Mutual recognition in international finance

Harvard International Law Journal

Volumn 52, Issue 1, 2011, Pages 55-108

  Verdier, Pierre Hugues ^a  

^a UNIVERSITY OF VIRGINIA   (United States)

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EID: 79955827356     PISSN: 00178063     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (369)

1. See Pierre-Hugues Verdier, Transnational Regulatory Networks and Their Limits, 34 YALE J. INT'L L. 113, 122-28 (2009).
2. See U. S. DEP'T OF THE TREASURY, FINANCIAL REGULATORY REFORM: A NEW FOUNDATION (2009);
3. COMM. ON CAPITAL MKTS. REG., THE GLOBAL FINANCIAL CRISIS: A PLAN FOR REGULATORY REFORM 213(2009) ("[G]lobal financial regulation has always turned to so-called 'regulatory networks' to deal with the increasing globalization of finance. However, during the current financial crisis, these industryspecific networks have failed to perform effectively.");
4. DIANIEL K. TARULLO, BANKING ON BASEL: THE FUTURE OF INTERNATIONAL FINANCIAL REGULATION 131-35 (2008);
5. Chris Brummer, Post-American Securities Regulation, 98 CALIF. L. REV. 327, 327, 335, 359-62 (2010);
6. Eric J. Pan, The Challenge of International Cooperation and Institutional Design in Financial Supervision: Beyond Transgovernmental Networks, 11 CHI. J. INT'L L. 243, 243, 263-71 y (2010);
7. David Zaring, International Institutional Performance in Crisis, 10 CHI. J. INT'L L. 475, 475, 479-85 (2010);
8. Cally Jordan, Does 'F' Stand for Failure: The Legacy of the Financial Stability Forum 19-26 (Univ. of Melbourne Legal Studies Research Paper, No. 429, 2009), available at http://papers.ssrn.com/sol3/papers.cfm?abstract-id=1478527.
9. See The G-20 Toronto Summit Declaration, Grp. of 20 (June 26-27, 2010), available at http://www.g20.org/Documents/g20-declaration-en.pdf;
10. Leaders' Statement: The Pittsburgh Summit, Grp. of 20 (Sept. 24-25, 2009), available at http://www.g20.org/Documents/pittsburgh-summit-leaders- statement-250909.pdf;
11. Fin. Stability Bd. Charter art. 1, Sept. 25, 2009;
12. Letter from Mario Draghi, Chairman, Fin. Stability Bd., to the Grp. of 20 Leaders (June 24, 2010), available at http://www.financial stabilityboard.org/ publications/r-100627a.pdf?noframes=1. The newly established Financial Stability Board is now coordinating a vast effort on the part of the major TRNs to develop international standards on a range of issues including capital adequacy, cross-border resolution of systemically important institutions, hedge fund and credit rating agency regulation, over-the-counter ("OTC") derivatives, executive compensation, and accounting standards.
13. Mutual recognition also plays an important role in the General Agreement on Tariffs and Trade ("GATT")/World Trade Organization ("WTO") system, which strives to reduce barriers to trade by restricting the ability of importing countries to impose product requirements above those of the exporting country.
14. See Kalypso Nicolaidis & Gregory Shaffer, Transnational Mutual Recognition Regimes: Governance without Global Government, 68 LAW & CONTEMP. PROBS. 263, 271(2005).
15. Under the Arrangement, certain Australian securities exchanges and broker-dealers may be authorized to conduct business in the United States under exemptions from the Securities Exchange Act of 1934. The Arrangement followed an assessment of the comparability of the parties' regulations.
16. See Mutual Recognition Arrangement between the United States Securities and Exchange Commission and the Australian Securities and Investment Commission, Together with the Australian Minister for Superannuation and Corporate Law, U. S.-Austl., Aug. 25, 2008 [hereinafter SEC-Australia Arrangement], available at http://www.sec.gov/about/offices/oia/oia-mututalrecognition/australia/ framework-arrange ment.pdf. The SEC also has an older arrangement with Canada (the Multi-Jurisdictional Disclosure System) that allows certain non-financial disclosure documents that comply with the requirements of one jurisdiction to be used in the other.
17. See Multijurisdictional Disclosure and Modifications to the Current Registration and Reporting System for Canadian Issuers, Securities Act Release No. 33-6902, 56 Fed. Reg. 30, 036 (July 1, 1991).
18. In June 2009, CESR solicited comments to identify areas with the highest potential gains. Press Release, Comm. of European Sec. Regulators, Call for Evidence on Mutual Recognition with non-EU Jurisdictions (June 8, 2009) [hereinafter Call for Evidence], available at http://www.cesr-eu.org/popup2. php?id=5766.
19. See infra Part III. C.1.
20. In February 2006, Australia entered into a mutual recognition agreement with New Zealand covering disclosure documents for offerings of securities (as well as interests in managed investment schemes). The agreement entered into force in June 2008.
21. See Agreement between the Government of Australia and the Government of New Zealand in Relation to Mutual Recognition of Securities Offerings, Austl.-N. Z., Feb. 22, 2006 [hereinafter Australia-New Zealand Agreement], available at http://www.med.govt.nz/upload/31106/text-of-agreement.pdf. In 2008, Australia also entered into a mutual recognition arrangement with Hong Kong regarding managed investment schemes.
22. See Declaration on Mutual Recognition of Cross-Border Offering of Collective Investment Schemes, Austl.-H. K., July 7, 2008, available at http://www.asic.gov. au/asic/pdflib.nsf/LookupByFileName/Declaration-SFC-ASICv2. pdf/$file/Declaration-SFC-ASICv2.pdf. For a summary of these Australian initiatives
23. see AUSTL. SEC. AND INVS. COMM'N, ENHANCING CAPITAL FLOWS INTO AND OUT OF AUSTRALIA, REP. 134(2008) [hereinafter ASIC Report 134], available at http://www.asic.gov. au/asic/pdflib.nsf/LookupByFileName/REP-134.pdf/ $file/REP- 134.pdf.
24. Press Release, ASEAN Capital Markets Forum, Implementation Plan Endorsed at the 13th ASEAN Finance Ministers Meeting (April 9, 2009) [hereinafter Implementation Plan], available at http://www.theacmf.org/ACMF/report/ ImplementationPlan.pdf.
