities transactions, or perhaps exchanges could compete for listings by offering varieties of legal regimes for securities transactions. Companies could then choose to be governed by the laws and/or listing requirements that best accommodated their needs. This paper is the first to comprehensively discuss all these various manifestations of regulatory competition in securities law. It demonstrates that in all these forms, true competition is likely to be insufficient and to represent a stroll toward the bottom rather than a race to the top. Providers of regulation are insufficiently motivated to provide innovative and efficient regulatory schemes. More significantly, managers functionally choose where to incorporate or where to list, meaning that in a system of regulatory competition the fox determines which rules will govern operation of the chicken house. A significant amount of empirical evidence supports the notion that the best regulatory model is the current strong-SEC regulatory model that other nations have begun to strongly emulate. Capital markets would be better served by efforts to improve the strong-SEC model than by attempting to replace it with regulatory competition.
Keywords: Regulatory competition, Securities regulation, Securities Law, Corporate Law, Corporate Governance Law
Suggested Citation: Suggested Citation