Post-American securities regulation

California Law Review

Volumn 98, Issue 2, 2010, Pages 327-384

  Brummer, Chris ^a  

^a GEORGETOWN UNIVERSITY LAW CENTER   (United States)

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EID: 77956201347     PISSN: 00081221     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (287)

1. See Steven L. Schwarcz, Systemic Risk, 97 GEO. L.J. 193 (2008) (describing the domestic and international nature of systemic risk and the role of securities regulation in addressing it);
2. see also JOHN R. TALBOTT, CONTAGION 105 (2009) (detailing how the toxic securities supporting the U.S. housing market were purchased not only by U.S. financial institutions, but also by "foreign countries, their central banks, and their commercial banks, " which has threatened the global economy).
3. See Martha Brannigan, SEC Accuses Stanford Group Owner of Massive Ongoing Fraud, MIAMI HERALD, Feb. 18, 2009, at Al (reporting the alleged worldwide fraud perpetrated by Robert Allen Stanford's investment company, especially in Latin America);
4. Joana Chung, Half of Madoff Loss Borne by foreigners, Fin. TIMES, Jan. 12, 2009, at 21 (detailing the global nature of the Bernie Madoff Ponzi scheme);
5. Richard A. Oppel Jr. and Riva D. Atlas, Enron's Collapse: the Overview, N.Y. TIMES, Dec. 4, 2001, at CI (noting how Japanese money market funds took a "beating" because of their Enron holdings);
6. Parmalat Is Sued on Behalf of U.S. investors, L.A. TIMES, Jan. 6, 2004, at C3 (showing how Parmalat, though headquartered and operating in Italy, allegedly caused $1.5 billion in losses for U.S. investors).
7. See, e.g., Statement from G-20 Summit, (Nov. 16, 2008), available at http://www.nytimesxoni/2008/11/16/washington/summit-text.html (noting the need for achieving greater transparency internationally for complex securities and financial instruments in order to promote investor protection);
8. Systemic Risk: Examining Regulators' Ability to Respond to Threats to the Financial System: Hearing Before the H. Comm. on Fin. Serv., 110th Cong. 4 (2007) (statement of Rep. Spencer Bachus, Member, House Comm. on Fin. Serv.) (arguing that "given the global nature of our financial markets, U.S. regulators must work closely with their international counterparts to promote cooperation . . . among regulatory bodies, and ensure that information about potential systemic risk is shared promptly"); Christopher Cox, former Chairman, U.S. Sec. & Exch. Comm'n, Speech by SEC Chairman: the Importance of international Enforcement Cooperation in today's Markets (Nov. 7, 2008) (stressing the need for cooperation in order to promote investor protection and maintain confidence in global capital markets);
9. see also George Parker & Chris Giles, Britain Urges tougher Global Financial Regulation, Fin. TIMES, Jan. 7, 2009, at 2 (highlighting, inter alia, Britain's proposals for business conduct standards for financial services companies operating across borders);
10. Daniel Bradlow, international Financial Reform and Africa: What Is to Be Done?, forEIGN POL'Y Focus, NOV. 20, 2008, http://www.fpif.org/fpiftxt/5684 (arguing that global financial regulators should create a global community reinvestment process).
11. for an excellent overview of this problem see Jill E. Fisch, top Cop or Regulatory Flop? the SEC at 75, 95 VA. L. REV. 785 (2009).
12. Chris Brummer, Stock Exchanges and the New Markets for Securities Laws, 75 U. CHI L. REV. 1435, 1435-36 (2008). [hereinafter Brummer, Stock Exchanges]
13. See John C. Coffee, Jr., Racing towards the top?: the Impact of Cross-Listings and Stock Market Competition on international Corporate Governance, 102 COLUM. L. REV. 1757, 1760 (2002) [hereinafter Coffee, Racing].
14. Eric J. Pan, Why the World No Longer Puts its Stock in Us 12 (Benjamin N. Cardozo Sch. of Law, Jacob Bums inst, for Advanced Legal Studies, Working Paper No. 176, 2006) available at http://papers.ssrn.com/sol3/papers.cfm?abstract-id= 951705.
15. Ronald J. Gilson & Curtis J. Milhaupt, Sovereign Wealth Funds and Corporate Governance: A Minimalist Response to the New Mercantilism, 60 STAN. L. REV. 1345, 1346 (2008) ;
16. see also Richard A. Epstein & Amanda Rose, the Regulation of Sovereign Wealth Funds: the Virtues of Going Slow, 76 U. CHI. L. REV. 111 (2009).
17. See Howell Jackson, toward a New Regulatory Paradigm for the Trans-Atlantic Financial Market and Beyond: Legal and Economic Perspectives 2 (working paper, 2008), availale at hrrp://www.law.harvard.edu/faculty/workshops/ open/papers0708/jackson.paper.pdf (noting new approaches by the SEC to better regulate cross-border capital spurred by limitations of territorial approaches to regulation). SEC concerns also stem from the reality that even domestic regulatory initiatives can have international consequences.
18. See Chris Brummer, Corporate Law Preemption in an Age of Global Capital Markets, 81 S. CAL. L. REV. 1067, 1103 (noting the increased difficulty of even domestic regulation as capital markets become more international and interconnected). Such concerns are increasingly capturing the public's attention.
19. See Bertrand Benoit, US 'Will Lose Financial Superpower Status, ' Fin. TIMES ONLinE, Sept. 25, 2009, http://ww.ft.eom/cnis/s/0/ld6a4Ga-8aee-lldd-b634- 0000779fdl8c.html;
20. andrew E. Kramer, Moscow Says U.S. Leadership Era Is Ending, N.Y. TIMES, Oct. 3, 2008, at A6;
21. David Leonhardt, A Power That May Not Stay So Super, N.Y. TIMES, Oct. 12, 2008, at WK1.
22. See, e.g., Daniel Gross, the Capital of Capital No More?, N.Y. TIMES, Oct. 14, 2007, § 6 (Magazine), at 62.
23. indeed, in the early literature perhaps only Amir Licht has provided a systematic theoretical account of the challenges of globalization for securities markets, though even his trenchant work has failed to fully anticipate the institutional developments arising in the last decade. See Amir N. Licht, Games Commissions Play: 2×2 Games of international Securities Regulation, 24 YALE J. inT'L L. 61, 92 (1999) (using game theory to explain coordination challenges between securities regulators). U.S. scholars, meanwhile, have largely debated the relative merits of the traditional "regulatory monopoly" wielded by securities regulators over the provision of securities laws.
24. See Stephen J. Choi &andrew T. Guzman, Portable Reciprocity: Rethinking the international Reach of Securities Regulation, 71 S. CAL. L. REV. 903, 937 (1998) (arguing for reforms granting issuers "choice" as to laws governing securities transactions);
25. Roberta Romano, Empowering investors: A Market Approach to Securities Regulation, 107 YALE L.J. 2359, 2365 (1998) (advocating competitive federalism for securities regulation where states compete for investors by offering different sets of securities laws).