25. See infra Part III. C.2.
26. See generally Edward F. Greene, Beyond Borders: Time To Tear Down the Barriers to Global Investing, 48 HARV. INT'L L. J. 85(2007);
27. Howell E. Jackson, A System of Selective Substitute Compliance, 48 HARV. INT'L L. J. 105(2007);
28. 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(2007);
29. Int'l Bar Ass'n Sec. Law Subcomm., Report of the Task Force on Extraterritorial Jurisdiction 265-301 (2008), available at http://www.ibanet. org/LPD/Financial-Services-Section/Securities-Law-Committee/Projects.aspx#extra.
30. See infra notes 18-23 and accompanying text.
31. Int'l Org. of Sec. Comm'ns, Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (2002) [hereinafter IOSCO MMOU], available at http://www.iosco.org/library/pubdocs/pdf/ IOSCOPD126.pdf.
32. See Verdier, supra note 1, at 117-19.
33. The Basel Committee is an exception, insofar as its membership was originally limited to the "G- 10" countries and has only recently expanded to twenty-seven jurisdictions. It is, however, generally seen as a global network because many nonmember countries have agreed to comply with the Basel Capital Accords and the Committee's other standards.
34. See Verdier, supra note 1.
35. See id.
36. See id. at 134-37 (describing this phenomenon in the context of the Basel Accord). Indeed, despite the substantial demand for stronger regulation generated by the financial crisis and the G-20's political coordination efforts, major differences are emerging between the United States and Europe on many of the issues covered by the G-20/Financial Stability Board effort.
37. For example, while there was widespread agreement in the 1990s that Japanese banks were severely undercapitalized and met the Basel standards only through forbearance by their regulators, the Committee was unable to formally monitor or sanction their actions.
38. See Charles K. Whitehead, What's Your Sign? - International Norms, Signals, and Compliance, 27 MICH. J. INT'L L. 695, 720-39 (2006);
39. Tarullo, supra note 2. This pattern was repeated when concessions made by national regulators to their banks, such as allowing them to include certain categories of preferred stock in regulatory capital, did not attract formal condemnation from the Committee but instead led to similar concessions by other regulators to their own banks.
40. See Verdier, supra note 1, at 137-39.
41. Nicolaidis & Shaffer, supra note 4, at 263.
42. Tafara & Peterson, supra note 9, at 54.
43. Eric J. Pan, A European Solution to the Regulation of Cross-Border Markets, 2 BROOK. J. CORP. FIN. & COM. L. 133, 138-39 (2007);
44. see also Cheryl Nichols, Mutual Recognition Based on Substituted Compliance: An Integral Component of the SEC's Mandate, 34 N. C. J. INT'L L. & COM. REG. 1, 62-68 (2008).
45. See Directive 2004/39/EC, of the European Parliament and of the Council of 21 April 2004 on Markets in Financial Instruments and Amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and Repealing Council Directive 93/22/EEC, 2004 O. J. (L 145) [hereinafter MiFID Directive]. Specifically, Pan argues that several features of MiFID, such as minimum standard harmonization, home country supervision, and robust mechanisms for regulatory cooperation based on the CESR model, could serve as a blueprint for mutual recognition arrangements between the United States and other jurisdictions. Pan, supra note 20.
46. Roberta S. Karmel, The EU Challenge to the SEC, 31 FORDHAM INT'L L. J. 1692, 1693-97 (2008).
47. HAL S. SCOTT, THE GLOBAL FINANCIAL CRISIS 173(2009);
48. see also Tzung-Bor Wei, The Equivalence Approach to Securities Regulation, 27 NW. J. INT'L L. & BUS. 255, 294-98 (2007) (arguing that "equivalence has already begun to evolve into equivalence-plus- reciprocity" in areas including accounting standards and auditor regulation).
49. See John C. Coffee, Jr., Law and the Market: The Impact of Enforcement, 156 U. PA. L. REV. 229, 309-11 (2007);
50. Brummer, supra note 2, at 353-56.
51. See Nicolaidis & Shaffer, supra note 4, at 264 for definitions;
52. see also Patrick B. Griffin, The Delaware Effect: Keeping the Tiger in Its Cage: The European Experience of Mutual Recognition in Financial Services, 7 COLUM. J. EUR. L. 337(2001);
53. Joel P. Trachtman, Embedding Mutual Recognition at the WTO, 14 J. EUR. PUB. POL'Y 780(2007).
54. Or, as Nicolaidis and Shaffer describe it, mutual recognition consensually transfers authority from the host state to the home state: instead of the former applying its laws extraterritorially to protect its residents, the latter applies its laws extraterritorially to protect others. Nicolaidis & Shaffer, supra note 4, at 268.
55. "Equivalence" (or "comparability") is not, however, a logical necessity, nor is the requirement that recognition be mutual; a host state could unilaterally grant recognition to another's regulatory system, and it could do so unconditionally (i.e., without regard to equivalence). For reasons to be clarified below, however, this is not typically the case. In fact, national regulators sometimes unilaterally rely on home state regulation to some degree in granting access to foreign firms.
56. In some cases, such as exchange regulation, it may be impossible for an institution to comply with several national regulatory frameworks at the same time; in such cases, mutual recognition removes what is effectively a complete barrier to access.
57. Susan Wolburgh Jenah, Commentary on a Blueprint for Cross-Border Access to U. S. Investors: A New International Framework, 48 HARV. INT'L L. J. 69, 76(2007);
58. see also Wei, supra note 23, at 284-86.
59. See White Paper from the Commission to the European Council: Completing the Internal Market, ¶ 64, COM (1985) 310 final (June 28-29, 1985), available at http://europa.eu/documents/comm/white-papers/pdf/com1985-0310-f-en. pdf;
60. HAL S. SCOTT, INTERNATIONAL FINANCE: TRANSACTIONS, POLICY, AND REGULATION 256-57 (17th ed. 2010).
61. See SCOTT, supra note 30 (on accounting standards);
62. T1ARULLO1, supra note 2, at 87-137 (on the negotiation of the Basel II Accord).
63. For instance, even if disclosure requirements for securities offerings are harmonized in countries A and B, an issuer might still need to file with both securities commissions and pay the relevant fees, retain local counsel in both countries, answer two sets of follow-up staff questions, etc.
64. For instance, difficulties encountered in harmonizing international financial reporting standards illustrate the extent to which domestic rules are embedded in a web of other state-specific policies (for example, corporate governance, securities regulation, tax, and regulation of the accounting and legal professions). Recent literature in comparative institutional economics further emphasizes that differences in institutional capacity are also crucial in determining the most efficient substantive regulation in a given country.
65. See, e.g., Andrei Shleifer, Understanding Regulation, 11 EUR. FIN. MGMT. 439(2005). From an economic standpoint, regulatory differences form part of a state's comparative advantage in international trade.
66. See DANIEL W. DREZNER, ALL POLITICS IS GLOBAL: EXPLAINING INTERNATIONAL REGULATORY REGIMES 46-47 (2007). There is no clear dividing line between a state's economic regulation and a host of other domestic policies (for example, tax, health, and education) and factor endowments, and there is little sense in attempting to harmonize them.
67. The principle of subsidiarity is often applied in the contexts of federal systems and supranational institutions. In general terms, it holds that federal (or supranational) institutions should perform only those tasks that cannot effectively be performed at a local (or national) level. For instance, it is a fundamental principle of European law and is expressly enshrined in the constituting treaties.
68. See Consolidated Versions of the Treaty on European Union and the Treaty on the Functioning of the European Union art. 5(3), Feb. 7, 1992, C83 O. J. 1 ("Under the principle of subsidiarity, in areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level."). From a policy standpoint, subsidiarity rests on the idea that local (or national) governments are more accountable and responsive to their immediate constituents than federal (or supranational) institutions, and that they are more attuned to local needs and circumstances.
69. See Griffin, supra note 25, at 338;
70. Wei, supra note 23, at 287-88.
71. Joel P. Trachtman, International Law and Domestic Political Coalitions: The Grand Theory of Compliance with International Law, 11 CHI. J. INT'L L. 127, 128(2010);
72. see also Xinyuan Dai, Why Comply? The Domestic Constituency Mechanism, 59 INT'L ORG. 363(2005);
73. Andrew Moravcsik, Taking Preferences Seriously: A Liberal Theory of International Politics, 51 INT'L ORG. 513(1997);
74. Robert D. Putnam, Diplomacy and Domestic Politics: The Logic of Two-Level Games, 42 INT'L ORG. 427(1988).
75. On the relative weakness of diffuse constituencies, see MANCUR OLSON, THE LOGIC OF COLLECTIVE ACTION: PUBLIC GOODS AND THE THEORY OF GROUPS 53-65 (1965).
76. In fact, export-oriented industries have been instrumental in supporting trade liberalization throughout the world since World War II. On the role of reciprocal trade agreements in mobilizing protrade domestic constituencies
77. see Gene M. Grossman & Elhanan Helpman, The Politics of Free Trade Agreements, 85 AM. ECON. REV. 667(1995);
78. see generally THOMAS OATLEY, INTERNATIONAL POLITICAL ECONOMY 80-82 (4th ed. 2010).
79. This may exist in multilateral harmonization efforts because some firms benefit from harmonized rules and lower transaction costs, but this benefit is much more diffuse than immediate market access promised by mutual recognition. For instance, while compliance of the home state with the Basel rules is used by some states as a factor in evaluating whether foreign banks should be allowed to set up branches in their territory, it is generally but one of several factors. Adoption and implementation of the Basel Accord is not systematically tied to a promise of market access in other countries.
80. See Susanne K. Schmidt, Mutual Recognition as a New Mode of Governance, 14 J. EUR. PUB. POL'Y 667, 672-73 (2007) (characterizing mutual recognition as a prisoner's dilemma). This dilemma may be most acute in cases where mutual recognition would, by significantly increasing the international mobility of firms, pave the way for races to the bottom in areas where they are attracted to suboptimal regulation.
81. See Tafara & Peterson, supra note 9, at 50. States may also have incentives to adopt discriminatory laws that exempt their firms from some home state regulation when operating abroad, so as to give them a competitive advantage.
82. Examples of such differences include the use by regulators of more precise rules or more openended standards-as well as their recourse to "moral suasion" as an alternative to formal enforcement proceedings.
83. See Barbara Koremenos, The Law and Politics of International Delegation: When, What and Why Do States Choose to Delegate?, 71 LAW & CONTEMP. PROBS. 151(2008);
84. Barbara Koremenos, If Only Half of International Agreements Have Dispute Resolution Provisions, Which Half Needs Explaining?, 36 J. LEG. STUD. 189(2007);
85. see also Barbara Koremenos, The Continent of International Law (Mannheimer Zentrum für Europaïsche Sozialforschung, Working Paper No. 128, 2009) (examining a set of cooperation problems including enforcement problems and uncertainty issues).
86. Koremenos (2007), supra note 42, at 205.
87. See generally ANDREW T. GUZMAN, HOW INTERNATIONAL LAW WORKS (2008);
88. Kenneth A. Oye, Explaining Cooperation under Anarchy, in COOPERATION UNDER ANARCHY 1, 20-22 (Kenneth A. Oye ed., 1985).
89. See, e.g., Miles Kahler, Multilateralism with Small and Large Numbers, 46 INT'L ORG. 681, 702-07 (1992).
90. But see GUZMAN, supra note 44 (pointing out that incentives to defect do not necessarily increase with the number of states if their interests are aligned).
91. See Koremenos (2008), supra note 42;
92. Barbara Koremenos, Contracting around International Uncertainty, 99 AM. POL. SCI. REV. 549, 551-53, 561(2005);
93. Barbara Koremenos, An Economic Analysis of International Rulemaking (2009) (unpublished manuscript), available at http://www.law.northwestern.edu/ colloquium/international/documents/Koremenos.pdf.
94. See Barbara Koremenos et al., The Rational Design of International Institutions, 55 INT'L ORG. 761, 785-86 (2001).
95. In her subsequent empirical research, however, Koremenos does not find statistically robust evidence to support this last conjecture.