26. see Merritt B. Fox, Retaining Mandatory Securities Disclosure: Why Issuer Choice Is Not investor Empowerment, 85 VA. L. REV. 1335, 1338-39 (1999) (arguing against issuer choice reforms on the basis that they would lead to significant underdisclosure).
27. See ANNE-MARIE SLAUGHTER, A NEW WORLD ORDER 40 (2004);
28. see generally Kal Raustiala, the Architecture of international Cooperation: Transgovernmental Networks and the Future of international Law, 43 VA. J. inT'L L. 1, 2 (2002);
29. Charles K. Whitehead, What's Your Sign?-international Norms, Signals, and Compliance, 27 MICH. J. inT'L L. 695 (2006).
30. Networks have, however, generated some skepticism from scholars questioning the accountability networks make possible. See Kenneth anderson, Squaring the Circle? Reconciling Sovereignty and Global Governance Through Global Government Networks, 118 HARV. L. REV. 1255, 1278 (2005). these voices have not, however, questioned the overall effectiveness of networks.
31. See Whitehead, supra note 12, at 698.
32. Raustiala, supra note 12, at 7.
33. See id. at 5 (describing the networks as "transgovernmental networks").
34. - 17 Brummer, Stock Exchanges, supra note 5, at 14
35. the prospects of such efforts are unclear. See inT'L ACCOUNTinG STandARDS BD., A ROADMAP for CONVERGENCE BETWEEN IFRSS and US GAAP 2006-2008 (2006), available at http://ww.iasb.Org/NR/rdonlyres/874B63FB-56DB-4B78-B7AF- 49BBA18C98D9/0/MoU.pdf.
36. But see Sarah Johnson, SEC Pushes Back IFRS Roadmap, CFO.COM, Feb. 4, 2009, http://www.cfo.com/article.cfm/13056185 (describing the SEC's increasing wariness of adopting international accounting standards).
37. for a general theoretical assessment of private legislatures, see Alan Schwartz &Robert E. Scott, the Political Economy of Private Legislatures, 143 U. PENN. L. REV. 595 (1995).
38. Brummer, Slock Exchanges, supra note 5, at 1437-38.
39. Larry E. Ribstein, Cross-Listing and Regulatory Competition, 1 REVIEW of LAW &ECONOMICS 97 (2005), available at http://www.bepress.com/rle/voll/issl/ art7;
40. Frederick Tung, From Monopolists to Markets?: A Political Economy of Issuer Choice in international Securities Regulation, 2002 Wis. L. REV. 1363, 1395 (2002).
41. andreas M. Fleckner, Stock Exchanges at the Crossroads, 74 forDHAM L. REV. 2541, 2593 (2006).
42. Brummer, Stock Exchanges, supra note 5, at 1481.
43. Ethiopis Tafara &Robert J. Peterson, A Blueprint for Cross-Border Access to U.S. investors: A New international Framework, 48 HARV. inT'L L.J. 31, 43 (2007).
44. CofFEE ET AL., SECURITIES REGULATION: CASES and MATERIALS 2 (10th ed. 2007).
45. Tafara &Peterson, supra note 24, at 31.
46. See id. at 35 (noting that "[t]echnology and globalization have also created new opportunities for securities fraud").
47. Fleckner, supra note 22, at 2593.
48. Id.
49. Coffee, Racing, supra note 6, at 1794-95.
50. See WILLIAM A. NISKANEN, JR., BUREAUCRACY &REPRESENTATIVE GOVERNMENT (1971) (asserting that bureaucracies grow because officials seek to increase the budgets they control and so boost their own salary, power, and standing).
51. Final Rules: offshore offers and Sales, SEC Release Nos. 33-6863, 34-27942 (Apr. 24, 1990);
52. see also Proposed Rules: offshore offers and Sales, SEC Release No. 33-6779 (June 17, 1988).
53. in Securities Act Release No. 4708, the Commission stated that it would not take any enforcement action for failure to register securities of U.S. corporations distributed abroad solely to foreign nationals, even though the means of interstate commerce are used, if the distribution is effected in a manner that will result in the securities coming to rest abroad. Exchange Act Release No. 33-4708 (July 9, 1964) (29 FR 9828) ("Release 4708");
54. cf. IIT v. Vencap Ltd., 519 F.2d 1001, 1016 (2d Cir. 1975) (resolution of jurisdictional questions in the securities area "depends on construction of exercised congressional power not the limitations upon that power itself
55. (quoting Steele v. Bulova Watch Co., inc., 344 U.S. 280, 282-83 (1972))). This approach was later memorialized in Regulation S, which limits the extrajurisdictional application of U.S. law and exempts transactions occurring overseas from U.S. registration-and by definition, regulatory oversight.
56. - 15U.S.C. §§ 77a-77b (2000).
57. Id. §§ 77a-77h.
58. See 17 C.F.R. § 240.12g3-2 (2007) (creating an exemption for foreign private issuers with less than 300 U.S. resident shareholders);
59. LARRY D. SODERQUIST, UNDERSTandinG the SECURITIES LAWS § 9.4 (4th ed. 2004) (noting the $10-million-in-assets and 500-shareholder thresholds).
60. Robert B. Thompson, Corporate Federalism in the Administrative State: the SEC's Discretion to Move the Line Between the State and Federal Realms of Corporate Governance, 82 NOTRE DAME L. REV. 1143, 1164 (2007).
61. YOUSSEF CASSIS, CAPITALS of CAPITAL: A HIStoRV of inTERNATIONAL FinANCIAL CENTRES, 1780-2005, at 207 (2006). This success of the U.S. market continued, though at times unevenly, up through the 1990s, a boom-time for international listings, with the number of foreign companies listed on the NYSE increasing from 100 to almost 4Id.
62. Coffee, Racing, supra note 6, at 1770-71.
63. in many ways, "network" is itself a poor metaphor for the current regulatory architecture, because it obfuscates the nature of the relationship between international actors with the organizational makeup and structure of international bodies themselves. As a result, the metaphor depicts many key networks as amorphous and institutionally primitive organizations, which is regrettable given the considerable institutional sophistication evidenced by many intergovernmental bodies. for the purposes of this Article, however, as well as for the sake of clarity, I will abide by the more common scholarly terminology.
64. OLA office Description (2006) (on file with author).
65. SEC. & EXCH. COMM'N, HandBOOK for EMERGinG MARKETS (2008) (on file with author).
66. See Ana Carvajal &Jennifer Elliott, Strengths and Weaknesses in Securities Market Regulation: A Global Analysis (int'l Monetary Fund, Working Paper No. 07/259, 2007), available at http://www.imf.org/external/pubs/fVwp/ 2007/wp07259.pdf.
67. See Sec. &Exch. Comm'n, Cooperative Arrangements with foreign Regulators, http://www.sec.gov/about/offices/oia/oia-cooparrangements.shtml (last visited Jan. 3, 2009).
68. See Sec. &Exch. Comm'n, SEC Participation in international Organizations, http://www.sec.gov/about/offices/oia/oia-intlorg.shtml (discussing key regulatory dialogues) (last visited Feb. 2, 2010).
69. See int'l Org. of Sec. Comm'ns, List of Signatories to the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of information, http://www.iosco.org/library/index.cfm? section=mou-siglist (last visited Jan. 3, 2009).