96. See Lisa L. Martin, Interests, Power, and Multilateralism, 46 INT'L ORG. 765, 782-83 (1992).
97. See ROBERT E. SCOTT & PAUL B. STEPHAN, THE LIMITS OF LEVIATHAN: CONTRACT THEORY AND THE ENFORCEMENT OF INTERNATIONAL LAW (2006).
98. As discussed below, however, it may be that compliance with the obligation to open a country's markets to foreign providers is easier to verify than compliance with the obligation to provide adequate home state regulation.
99. It is also possible that technological solutions, the development of reliable measures, or proxies for the quality of domestic regulation may facilitate monitoring and enforcement and make the multilateral solution viable.
100. See Ronald B. Mitchell, Regime Design Matters: Intentional Oil Pollution and Treaty Compliance, 48 INT'L ORG. 425(1994). (Pubitemid 24811733)
101. See generally notes 36-38 and accompanying text.
102. See Beth A. Simmons, The International Politics of Harmonization: The Case of Capital Market Regulation, 55 INT'L ORG. 589(2001).
103. They may, however, do so on their own if market incentives, such as facilitating international transactions by their firms, are present.
104. Ronald Mitchell and Patricia Keilbach point out that, in some cases, the negative externalities run from stronger to weaker states, in which case cooperation would involve the smaller states offering side payments to the dominant center. Ronald B. Mitchell & Patricia M. Keilbach, Situation Structure and Institutional Design: Reciprocity, Coercion, and Exchange, 55 INT'L ORG. 891(2001).
105. Daniel Drezner's theory of "rival standards, " however, suggests a possible motivation for dominant states to pursue mutual recognition. They might do so, not to control externalities, but to encourage smaller states to converge to their standards rather than those of their rivals. On rival standards
106. see DREZNER, supra note 33, at 78-81.
107. At the outset, a distinction should be drawn between these "second-generation" mutual recognition regimes and "first-generation" agreements, such as pre-1985 efforts to harmonize securities exchange listings and prospectus requirements in Europe, or the Canada-U. S. Multi-jurisdictional Disclosure System ("MJDS"). While these earlier efforts focused on the recognition of foreign rules, the ones examined here often involve the mutual recognition of the home state supervision of firms. In that context, the quality of the home state's supervision is harder to observe and the cooperation and uncertainty problems described above arise more acutely. I am grateful to Eric Pan for this point.
108. See Case 120/78, Rewe-Zentral AG v. Bundesmonopolverwaltung für Branntwein, 1979 E. C. R. 649 ("Cassis de Dijon") and subsequent case law.
109. White Paper from the Commission to the European Council: Completing the Internal Market, supra note 30. For a nuanced account of the evolution of the ECJ's case law on regulatory barriers to trade and the complementary role of the Court and the EU's lawmaking institutions
110. see Joseph H. H. Weiler, Mutual Recognition, Functional Equivalence and Harmonization in the Evolution of the European Common Market and the WTO, in THE PRINCIPLE OF MUTUAL RECOGNITION IN THE EUROPEAN INTEGRATION PROCESS 25 (Fiorella Kostoris Padoa Schippoa ed., 2005).
111. See Griffin, supra note 25, at 350 n. 42.
112. See Paulina Dejmek, The EU Internal Market for Financial Services-A Look at the First Regulatory Responses to the Financial Crisis and a View to the Future, 15 COLUM. J. EUR. L. 455, 460(2009).
113. See Howell E. Jackson & Eric J. Pan, Regulatory Competition in International Securities Markets: Evidence from Europe in 1999-Part I, 56 BUS. LAW. 653, 662(2001).
114. See Griffin, supra note 25, at 351. as a general rule, the minimum harmonization provisions of the directives regulated institutions rather than products so that a uniform home state regime would apply to any given firm.
115. See Dejmek, supra note 62, at 461.
116. See Gerard Hertig, Imperfect Mutual Recognition for EC Financial Services, 14 INT'L REV. L. & ECON. 177, 180(1994).
117. For example, French financial markets were dominated by large banks and insurers, while Italy had many small banks. Likewise, while London, Paris and Frankfurt had well-established stock markets, other countries like Italy did not. Preferences also differed with respect to investor protection, with France insisting on higher standards.
118. See Griffin, supra note 25, at 350.
119. See id. at 337 ("European regulators attempted to develop an application of mutual recognition that, on the one hand, facilitated the creation and functioning of a pan-European financial services market and, on the other hand, ensured an appropriate level of regulatory control so as to be acceptable to member states requiring high regulatory standards.").
120. See Markus Möstl, Preconditions and Limits of Mutual Recognition, 47 COMMON MKT. L. REV. 405, 415-16 (2010) ("The more the Union legislature, in order to complete the internal market, decides to withdraw regulatory autonomy from the Member States... the more the Union legislature must be ready to step in, resume political responsibility and provide for a sufficient level of protection at the Union level instead.").
121. See Caroline Bradley, Consumers of Financial Services and Multi-Level Regulation in the European Union, 31 FORDHAM INT'L L. J. 1212, 1217-18 (2008);
122. Daniel Mügge, Reordering the Marketplace: Competition Politics in European Finance, 44 J. COMMON MARKET STUD. 991, 1004-05 (2006).
123. See Niamh Moloney, New Frontiers in EC Capital Markets Law: From Market Construction to Market Regulation, 40 COMMON MKT. L. REV. 809, 809-11 (2003). For instance, member states continued to impose burdensome conduct-of-business rules on investment firms pursuant to their authority under the ISD. The ISD's attempt to limit such local rules to nonprofessional investors was largely unsuccessful given that member states were left with significant discretion to define professional investors.
124. See Mügge, supra note 69, at 1007. Likewise, the LPD and POD were "rarely used" because of "perceived... flaws in their design, in particular with regard to the extent to which it remained permissible for individual Member States to require prospectuses and listing particulars to include additional information for their home market and to insist on full translation of the documents."
125. Eilís Ferran, Cross-Border Offers of Securities in the EU: The Standard Life Flotation, 4 EUR. COMPANY & FIN. L. REV. 461, 462(2007);
126. see also Andrea M. Corcoran & Terry L. Hart, The Regulation of Cross-Border Financial Services in the EU Internal Market, 8 COLUM. J. EUR. L. 221, 242-43, 264-65 (2002);
127. Jackson & Pan, supra note 63, at 680-82;
128. Eric J. Pan, Harmonization of U. S.-EU Securities Regulation: The Case for a Single European Securities Regulator, 34 LAW & POL'Y INT'L BUS. 499, 519-20, 531(2003).
129. See Final Report of the Committee of Wise Men on the Regulation of European Securities Markets, at 10 (Feb. 15, 2001) [hereinafter Lamfalussy Report], available at http://ec.europa.eu/internal-market/securities/docs/ lamfalussy/wisemen/final-report-wise-men-en.pdf;
130. see also Matteo Ortino, The Role and Functioning of Mutual Recognition in the European Market of Financial Services, 56 INT'L & COMP. L. Q. 309, 326-28 (2007);
131. Pan, supra note 70, at 532.
132. Moloney, supra note 70, at 810.
133. Implementing the Framework for Financial Markets: Action Plan, COM (1999) 232 final (Nov. 5, 1999).
134. See Lamfalussy Report, supra note 71.
135. The legislature is normally the European Parliament and Council acting on an initiative from the Commission.
136. Lamfalussy Report, supra note 71, at 19-36. The main benefit of the process was that time-consuming adoption of detailed instruments by EU institutions-especially the European Parliament-would largely be bypassed.
137. Id. at 37-39.
138. See Bradley, supra note 69, at 1221-22.
139. See Niamh Moloney, Financial Market Regulation in the Post-Financial Services Action Plan Era, 55 INT'L & COMP. L. Q. 982, 987(2006). The Directive regulates in detail conduct of business, best execution, and order allocation and handling.
140. Council Directive 2003/71, 2003 O. J. (L 345) 64, (EU);
141. see also Commission Regulation 809/2004, 2004 O. J. (L 149) 1 (EU). These instruments establish detailed uniform European rules for many other aspects of the offering process, including exceptions to the prospectus requirement.
142. See Duncan Alford, The Lamfalussy Process and EU Bank Regulation: Another Step on the Road to Pan-European Regulation?, 25 ANN. REV. BANKING & FIN. L. 389, 431(2006).
143. Moloney, supra note 79, at 992.
144. Commission White Paper on Financial Services Policy 2005-2010, at 3, COM (2005) 629 final (Dec. 2005), available at http://ec.europa.eu/internal-market/ finances/docs/white-paper/white-paper-en.pdf.
145. Moloney, supra note 79, at 982.
146. See also Bradley, supra note 69, at 1224;
147. Mügge, supra note 69, at 992 ("[P]roactive pan-European harmonization has been substituted for 'mutual recognition' of nationally idiosyncratic rules. The Financial Services Action Plan (FSAP), tabled by the European Commission in 1999, marks this shift.").
148. Mügge, supra note 69.
149. Id. at 1005-06.
150. Id. at 1007.
151. Id. Mügge's account, however, does not explain why the 1992 Program in financial services was initiated in the first place. The answer would appear to be that the EU institutions themselves, along with certain member states, were committed to deepening the common market as part of the broader political project of European integration. However, as will be seen, the success of this initiative-at least with respect to financial services-was inhibited for some time by the lack of domestic demand and the limitations of the institutional framework as it existed prior to the Lamfalussy Report. I am grateful to Eric Pan, whose comments led me to clarify this point.
152. See id. at 1010-11.
153. See id. at 1011-13;
154. Bradley, supra note 69, at 1227-28. There remain some differences along national lines, but they mostly reflect the greater prevalence of large firms in certain markets such as the United Kingdom and Germany.
155. See Moloney, supra note 79, at 990-92 on such differences in connection with the MiFID systematic internalizers rules.
156. See Mügge, supra note 69, at 1013-15.
157. See Karmel, supra note 22, at 1697.
158. See European Central Bank, Banking Structures in the New EU Member States, Annex 32-34, 36-39 (2005), available at http://www.ecb.int/pub/pdf/ other/bankingstructuresnewmemberstatesen.pdf.
159. See Katharina Pistor, Into the Void: Governing Finance in Central & Eastern Europe (Ctr. for Law and Econ. Studies, Columbia Univ. Sch. of Law, Working Paper No. 355, 2009).
160. See Commission Decision 2009/78/EC, Establishing the Committee of European Banking Supervisors, 2009 O. J. (L. 25) 23;
161. Commission Decision 2009/79/EC, Establishing the Committee of European Insurance and Occupational Pensions Supervisors, 2009 O. J. (L 25) 28;
162. Commission Decision 2009/77/EC, Establishing the Committee of European Securities Regulators, 2009 O. J. (L 25) 18;
163. Dejmek, supra note 62, at 463-64.
164. See High-Level Group on Financial Supervision in the EU, Report (Feb. 25, 2009) (the "de Larosie're Report"), available at http://ec.europa.eu/ internal-market/finances/docs/de-larosiere-report-en.pdf.
165. See Press Release, European Commission, Commission Adopts Legislative Proposals to Strengthen Financial Supervision in Europe (Sept. 23, 2009), available at http://europa.eu/rapid/pressReleasesAction. do?reference=IP/09/ 1347.
166. See Fabio Recine & Pedro Gustavo Teixeira, The New Financial Stability Architecture in the EU 12-14 (Goethe-Universität Frankfurt-am-Main, Inst. for Law and Fin., Working Paper No. 110, 2009), available at http://www.ilf-frankfurt.de/uploads/media/ILF-WP-110.pdf.
167. See Dejmek, supra note 62, at 468.
168. This last development may have been driven in part by bureaucratic requirements, as the EU institutions are better equipped to monitor compliance with specific legislative instruments than to assess regulatory equivalence among member states.
169. See supra note 70.
170. See Dejmek, supra note 62, at 469. In October 2009, the Icelandic parliament approved agreements with the UK and the Netherlands to reimburse ∈4 billion-nearly 50% of Iceland's pre-crisis annual GDP-between 2016 and 2024.
171. See Andrew Ward, Iceland Agrees Failed Bank Pay-Outs, FIN. TIMES, Oct. 19, 2009, at 10. Iceland's president, however, later refused to ratify the agreements, and they were submitted to a referendum in which ninety-three percent of voters rejected them.