70. See int'l Org. of Sec. Comm'ns, IOSCO Historical Background, http://www.iosco.org/about/index.cfm?section=history (noting that IOSCO members regulate more than one hundred jurisdictions and that IOSCO has recently "set-out clear strategic objectives to rapidly expand the network of IOSCO MOU signatories by 2010").
71. Raustiala, supra note 12, at 32.
72. See Sec. &Exch. Comm'n, IOSCO Technical Committee, http://www.sec.gov/about/ offices/oia/oia-intlorg.shtml#iosco (providing that the work is divided into five standing committees including the Multinational Disclosure and Accounting Committee, the Regulation of Secondary Markets Committee, the Regulation of Market intermediaries Committee, the Enforcement and the Exchange of information Committee, and the investment Management Committee) (last visited Jan. 3, 2009).
73. See Sec. Comm'n of New Zealand, IOSCO-international Organization of Sec. Comm'ns: IOSCO Committees, http://www.seccom.govt.nz/international/ (noting that the Emerging Markets Committee is not made up of members from the Technical Committee and that the work is divided among Working Groups, which include Disclosure and Accounting, Regulation of Secondary Markets, Regulation of Market intermediaries, Enforcement and the Exchange of information, and investment Management) (last visited Jan. 3, 2009).
74. This situation has changed with the Multilateral Memorandum of Understanding (MMOU), an innovative piece of legislation discussed in Part III.
75. See inT'L ORG. of SEC. COMM'NS, OBJECTIVES and PRinCIPLES of SECURITIES REGULATION (2003), available at http://www.iosco.org/library/pubdocs/pdf/ IOSCOPD154.pdf.
76. See inT'L ORG. of SEC. COMM'NS, inTERNATIONAL DISCLOSURE STandARDS for CROSS-BORDER ofFERinGS and inITIAL LISTinGS BY forEIGN ISSUERS (1998), available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD81 .pdf.
77. Specifically, IOSCO has published a range of important principles-based guidance in the wake of the worldwide financial crises, including a code of conduct for credit rating agencies, regulatory principles designed to improve auditor independence and auditor oversight, and regulatory principles regarding conflicts of interest for financial analysts. See infra notes 148-49 and accompanying text.
78. Sec. &Exch. Comm'n, office of international Affairs: SEC Participation in international Organizations, http://www.sec.gov/about/offices/ oia/oia-multilateral.htm (last visited Jan. 3, 2009).
79. See Bank for international Settlements, Basel Committee on Banking Supervision: Joint forum, http://www.bis.org/bcbs/jointforum.htm (last visited Jan. 3, 2009) (noting that the "Joint forum is comprised of an equal number of senior bank, insurance and securities supervisors representing each supervisory constituency").
80. Chris Brummer, How international Financial Law Works (and How It Doesn't), 99 GEO. L.J. (forthcoming Jan. 2011) (working paper available at http://papers.ssm.com/sol3/ papers.cfm?abstract-id= 1542829 [hereinafter Brummer, Financial Law].
81. Raustiala, supra note 12, at It is worth noting, however, that IOSCO standards can potentially be made more coercive, for example, their adoption made a condition precedent for IMF or World Bank assistance, though this has not been the case. Id.
82. Tanis MacLaren, IOSCO Objectives and Principles at Work, international Seminar on Capital Markets (Sept. 2004), Slide 6, available at http://www.bcu.gub.uy/autoriza/ggmvrf75serninario/presentaciones/ maclaren-archivos/frame.htm.
83. BENN STEIL & ROBERT E. LITAN, Capital Market Sanctions, in FinANCIAL STATECRAFT (2006);
84. Pierre-Hugues Verdier, Transnational Regulatory Networks and their Limits, 34 YALE J. inT'L L. 113, 148 (2009);
85. see also Whitehead, supra note 12, at 704.
86. Verdier, supra note 60, at 148.
87. Raustiala, supra note 12, at 33.
88. Id.
89. OIA Technical Assistance Calendar (on file with author).
90. Raustiala, supra note 12, at 5.
91. See Verdier, supra note 60, at 162;
92. see also Whitehead, supra note 12, at 704.
93. Raustiala, supra note 12, at 24.
94. Id.
95. JOSEPH S. NYE, JR., SofT POWER: the MEANS to SUCCESS in WORLD POLITICS 5 (2004);
96. Raustiala, supra note 12, at 59;
97. see SLAUGHTER, supra note 12.
98. Raustiala, supra note 12, at 35.
99. Anne-Marie Slaughter &David Zaring, Networking Goes international: An Update, 2 ANN. REV. L. SOC. SCI. 211, 217 (2006).
100. Transgovernmentalists consequently suggest that the primary obstacle to convergence is not so much an issue of disparate incentives among regulators as it is their desire to cooperate. Raustiala, supra note 12, at 24 (noting that "[w]hile incentives to 'violate' 'obligations' exist, common interests predominate").
101. Id. at 59.
102. Id. at 75 (discussing how government networks provide "cover" for market-driven convergence).
103. Slaughter &Zaring, supra note 71, at 2in many ways, such views miitor the "world society" view of standardization popular in the international politics literature, in which actors seeking to coordinate technical rules and regulations have an overriding preference for arriving at a common solution. See, e.g., Walter Mattli &Tim Biithe, Selling international Standards: Technological Rationality or Primacy of Power?, 56 WORLD POL. 1, 9 (2003) (describing the "world society" approach to viewing globalization).
104. Raustialia, supra note 12, at 70 (noting that proponents of transgovernmentalism assert that "an interdependent world entails new forms of governance" (quoting SLAUGHTER, supra note 12, at 183)).
105. in general terms, assurance games can be depicted as follows: Cooperate Defect Cooperate Defect.
106. As the matrix above demonstrates, two outcomes (denoted by) comprise what in game theory terms is referred to as "Nash equilibria." That is, there is a state of affairs where no player can do better by unilaterally changing his or her strategy, even if each player knows the strategies of the other. Applied to our example of securities regulation, this would mean that if both regulators chose to cooperate, then each would receive a payoff of four. If both regulators continue on their own course, there is no payoff, (0, 0), but at the same time, no prospect of loss-the scenario that would arise if one player (or regulator) switched standards, but not the other, a situation illustrated in the lower-left hand (0, -1) and upper-right hand quandrants (-1, 0). Where risk dominates decisionmaking, regulators would chose (0, 0), which is not globally welfare maximizing. Where the prospect of payoffs dominate, (4, 4) would arise as the equilibrium.
107. COMM. ON CAPITAL MKTS. REGULATION, the COMPETITIVE POSITION of the U.S. PUBLIC EQUITY MARKET 1 (2007), available at http://www.capmktsreg.org/pdfs/the- Competitive-Position-of-the-US-Public-Equity-Market.pdf.
108. Id.
109. Id.
110. Press Release, Comm. on Capital Mkts. Regulation, 2009 Demonstrates Signs of Mild Improvement in Competitiveness of U.S. Public Equity Markets (Mar. 25, 2010), available at http://www.capmktsreg.org/pdfs/10-Mar-25-Q4-2009-Press- Release.pdf.