172. See Andrew Ward, Iceland's Voters Vent Anger Over Bank Deal, FIN. TIMES, Mar. 8, 2010, at 6. As of the date of this writing, the impasse between the three countries had not been fully resolved.
173. In October 2009, Greece revised its deficit estimates for 2009 from 3.7% of GDP to 12.5%, and those for 2008 from 5% to 7.7%, leading to a European Commission report severely critical of the integrity and independence of Greece's deficit and debt statistics.
174. See European Commission, Report on Greek Government Deficit and Debt Statistics, at 3, 20, COM (2010) 1 final (Jan. 8, 2010). The U. S. Federal Reserve later indicated it was examining the role of Goldman Sachs in arranging derivatives transactions with Greece that allegedly helped the country understate its debt figures after it joined the EU.
175. See Alan Rappeport, Tom Braithwaite & David Oakley, Goldman Role in Greek Crisis Probed, FIN. TIMES, Feb. 26, 2010.
176. See Mügge, supra note 69, at 1004-16.
177. See Wolfgang Kerber & Roger Van den Bergh, Mutual Recognition Revisited: Misunderstandings, Inconsistencies, and a Suggested Reinterpretation, 61 KYKLOS 447, 454(2008) ("Experience in the EU demonstrates that the precondition of 'equivalence of objectives or effects' can lead to the opposite effect of an increased tendency to harmonisation. ").
178. See Mügge, supra note 69, at 1008-09.
179. See, e.g., Comm. for the Study of Econ. and Monetary Union, Report on Economic and Monetary Union in the European Community, at 9-10 (Apr. 12, 1989), available at http://ec.europa.eu/economy-finance/publi cations/publication6161- en.pdf (the influential "Delors Report").
180. See Pistor, supra note 94, at 22-24.
181. Regulation S and the SEC's tender offer regulations establish detailed rules for determining the applicability of U. S. law to cross-border transactions. The rules implementing the Sarbanes-Oxley Act of 2002 with respect to foreign private issuers, as well as other disclosure rules, defer to home state regulation in some respects.
182. See Karmel, supra note 22, at 1696-97.
183. On the MJDS, see Scott, supra note 30, at 191-96.
184. See Tafara & Peterson, supra note 9, at 47-48. There are some limited exceptions (a low volume exemption for exchanges, Rule 15a-6 for broker-dealers, modified disclosure and other requirements for foreign issuers).
185. See Roberta S. Karmel, The Once and Future New York Stock Exchange: The Regulation of Global Exchanges, 1 BROOKLYN J. CORP. FIN. & COM. L. 355(2007);
186. Howell E. Jackson, Andreas M. Fleckner & Mark Gurevich, Foreign Trading Screens in the United States, 1 CAPITAL MARKETS L. J. 54, 61-62 (2006).
187. Tafara & Peterson, supra note 9. According to Roberta Karmel, "[a]lthough the SEC as a matter of policy disclaims responsibility for statements by an SEC staffer, this article nevertheless was a trial balloon of a new approach to a policy of mutual recognition. "
188. Karmel, supra note 22, at 1707-08.
189. Tafara & Peterson, supra note 9, at 32. The exemption would likely be based on the general exemptive authority granted to the SEC by Section 36 of the Exchange Act, 15 USC 78mm.
190. See Erik R. Sirri, Dir., Division of Market Regulation, U. S. Sec. & Exch. Comm'n, A Global View: Examining Cross-Border Financial Services (Aug. 18, 2007), available at http://www.sec.gov/news/speech/2007/spch08 1807ers.htm.
191. Tafara & Peterson, supra note 9, at 55.
192. Id. at 58-59.
193. Id. at 53.
194. Id. at 53.
195. Id. at 64 (exchanges), 66 (broker-dealers).
196. Id. at 55, 57, 65.
197. Id. at 63.
198. Id. at 32, 56.
199. Id. at 58, 63.
200. See IOSCO MMOU, supra note 11.
201. Id. at 32, 57-58.
202. Id. at 61-62.
203. See U. S. Sec. & Exch. Comm'n, Unofficial Transcript of Roundtable Discussion on Mutual Recognition (June 12, 2007) [hereinafter SEC ROUNDTABLE] available at http://www.sec.gov/news/openmeet ings/2007/openmtg-trans061207.pdf.
204. Paul S. Atkins, Comm'r, U. S. Sec. & Exch. Comm'n, Remarks Before the Investment Company Institute's 2008 Mutual Funds and Investment Management Conference (Mar. 17, 2008), available at http://www.sec.gov/news/speech/2008/ spch031708psa.htm;
205. Kathleen Casey, Comm'r U. S. Sec. & Exch. Comm'n, Remarks Before the Conference on SEC Regulation Outside the United States (Mar. 6, 2008), available at http://www.sec.gov/news/spe ech/2008/spch030608klc.htm;
206. Annette L. Nazareth, Comm'r U. S. Sec. & Exch. Comm'n, Remarks Before the Securities Industry and Financial Markets Association Annual Meeting (Nov. 9, 2007), available at http://www.sec.gov/news/speech/2007/spch110907aln.htm;
207. Sirri, supra note 115.
208. Press Release, U. S. Sec. & Exch. Comm'n, Statement of the European Commission and the U. S. Securities and Exchange Commission on Mutual Recognition in Securities Markets (Feb. 1, 2008), available at http://www.sec.gov/news/press/2008/2008-9.htm.
209. Press Release, U. S. Sec. & Exch. Comm'n, SEC Announces Next Steps for Implementation of Mutual Recognition Concept (Mar. 24, 2008), available at http://www.sec.gov/news/press/2008/2008-49.htm.
210. Press Release, U. S. Sec. & Exch. Comm'n, SEC Chairman Cox, Prime Minister Rudd Meet Amid U. S.-Australia Mutual Recognition Talks (Mar. 29, 2008), available at http://www.sec.gov/news/press/2008/2008-52.htm;
211. Press Release, U. S. Sec. & Exch. Comm'n, Schedule Announced for Completion of U. S.-Canadian Mutual Recognition Process Agreement (May 29, 2008), available at http://www.sec.gov/news/press/2008/2008-98.htm.
212. Press Release, U. S. Sec. & Exch. Comm'n, Schedule Announced for Completion of U. S.-Canadian Mutual Recognition Process Agreement, supra note 131, indicated that a "process agreement" would be concluded in mid-June 2008, but no such agreement has been concluded to date.
213. Press Release, U. S. Sec. & Exch. Comm'n, SEC, Australian Authorities Sign Mutual Recognition Agreement (Aug. 25, 2008), available at http://www.sec.gov/news/press/2008/2008-182.htm;
214. SEC- Australia Arrangement, supra note 5.
215. In the case of the United States, an eligible "Market" is defined as a national securities exchange registered under § 6 of the Securities Exchange Act ("SEA");
216. in the case of Australia, it formally means "a financial market licensed under the Corporations Act of 2001, " SEC-Australia Arrangement, supra note 5, ¶ 7, but is limited, for the time being, to markets operated by the Australian Stock Exchange ("ASX").
217. Id. ¶ 17 (a) (i). Likewise, while the definition of an eligible "Broker-Dealer" in the U. S. includes all brokers or dealers registered under § 15 (b) of the SEA (other than security futures dealers registered under paragraph 11)
218. id. ¶ 8 (a), eligible Australian broker-dealers are limited to ASX participants.
219. Id. ¶ 17 (b) (i).
220. Id. ¶ 19.
221. Id. ¶ 20.
222. Id. ¶ 17 (f). The definition, a specialized one previously used in connection with the exemption of U. S. banks for broker-dealer registration, is as set forth in § 3 (a) (54) (A) of the SEA
223. id. ¶ 5. It includes, in addition to several categories of financial institutions, corporations, partnerships and natural persons "own[ing] and invest[ing] on a discretionary basis, not less than $25, 000, 000 in investments, " a high standard that is nevertheless less demanding than that generally applicable to foreign broker-dealers under Rule 15a-6. Securities Exchange Act of 1934 § 3 (a) (54) (A) (xii), 15 U. S. C. § 78c (2006). Access by U. S. broker-dealers is reciprocally restricted to "Australian Wholesale Clients, " SEC-Australia Arrangement, supra note 5, ¶ 6, ¶ 17 (g)-a complex definition set out in § 761G of the Corporations Act of 2001 which, in the case of non-professional investors acquiring most financial products for non-business purposes, requires $2.5 million in assets or $250, 000 in gross income over the past 2 years. This approach is more modest than that advocated in a contemporary Australian consultation paper on mutual recognition, which contemplated access to retail investors. Australia Government Treasury and ASIC, Joint Consultation Paper, Cross Border Recognition: Facilitating Access to Overseas Markets and Financial Services 49(2008) [hereinafter Joint Consultation Paper], available at http://www.asic.gov. au/asic/pdflib.nsf/LookupByFileName/Consultation-paper-98- Cross-Border-Recognition-v1.pdf/$file/Consult ation-paper-98-Cross- Border-Recognition-v1.pdf. The most likely inference is that the SEC was unwilling to provide foreign broker-dealers access to U. S. retail markets even within the framework of a mutual recognition scheme.
224. SEC-Australia Arrangement, supra note 5, ¶ 17 (a).
225. Id. ¶ 21-23.
226. Id. ¶ 26.
227. Memorandum of Understanding Concerning Consultation, Cooperation and the Exchange of Information Related to Market Oversight and the Supervision of Financial Services Firms, U. S. Sec. & Exch. Comm'n-ASIC, Aug. 25, 2008 [hereinafter Supervision MOU], available at http://www.sec.gov/about/offices/ oia/oia-mutual-recognition/australia/supervisory-mou.pdf [hereinafter Supervision MOU];
228. Memorandum of Understanding Concerning Consultation, Cooperation and the Exchange of Information Related to the Enforcement of Securities Laws, U. S. Sec. & Exch. Comm'n-ASIC, Aug. 25, 2008 [hereinafter Enforcement MOU], available at http://www.sec.gov/about/offices/oi-mutual-recognition/australia/ enhanced-enforcement- mou.pdf.
229. Supervision MOU, supra note 141, art. 3, ¶ 22.
230. Id. art. 3, ¶ 23.
231. Id. art. 7.
232. Id. art. 4, ¶ 27-28.
233. Enforcement MOU, supra note 141, intro.
234. See IOSCO MMOU, supra note 11.
235. Enforcement MOU, supra note 141, art. 3, ¶ 1, Annex A.
236. Id. art. 3, ¶ 2.
237. Id. art. 3, ¶ 5.
238. Id. art. 9.
239. Id. art. 6-7.
240. Id. art.11; Supervision MOU, supra note 141, art. 8, ¶ 37.
241. The departures included mutual recognition supporters Chairman Christopher Cox and Commissioner Annette L. Nazareth, as well as a skeptic, Commissioner Roel Campos.
242. See Cox Quits SEC, THE STRAITS TIMES, Jan. 21, 2009, available at http://www.straitstimes.com/Breaking%2BNews/Money/Story/STIStory-328932.html;
243. Press Release, U. S. Sec. & Exch. Comm'n, Commissioner Campos to Leave SEC (Aug. 9, 2007), available at http://www.sec.gov/news/press/2007/2007- 163.htm;
244. Press Release, U. S. Sec. & Exch. Comm'n, Commissioner Nazareth Announces Intention to Leave SEC (Oct. 2, 2007), available at http://www.sec.gov/news/press/2007/2007-210.htm. One of the new Commissioners has publicly expressed doubts about the approach.
245. See SEC Commissioner Walter Has Doubts About Mutual Recognition, THOMSON ROUTERS ACCOUNTING BLOG (Mar. 6, 2009), https://community.dynamics.com/blogs/ thom sontax/comments/19980.aspx (last visited Oct. 8, 2010).
246. ASIC Report 134, supra note 7, art. C, ¶ 75. In many respects, Australia's mutual recognition program may be seen as an outgrowth of the unilateral recognition regime incorporated in the 2001 reform of its securities regulation regime. Thus, the Corporations Act allows ASIC to relieve foreign securities disclosure documents, exchanges, financial service providers and collective investments schemes from several aspects of Australian regulation on the basis of sufficient equivalence with respect to investor protection, market integrity and reduction of systemic risk.