111. News Release, Ernst &Young, Global IPO Recovery in Second Half of 2009 Led by China and Brazil (Dec. 9, 2009), available at http://www.ey.com/GL/ en/Newsroom/News-releases/Global-IPO-recovery-in-second-half-of-2009-led-by- China-and-Brazil.
112. Bei Hu, Hong Kong IPOs May Raise Record $48 Billion in 20E&Y Says, BLCOMBERG.COM, Dec. 21, 2009, http://www.bloomberg.com/apps/news?pid= 20601089&sid= aI3U6ahtflyo.
113. Friends and Rivals, ECONOMIST, Sept. 15, 2007, at 3 (special report on financial centers)
114. See Joseph A. Grundfest, internationalization of the World's Securities Markets: Economic Causes and Regulatory Consequences, 4 J. Fin. SERVICES RES. 349, 361-62 (1990).
115. Whereas not so long ago a major exchange would have to purchase an acre of land, construct a trading floor and employ a bank of telephones just to conduct a transaction, trading can now be executed via computers and trading screens located in any number of broker-dealers' offices. Trading technology is also increasingly commercially available to stock markets everywhere, making it possible for even the youngest exchanges to make the technical aspects of their operations first-class. As a result, upstart foreign exchanges have been able to attract more issuers with fewer costs and across national boundaries. This democratization of capital has reduced the traditional dominance of U.S. regulators, who in the past wielded de facto influence due to the dominance of their domestic exchanges. See Brummer, Stock Exchanges, supra note 5, at 1472-73.
116. See FRIED, FRANK, SHRIVER &JACOBSON LLP, the SEC ADOPTS IOSCO DISCLOSURE STandARDS for forEIGN PRIVATE ISSUERS (1999), http://www.ffhsj.com/ mdex.cfrn7pageID =25&itemID=1253 (highlighting ways in which some U.S. standards still diverge from IOSCO standards). Although much in the IOSCO standards was inspired by the existing 20-F-the primary disclosure document for foreign issuers in the United States-significant differences in wording exist between the 20-F and the IOSCO standards. Consequently, the SEC staff is likely to interpret the IOSCO standard in light of analogous provisions in its domestic regulations enumerated in Regulation S-K.
117. Id.
118. Id.
119. Ana Carvajal &Jennifer Elliott, Strengths and Weaknesses in Securities Market Regulation: A Global Analysis 11 (int'l Monetary Fund, IMF Working Paper No. WP/07/259, 2007), available at http://www.imf.org/external/ pubs/ft/wp/2007/wp07259.pdf.
120. Id.
121. Id.
122. Id. at 12.
123. Id. at 13.
124. Id. at 14. In the graph, the term "Regulator" refers to IOSCO principles 1-5, which concern the structure and effectiveness of a regulator;
125. "SRO" refers to IOSCO Principles 6 and 7, which consider the role and structure of self-regulatory organizations;
126. "Enforcement" refers to IOSCO Principles 8-10, which examine the enforcement program and activities of the regulator, "Cooperation" refers to Principles 11-13, which examine the regulator's cooperation with domestic and international counterparts;
127. "Issuers" refers to IOSCO Principles 14-16, which concern the regulatory regimbe for issuers;
128. "CIS" refers to IOSCO Principles 17-20, which address the regulatory regime for collective investment schemes;
129. "Mkt. Intermediaries" refers to Principles 21-24, which concern the regulation of market intermediaries;
130. and "Secondary Mkt." refers to Principles 25-30, which consider the regulation of the secondary markets.
131. Julia Kollewe, Credit Ratings Agencies Face EU Clampdown, Says McCreevy, GUARDIAN (London), June 17, 2008, at 23.
132. Julia Kollewe, Credit Ratings Agencies Face EU Clampdown, Says McCreevy, GUARDIAN (London), 2008, Id.
133. Lawrence Cunningham, From Convergence to Comity in Corporate Law: Lessons from the Inauspicious Case of SOX, INT'L J. DISCLOSURE & GOVERNANCE, June 2004, at 269, 272.
134. Id. at 277 (describing French skepticism of the American model of profit maximization).
135. Id. at 275 (noting that the "German system [potentially] prevents the sort of accounting and other fraud perpetuated at US companies such as Enron and WorldCom").
136. Id.
137. Such variations can, as Howell Jackson notes, reflect different local traditions and history, as well as long-held institutional settings. Howell E. Jackson, Variation in the Intensity of Financial Regulation: Preliminary Evidence and Potential Implications, 24 YALE J. ON REG. 253, 287 (2007).
138. DANIEL W. DREZNER, ALL POLITICS IS GLOBAL: EXPLAINING INTERNATIONAL REGULATORY REGIMES 31 (2007).
139. Id. at 41;
140. see also Mark J. Roe, Legal Origins, Politics, and Modern Stock Markets, 120 HARV. L. REV. 460, 502, 516 (2006) (discussing political economy as the crucial factor in determining if policymakers desire, and are able to build financial markets);
141. Don Langevoort & Donald C. Langevoort, The SEC, Retail Investors, and the Institutionalization of the Securities Markets, 95 VA. L. REV. 1025 (2009) (discussing different traditional market participation in the Europe and the United States and its implications for national regulatory approaches).
142. Cunningham, supra note 97, at 278 (explaining the European public's reaction to Sarbanes-Oxley ("SOX")).
143. DREZNER, supra note 102, at 46.
144. Id. at 5. This was, for instance, the case with Sarbanes Oxley, the U.S. law which required all firms, including foreign issuers, to use independent audit committees. Though laudable in principle, this requirement conflicted with the statutorily required organization of German and Dutch firms, which required worker participation on a supervisory board with the aim of (ironically) disciplining CEO compensation. See Cunningham, supra note 97, at 8. Thus SOX's outlawing of non-independent audit committee members in some ways weakened German and Dutch controls on management.
145. Id.
146. See Licht, supra note 11, at 64 (noting that regulators have an incentive not to cooperate where it would undermine the competitiveness of domestic market participants);
147. see also Stavros Gadinis, The Politics of Competition in International Financial Regulation, 49 HARV. INT'L L.J. 447 (2008) (same). Indeed, even if all countries adopted the same regulatory standards, not all countries would benefit equally. As I have explained in other writings, the competitiveness of a financial market is dependent not only on the law that governs transactions, but also on liquidity.
148. Brummer, Stock Exchanges, supra note 5, at 1455. Liquidity, in contradistinction to law, refers to both an issuing firm's ability to access capital and an investor's ability to promptly transact (and exit) from investments at a price that corresponds to the investment's true value. Both of these dimensions of liquidity thus depend on a large number of traders transacting in a market. To the extent that law is neutralized as a factor, the most liquid markets will inevitably attract the most transactions. This can incentivize less liquid exchanges not to accept all of the rules and regulations of their larger competitors, though they may emulate some of the rules to gain credibility.
149. Verdier, supra note 60, at 170 (stating that public choice may "allow regulators to create a common front to expand their bureaucratic power in their respective states to the detriment of their constituents' welfare").
150. See Coffee, Racing supra note 6, at 1780-82 (noting that the United States is one example of this regulatory competition technique);
151. see also Rafael la Porta, Florencio Lopez-de- Silanes, Andrei Shleifer, & Robert W. Vishny, Legal Determinants of External Finance, 52 J. FIN. 1131 (1997) (arguing that strong equity markets require strong minority rights). Indeed, securities markets may not be able to expand to their full potential in the absence of some mandatory legal regimes protecting minority shareholder rights.
152. John C. Coffee, Jr., The Rise of Dispersed Ownership: The Roles of Law and the State in the Separation of Ownership and Control, 111 YALE L.J. 1, 65 (2001) [hereinafter Coffee, Dispersed Ownership]. Nevertheless, even in the absence of highly developed law, equity markets can, and have, still developed. There are a variety of institutional accounts as to why this is the case.
153. See Katharina Pistor & Chenggang Xu, Governing Stock Markets in Transition Economies: Lessons from China, 7 AM. L. & ECON. REV. 184, 184 (2005) (arguing that administrative governance can substitute for formal legal governance). Usually, however, securities markets ultimately encounter shocks that result in a loss of investor confidence that legal institutions help buffer against. Coffee, Dispersed Ownership, supra, at 109.
154. Coffee, Racing, supra note 6, at 1763;
155. see also David Easley & Maureen O'Hara, Information and the Cost of Capital, 59 J. FIN. 1553 (2004) (demonstrating that differences in the composition of information between public and private information affect the cost of capital, with investors demanding a higher return to hold stocks with greater private information);
156. Frank Gigler, Self-Enforcing Voluntary Disclosures, 32 J. ACCT. RES. 224 (1994) (demonstrating that disclosures, even in voluntary contexts, add credibility that justify even the divulgence of proprietary information).
157. This apparently was the case with regard to at least some provisions of SOX legislation. See Kate Litvak, Sarbanes-Oxley and the Cross-Listing Premium, 105 MICH. L. REV. 1857 (2007) (finding that foreign companies listing in the United States suffered a decline in market premiums after the enactment of SOX as measured using Tobin's q and market-to-book ratios).
158. See generally Brmnmer, Financial Law, supra note 57, at 38-52 (discussing gaps in monitoring of compliance with international standards).
159. To put this in perspective, consider that the SEC files hundreds of securities fraud cases each year and relies on bank records in approximately 70 percent of the cases. SEC. & EXCH. COMM'N, HANDBOOK FOR EMERGING MARKETS 16 (2008) (on file with author). The SEC has thus argued that "a securities authority that can't get bank records would likely be unable to successfully investigate over 70% securities fraud cases."
160. SEC. & EXCH. COMM'N, HANDBOOK FOR EMERGING MARKETS 16 (2008) Id. And, considering that many of these bank records are overseas, cooperation between regulators is vital.
161. Lisa L. Martin, The Rational State Choice of Multilateralism, in MULTILATERALISM MATTERS: THE THEORY AND PRAXIS OF AN INSTITUTIONAL FORM 91, 101 (John Gerard Ruggie, ed., 1993).
162. See again the discussion by the thoughtful scholar Pierre Verdier, supra note 60, at 12. Most battle of the sexes games can be illustrated as follows: Option A Option A Option B Option B
163. Stephen D. Krasner, Global Communications and National Power: Life on the Pareto Frontier, 43 WORLD POL. 336, 339 (1991).
164. Verdier, supra note 60, at 35.
165. Notice that, as in an assurance game, two Nash equilibria arise that make coordination difficult. Here, however, each equilibrium outcome is unambiguously superior for one of the players, whereas the other is not. This distribution of gains creates a dilemma for coordination.
166. KERN ALEXANDER ET AL., GLOBAL GOVERNANCE OF FINANCIAL SYSTEMS: THE INTERNATIONAL REGULATION OF SYSTEMIC RISK 55-56 (2006).
167. Id. at 56.
168. U.S. GOVERNMENT ACCOUNTABILITY OFFICE, FINANCIAL REGULATION: A FRAMEWORK FOR CRAFTING AND ASSESSING PROPOSALS TO MODERNIZE THE OUTDATED U.S. FINANCIAL REGULATORY SYSTEM 30 (2009), available at http://www.gao.gov/new.iteras/d09216. pdf.
169. Id. at 31.
170. In this way, these efforts mirrored FATF's, which though operating under a different (and more limited) mandate, also involved a range of cooperation between different functional regulators; notably, very limited direct participation by political elites was involved.
171. Press Release, The White House Office of the Press Secretary, Fact Sheet: Creating a 21st Century International Legal Architecture (Sept. 24, 2009), available at http://www.whitehouse.gov/mejress-office/Fact-Sheet-Creatmg-a-21st- Century-mternatioEconomic-Architecture/.
172. Prior to the G-20's creation, similar groupings designed to promote economic dialogue and analysis had been established, most significantly the G-7. The G-22 met in Washington D.C. in April and October 1998. Its aim was to involve non-G-7 countries in the resolution of global aspects of the financial crisis then affecting emerging-market countries. Two subsequent meetings comprising a larger group of participants (G-33) held in March and April 1999 discussed reforms of the global economy and the international financial system. The proposals made by the G-22 and the G-33 to reduce the world economy's susceptibility to crises showed the potential benefits of a regular international consultative forum embracing emerging- market countries. Such a regular dialogue with a constant set of partners was institutionalized by the creation of the G-20 in 1999.
173. G-20, What Is the G-20, http://www.g20.org/about-what-is-g20.aspx.
174. G-20, What Is the G-20, http://www.g20.org/about-what-is-g20.aspx. Id.
175. G-20, Declaration on Strengthening the Financial System (Apr. 2, 2009), available at http://www.g20.org/Documents/Fin-Deps-Fin-Reg-Annex-020409-1615- final.pdf [hereinafter Declaration on Strengthening the Financial System];
176. see also G-20, G-20 WORKING GROUP 1: ENHANCING SOUND REGULATION AND STRENGTHENING TRANSPARENCY (2009), available at http://www.g20.org/Documents/ g20-wgl-010409.pdf [hereinafter ENHANCING SOUND REGULATION].ENHANCING SOUND REGULATION, supra note 127
177. Declaration on Strengthening the Financial System, supra note 127.
178. Declaration on Strengthening the Financial System, supra note 127.
179. Declaration on Strengthening the Financial System, supra note 127.
180. HOWARD DA VIES & DAVID GREEN, GLOBAL FINANCIAL REGULATION: THE ESSENTIAL GUIDE 113 (2008).
181. ALEXANDER KERN ET AL., GLOBAL GOVERNANCE OF FINANCIAL SYSTEMS: THE LEGAL AND ECONOMIC REGULATION OF SYSTEM RISK 75 (2006).
182. Instead, it served a facilitative function bringing together disparate authorities to keep the issue of financial stability on the public agenda. Id. at 75. Part of this work has involved the publication of a compendium of best regulatory practice;
183. from 2001 to 2008 the organization produced few reports beyond a series of status reports on ongoing and recent work relevant to sound financial systems. DA VIES & GREEN, supra note 131, at 116.
184. Press Release, Financial Stability Forum, Financial Stability Forum Re-Established as the Financial Stability Board (Apr. 2, 2009), available at http://www.financialstabilityboard.org/press/pr-090402b.pdf.
185. FINANCIAL STABILITY FORUM, REPORT OF THE FINANCIAL STABILITY FORUM ON ENHANCING MARKET AND INSTITUTIONAL RESILIENCE (2008), http://www. financialstabilityboard.org/publications/r-0804.pdf.
186. FINANCIAL STABILITY FORUM, FSF PRINCIPLES FOR SOUND COMPENSATION PRACTICES (2009), http://www.fmancialstabilityboard.org/publications/r-0904b. pdf.
187. FINANCIAL STABILITY FORUM, REPORT OF THE FINANCIAL STABILITY FORUM ON ADDRESSING PROCYCLICALITY IN THE FINANCIAL SYSTEM (2009) http://www. financialstabilityboard.org/publications/r-0904a.pdf.
188. KERN, supra note 132, at 76.
189. The Financial Stability Board reports, for example, that banking supervisors have published proposals for improving capital adequacy with regard to underwriting and securitization activities. Central counterparty clearing for OTC credit derivatives have been launched in the United States and in Europe. The IOSCO Code of Conduct has been implemented by the three largest CRAs and an examination module has been developed to inspect CRAs. FINANCIAL STABILITY FORUM, REPORT OF THE FINANCIAL STABILITY FORUM ON ENHANCING MARKET AND INSTITUTIONAL RESILIENCE (2009), http://www.financialstabilityboard.org/ publications/r-0904d.pdf.
190. Andrew T. Guzman, Is International Antitrust Possible?, 73 N.Y.U. L. REV. 1501, 1545 (1998).
191. Neil Irwin, IMF Puts Cost of Crisis Near $1 Trillion, WASH. POST, Apr. 9, 2008, at D01.
192. The U.S. government has been involved in several bailouts, most notably the $700 billion Troubled Asset Relief Program (TARP). See Matthew Benjamin, Obama Advisers Say They Will Aim TARP at Wider Credit, BLOOMBERG.COM, Jan. 19, 2009, http://www.bloomberg.com/apps/news?pid=20601087&sid= axSq9YfbUKAs&refer=home;
193. see also Laura Meckler, Housing Bailout at $275 Billion, WALL ST. J., Feb. 19, 2009, at Al (describing the Obama administration's strategy toward improving the mortgage market);
194. Liz Rappaport & Jon Hilsenrath, U.S. Weighs Fed Program to Loosen Lending, WALL ST. J., Feb. 7, 2009, at Bl (detailing a $200 billion program to finance the sale of securities tied to credit card, small business, student, and auto loans). Other foreign governments, particularly in Europe, have also been involved in various sorts of bailouts tied to toxic securities.
195. See French Government in 10.5 Billion Euro Bank Bailout, FRANCE 24, Oct. 20, 2008, http://www.france24.com/en/20081020-France-banking-bailout-10-billion- euros-BNP-Paribas-Credit-Agricole-Societe-Generale;
196. Patrick McGroarty, German Government, Banks Agree to $6gB Bailout for Hypo Real Estate, USATODAY.COM, Oct. 5, 2008, http://www.usatoday.com/money/ industries/banking/2008-10-05-germany-hypo-real-estate-bailout-N.htm;
197. Swiss Bailout for Major Banks, CNN.COM, Oct. 16, 2009, http://edition.cnn.com/2008/BUSINESS/10/16/swiss.bailout.
198. See, e.g., RICHARD CORNES & amp; TODD SANDLER, THE THEORY OF EXTERNALITIES, PUBLIC GOODS AND CLUB GOODS (1986);
199. TODD SANDLER, GLOBAL COLLECTIVE ACTION (2004).
200. DREZNER, supra note 102, at 43.
201. Milada Anna Vachudova, The European Union, the Balkans and Turkey: Can "Soft Power" Bring Stability and Democracy?, Address at Eastern European Studies Discussion (Oct. 14, 2003), available at www.wilsoncenter.org/ topics/pubs/MR280Vachudova.doc.
202. INT'L ORG. OF SEC. COMM'NS, MULTILATERAL MEMORANDUM OF UNDERSTANDING CONCERNING CONSULTATION AND COOPERATION AND THE EXCHANGE OF INFORMATION 12 (2002), http://www.iosco.org/library/pubdocs/pdf/IOSCOPD.126.pdf.
203. Id. at 16-18.
204. Id. at 12.
205. Id. at 12-13.
206. Id. at 13. In the upcoming June 2010 meeting of IOSCO officials, regulators expect that Appendix B members will be given until 2013 to move from Appendix B to Appendix A.
207. Nina Mehta, SEC's Mutual Recognition Pause, TRADERSMAGAZINE.COM, Feb. 15, 2008, http://www.tradersmagazine.com/news/100285-l.html.
208. Tafara & Peterson, supra note 24, at 32.
209. Id.
210. Id. at 56.
211. Id. at 32.
212. Brummer, Stock Exchanges, supra note 5, at 1454.
213. See Posting of Lawrence Cunningham to Concurring Opinions, http://www.concurringopinions.conVarchives/2008/07/hamlet-at-the-s.html (July 23, 2008, 10:48 EST).
214. Tafara & Peterson, supra note 24, at 32. This approach is also at least predicted by Amir Licht's analysis of "hegemonic games" where two regulators of asymmetric power bargain over rules. See Licht, supra note 11 at 96 (noting that bilateral negotiations with Canada over disclosure incentivized Canadian regulators to adopt more U.S.-oriented approaches).
215. Brummer, Stock Exchanges, supra note 5, at 1494.
216. Id. at 1463. The larger pool of investors would make exiting an investment easier and lower the risk attendant to purchasing a security.
217. Id. at 1463-64. It would also allow issuers to enhance their brand and knowledge of their company.
218. See DAVID SINGH GREWAL, NETWORK POWER: THE SOCIAL DYNAMICS OF GLOBALIZATION 22 (2008).
219. Certainly, these costs may be symmetrical for nonmembers. Although considerable consternation has been voiced concerning the fact that members are essentially grandfathered in the agreement, many regulators believe that the Appendix B designation will serve to incentivize most regulators to undertake all necessary reforms for becoming signatories of the MMOU.
220. Note that here the ultimate payoffs for IOSCO members will never be negative because the option set always contains the possibility of keeping their original regulation level at zero cost.
221. Martin, supra note 114, at 101. Regulators may disagree as to whether or not to add to any commitments beyond, for example, beneficial ownership.
222. DREZNER, supra note 102, at 56.
223. Outcomes should not differ with the introduction of additional actors beyond the two- player model exemplified under mutual recognition. To the extent that governmental clubs offer a larger common market, or other important network benefits, outsiders will have greater interests in joining. The main problem in multilateral contexts will be primarily ones of opportunism. As a result, governmental clubs may require surveillance and punishing regimes to ensure the viability of the alliance.
224. Verdier, supra note 60, at 144.
225. Id. To put this in perspective, consider that the SEC files hundreds of securities fraud cases each year and relies on bank records in approximately 70 percent of those cases. SEC. & EXCH. COMM'N, supra note 113, at 16. The SEC has thus argued that "a securities authority that can't get bank records would likely be unable to successfully investigate over 70% securities fraud cases." Id. Considering that many of these bank records are overseas, cooperation between regulators is vital.
226. That is, for example, common in the trade context. See Richard Baldwin, A Domino Theory of Regionalism, in EXPANDING EUROPEAN REGIONALISM: THE EU'S NEW MEMBERS 24 (P. Haaparanta & J. Kiander eds., 1995), available at http://hei.unige.ch/-baldwin/PapersBooks/dom-old.pdf (comparing regional and multilateral liberalization and explaining countries' preference for the former).
227. Indeed, one could envision a fourth option-that the regulator could choose to adopt the standards of both clubs, assuming that they were not mutually exclusive.
228. For a similar conclusion in the context of regional integration agreements, see Soamiely Andriamananjara, On the Size and Number of Regional Integration Arrangements: A Political Economy Model (World Bank, Policy Research Working Paper No. 2117, 1999), available at http://papers.ssm.com/sol3/ Delivery.cfm/99071517.pdf?abstractid=170108&mirid =1.
229. See Erik R. Sirri, Dir. of the Div. of Trading and Mkts., U.S. Sec. & Exch. Comm'n, Speech by SEC Staff: Proposed Amendments to Exchange Act Rule 15a-6-Conditional Exception of Certain Foreign Brokers or Dealers (June 25, 2008), available at http://www.404.gov/news/speech/2008/spch062508ers-3.htm.
230. Id.
231. Jackson, supra note 9, at 16.
232. Assume, for example, an instance where a small jurisdiction must adopt new accounting principles in order to enjoy mutual recognition. Such a requirement would effectively require firms in the jurisdiction to change their bookkeeping procedures, training for accountants, and perhaps even sanctions for non-compliant firms. Assuming that the jurisdiction nonetheless undergoes such reform, it is unlikely that, even if the United States dramatically declines in economic influence, the jurisdiction or its firms will then revert to the status quo ante. Instead, the adoption of standards is primarily a distributive issue on the front end.
233. DREZNER, supra note 102, at 218.
234. Major reforms may additionally be required to secure compliance on the back end once rules are agreed upon. See Brummer, Financial Law, supra note 57 (arguing, inter alia, that reforms in institutional monitoring and surveillance may bolster compliance with international financial law).
235. Steffen Kern, EU-US Financial Market Integration-A Work in Progress, EU MONITOR, June 4, 2008, at 1, 7-8 (2008), http://www.dbresearch.com/PROD/DBR- INTERNET-EN-PROD/PROD0000000000225963.PDF.
236. For the former view, see Fox, supra note 11, at 1338-39 (arguing against issuer choice reforms because they would lead to significant underdisclosure);
237. for the latter view concerning the imperfections of governmental provision of law under even competitive conditions, see William W. Bratton & Joseph A. McCahery, The New Economics of Jurisdictional Competition: Devolutionary Federalism in a Second-Best World, 86 GEO. L.J. 201, 230 (1997) (noting that "competition may make [citizens] better off or worse off depending on a dynamic and complex mix of factors that competing governments cannot control"). (Pubitemid 127437560)
238. See Editorial, Starting the Regulatory Work, N.Y. TIMES, Jan. 8, 2009, at A30.
239. KERN, supra note 178, at 10.
240. This argument, popularized by Roberta Romano in her criticism of regulatory monopolies, holds that where regulators wield total power over the promulgation of laws, they no longer need to be attentive to the needs of market participants.
241. See Roberta Romano, The Need for Competition in International Securities Regulation, 2 THEORETICAL INQ. L. 387, 392-93 (2001). For example, where regulators enjoy power over the market, they have the power to govern markets in a way that either extracts rents from firms or insulates regulators from responsive governance and accountability.
242. Bernard S. Black, Is Corporate Law Trivial?: A Political and Economic Analysis, 84 Nw. U. L. REV. 542, 575 (1990). Indeed, the current economic crisis has demonstrated, perhaps above all else, that no one country-including the United States-has all of the right answers with regard to sound economic regulation.
243. An issuer need not, in other words, undertake duplicative compliance obligations when listing securities or selling them to the public. After complying with its domestic obligations, it can market and sell securities overseas. In this sense, uniform standards permit firms to maintain a single production process, rather than accommodate multiple processes for multiple regimes. Similarly, analysts are in a better position to assess and compare companies across jurisdictions, as well as allocate capital to its most efficient uses. This leads to an increase in static efficiency, which in turn increases global welfare. DREZNER, supra note 102, at 43.
244. If a club adopts rules that are welfare diminishing-for example, because they require too much costly disclosure or inappropriately high capital reserves for a particular instrument- and then requires firms to adopt similar measures, all firms could be subject to high welfare costs. Black, supra note 183, at 575. These risks can be particularly significant in a financial crisis. Where new dilemmas arise, regulators frequently undertake different regulatory responses, and then observe outcomes across jurisdictions in order to adjust their own regimes. Id.
245. Furthermore, to the extent laws are standardized, a better approach to regulation may not be identified. Companies in jurisdictions may lack incentives to endorse change absent concrete evidence indicating that reforms would constitute an improvement. Id.
246. Similarly, the degree to which one another's regimes is mutually recognized without convergence, both welfare-dirninishing and welfare-enhancing outcomes are possible. On the one hand, foreign firms that are subject to less optimal regulation could be more easily marketed to U.S. investors. On the other hand, where U.S. laws are suboptimal, mutual recognition would allow foreign market participants to access U.S. investors without complying with inefficient or ineffective statutory regimes. As a result, the optimality from a global welfare standpoint will largely depend on the optimality of not only U.S. rules, but more specifically, its optimality relative to that of the foreign jurisdiction.
247. Nina Mehta, SEC's Mutual Recognition Pause, TRADERSMAGAZINE.COM, Feb. 15, 2008, http://www.tradersmagazine.com/news/100285-l .html.
248. Tafara & Peterson, supra note 24, at 32.
249. Id.
250. Id. at 56.
251. Id. at 32.
252. Brummer, Stock Exchanges, supra note 5, at 1454.
253. See Posting of Lawrence Cunningham to Concurring Opinions, http://www.concurringopinions.conVarchives/2008/07/hamlet-at-the-s.html (July 23, 2008, 10:48 EST).
254. Tafara & Peterson, supra note 24, at 32. This approach is also at least predicted by Amir Licht's analysis of "hegemonic games" where two regulators of asymmetric power bargain over rules. See Licht, supra note 11 at 96 (noting that bilateral negotiations with Canada over disclosure incentivized Canadian regulators to adopt more U.S.-oriented approaches).
255. Brummer, Stock Exchanges, supra note 5, at 1494.
256. Id. at 1463. The larger pool of investors would make exiting an investment easier and lower the risk attendant to purchasing a security. Id. at 1463-64. It would also allow issuers to enhance their brand and knowledge of their company.
257. See DAVID SINGH GREWAL, NETWORK POWER: THE SOCIAL DYNAMICS OF GLOBALIZATION 22 (2008).
258. Certainly, these costs may be symmetrical for nonmembers. Although considerable consternation has been voiced concerning the fact that members are essentially grandfathered in the agreement, many regulators believe that the Appendix B designation will serve to incentivize most regulators to undertake all necessary reforms for becoming signatories of the MMOU.
259. Note that here the ultimate payoffs for IOSCO members will never be negative because the option set always contains the possibility of keeping their original regulation level at zero cost.
260. Martin, supra note 114, at 101. Regulators may disagree as to whether or not to add to any commitments beyond, for example, beneficial ownership.
261. DREZNER, supra note 102, at 56.
262. Outcomes should not differ with the introduction of additional actors beyond the two- player model exemplified under mutual recognition. To the extent that governmental clubs offer a larger common market, or other important network benefits, outsiders will have greater interests in joining. The main problem in multilateral contexts will be primarily ones of opportunism. As a result, governmental clubs may require surveillance and punishing regimes to ensure the viability of the alliance.
263. Verdier, supra note 60, at 144.
264. Id.
265. To put this in perspective, consider that the SEC files hundreds of securities fraud cases each year and relies on bank records in approximately 70 percent of those cases. SEC. & EXCH. COMM'N, supra note 113, at 16. The SEC has thus argued that "a securities authority that can't get bank records would likely be unable to successfully investigate over 70% securities fraud cases." Id. Considering that many of these bank records are overseas, cooperation between regulators is vital.
266. That is, for example, common in the trade context. See Richard Baldwin, A Domino Theory of Regionalism, in EXPANDING EUROPEAN REGIONALISM: THE EU'S NEW MEMBERS 24 (P. Haaparanta & J. Kiander eds., 1995), available at http://hei.unige.ch/-baldwin/PapersBooks/dom-old.pdf (comparing regional and multilateral liberalization and explaining countries' preference for the former).
267. Indeed, one could envision a fourth option-that the regulator could choose to adopt the standards of both clubs, assuming that they were not mutually exclusive.
268. For a similar conclusion in the context of regional integration agreements, see Soamiely Andriamananjara, On the Size and Number of Regional Integration Arrangements: A Political Economy Model (World Bank, Policy Research Working Paper No. 2117, 1999), available at http://papers.ssm.com/sol3/ Delivery.cfm/99071517.pdf?abstractid=170108&mirid=1.
269. See Erik R. Sirri, Dir. of the Div. of Trading and Mkts., U.S. Sec. & Exch. Comm'n, Speech by SEC Staff: Proposed Amendments to Exchange Act Rule 15a-6-Conditional Exception of Certain Foreign Brokers or Dealers (June 25, 2008), available at http://www.404.gov/news/speech/2008/spch062508ers-3.htm.
270. Id.
271. Jackson, supra note 9, at 16.
272. Assume, for example, an instance where a small jurisdiction must adopt new accounting principles in order to enjoy mutual recognition. Such a requirement would effectively require firms in the jurisdiction to change their bookkeeping procedures, training for accountants, and perhaps even sanctions for non-compliant firms. Assuming that the jurisdiction nonetheless undergoes such reform, it is unlikely that, even if the United States dramatically declines in economic influence, the jurisdiction or its firms will then revert to the status quo ante. Instead, the adoption of standards is primarily a distributive issue on the front end.
273. DREZNER, supra note 102, at 218.
274. Major reforms may additionally be required to secure compliance on the back end once rules are agreed upon. See Brummer, Financial Law, supra note 57 (arguing, inter alia, that reforms in institutional monitoring and surveillance may bolster compliance with international financial law).
275. Steffen Kern, EU-US Financial Market Integration-A Work in Progress, EU MONITOR, June 4, 2008, at 1, 7-8 (2008), http://www.dbresearch.com/PROD/DBR- INTERNET-EN-PROD/PROD0000000000225963.PDF.
276. For the former view, see Fox, supra note 11, at 1338-39 (arguing against issuer choice reforms because they would lead to significant underdisclosure);
277. for the latter view concerning the imperfections of governmental provision of law under even competitive conditions, see William W. Bratton & Joseph A. McCahery, The New Economics of Jurisdictional Competition: Devolutionary Federalism in a Second-Best World, 86 GEO. L.J. 201, 230 (1997) (noting that "competition may make [citizens] better off or worse off depending on a dynamic and complex mix of factors that competing governments cannot control").
278. See Editorial, Starting the Regulatory Work, N.Y. TIMES, Jan. 8, 2009, at A30.
279. KERN, supra note 178, at 10.
280. This argument, popularized by Roberta Romano in her criticism of regulatory monopolies, holds that where regulators wield total power over the promulgation of laws, they no longer need to be attentive to the needs of market participants.
281. See Roberta Romano, The Need for Competition in International Securities Regulation, 2 THEORETICAL INQ. L. 387, 392-93 (2001). For example, where regulators enjoy power over the market, they have the power to govern markets in a way that either extracts rents from firms or insulates regulators from responsive governance and accountability.
282. Bernard S. Black, Is Corporate Law Trivial?: A Political and Economic Analysis, 84 Nw. U. L. REV. 542, 575 (1990). Indeed, the current economic crisis has demonstrated, perhaps above all else, that no one country-including the United States-has all of the right answers with regard to sound economic regulation.
283. An issuer need not, in other words, undertake duplicative compliance obligations when listing securities or selling them to the public. After complying with its domestic obligations, it can market and sell securities overseas. In this sense, uniform standards permit firms to maintain a single production process, rather than accommodate multiple processes for multiple regimes. Similarly, analysts are in a better position to assess and compare companies across jurisdictions, as well as allocate capital to its most efficient uses. This leads to an increase in static efficiency, which in turn increases global welfare. DREZNER, supra note 102, at 43.
284. If a club adopts rules that are welfare diminishing-for example, because they require too much costly disclosure or inappropriately high capital reserves for a particular instrument- and then requires firms to adopt similar measures, all firms could be subject to high welfare costs. Black, supra note 183, at 575.
285. These risks can be particularly significant in a financial crisis. Where new dilemmas arise, regulators frequently undertake different regulatory responses, and then observe outcomes across jurisdictions in order to adjust their own regimes. Id.
286. Furthermore, to the extent laws are standardized, a better approach to regulation may not be identified. Companies in jurisdictions may lack incentives to endorse change absent concrete evidence indicating that reforms would constitute an improvement. Id.
287. Similarly, the degree to which one another's regimes is mutually recognized without convergence, both welfare-dirninishing and welfare-enhancing outcomes are possible. On the one hand, foreign firms that are subject to less optimal regulation could be more easily marketed to U.S. investors. On the other hand, where U.S. laws are suboptimal, mutual recognition would allow foreign market participants to access U.S. investors without complying with inefficient or ineffective statutory regimes. As a result, the optimality from a global welfare standpoint will largely depend on the optimality of not only U.S. rules, but more specifically, its optimality relative to that of the foreign jurisdiction.