247. See Austl. Sec. and Inv. Comm'n, Regulatory Guide 54: PRINCIPLES FOR CROSS BORDER FINANCIAL SERVICES REGULATION, art. 2-3 (2002). In 2008, there were over 200 foreign financial service providers and six foreign markets providing financial services in Australia pursuant to its unilateral recognition provisions.
248. See Joint Consultation Paper, supra note 137, art. A ¶ 3, art. B ¶ 23. ASIC and the Australian Treasury, in a joint consultation paper, outlined a proposal to complement this regime that would provide substantial further relief for foreign financial service providers and markets-including access to retail investors-based on mutual recognition arrangements with their home jurisdictions.
249. Id. art. E. The framework proposed in the paper was very close to that eventually incorporated in the SEC-Australia Arrangement, although as noted above, the latter did not give foreign service providers access to retail investors.
250. See supra note 7 and accompanying text; E-mail from Grantly Brown, Senior Manager, Int'l Strategy, Austl. Sec. and Inv. Comm'n, to Pierre-Hugues Verdier (Aug. 26, 2010) (on file with author). An October 2009 report on the Australia-New Zealand Agreement indicated that it had been used six times by New Zealand issuers and 211 times by Australian issuers; it was generally viewed favorably by firms due to the legal and documentation cost savings and faster regulatory approval process; and firms supported expansion of mutual recognition with major Asian countries and other sophisticated markets.
251. See Austl. Sec. and Inv. Comm'n, Report 174: EFFECTS OF THE AUSTRALIA-NEW ZEALAND MUTUAL RECOGNITION REGIME FOR SECURITIES OFFERINGS, art. B ¶ 16, art. D ¶ 27, art. e ¶ 35(2009).
252. See Nicolaidis & Shaffer, supra note 4, at 278.
253. See Jackson, supra note 9, at 110-111.
254. See Howell E. Jackson & Eric J. Pan, Regulatory Competition in International Securities Markets: Evidence From Europe-Part II, 3 VA. L. & BUS. REV. 207(2008);
255. Jackson & Pan, supra note 63.
256. See also comments by Bepler, Kelly & Howell in SEC ROUNDTABLE, supra note 127, at 9-16. Proposed revisions to Rule 15a-6 that would liberalize access to U. S. institutional investors by foreign broker-dealers (regardless of whether their country is party to a mutual recognition arrangement with the SEC) would further decrease the benefits of mutual recognition to both.
257. See Exemption of Certain Foreign Brokers or Dealers, 73 FED. REG. 39182, 39185 (Proposed Jul. 8, 2008). U. S. institutional investors may even actively resist the effort, arguing that it would dilute investor protection (and perhaps the competitive advantage they derive from easier access to foreign markets).
258. See George W. Madison & Stewart P. Greene, TIAA-CREF Response to "A Blueprint for Cross-Border Access to U. S. Investors: A New International Framework, " 48 HARV. INT'L L. J. 99(2007).
259. See comments by Greene in Sec ROUNDTABLE, supra note 127, at 85-86.
260. See id. Also, in light of the financial crisis, there may be a shift away from the rationality assumptions that support the benefits of diversification opportunities toward a more paternalistic approach to financial regulation, one that attempts to protect investors from their own cognitive limitations. In this case, the rationale for mutual recognition as a pro-investor initiative is likely to be called into question.
261. See Letter from Joan Conley, Senior Vice President and Corporate Secretary, NASDAQ OMX, Group, Inc., to Nancy M. Morris, Secretary, SEC (Mar. 14, 2008), available at http://www.sec.gov/comments/4-539/4539-9.pdf.
262. The Federation of European Securities Exchanges, NYSE Euronext, and Deutsche Börse commented favorably on the proposal and urged the SEC to expand it further and avoid restrictions on the types of investors who could access foreign markets.
263. See Letter from Juka Ruuska, President, Federation of European Securities Exchanges, to Christopher Cox, Chairman, SEC (Aug. 17, 2007), available at http://www.sec.gov/comments/4-539/4539-7.pdf;
264. Letter from John A. Thain, Chief Executive Officer, NYSE Euronext, to Nancy M. Morris, Secretary, SEC (Sept. 14, 2007), available at http://www.sec.gov/comments/4-539/4539-6.pdf;
265. Letter from Reto Francioni and Andreas Preuss, Executive Board, Deutsche Börse, to Christopher Cox, Chairman, SEC (Nov. 6, 2007), available at http://www.sec.gov/comments/4-539/4539-8.pdf.
266. The probable retention of 10b-5 private rights of action will also reduce the potential benefits of the proposal for foreign firms.
267. See Jackson, supra note 9, at 116.
268. See Stavros Gadinis & Howell E. Jackson, Markets as Regulators: A Survey, 80 S. CAL. L. REV. 1239(2007);
269. Karmel, supra note 113.
270. See Pan, supra note 20, at 136-138;
271. Pierre Schammo, Regulating Transatlantic Stock Exchanges, 57 INT'L & COMP. L. Q. 827(2008). NYSE Euronext is now, by a significant margin, the largest stock exchange in the world, but differences in regulation require that its U. S. and European markets are operated in parallel and therefore, it cannot realize the full efficiencies from the merger. NASDAQ also pursued several merger possibilities in Europe, including the London Stock Exchange, but its bid failed and it instead merged with OMX, a smaller operator of exchanges in Northern Europe.
272. See Greene, supra note 9, at 95-96;
273. see also Jackson, supra note 9, at 117-18. At the time his article was written, Greene was General Counsel of Citigroup's Institutional Clients Group.
274. The relevant countries might still be tempted to avoid their obligation to provide adequate market access to foreign firms. This kind of noncompliance, however, is likely easier to detect than failure to provide adequate regulatory standards.
275. See supra note 51.
276. In the international trade context, Nicolaidis and Shaffer provide several examples of mechanisms that support "managed" mutual recognition: prior conditions; selective recognition of individual actors or associations instead of entire national regulatory systems; adjustment to the scope of recognition; and ex post guarantees such as monitoring, dispute resolution, and ultimate reversibility.
277. See Nicolaidis & Shaffer, supra note 4, at 290-291.
278. See Greg Tanzer, Substituted Compliance: An Australian Regulator's Perspective, 48 HARV. INT'L L. J. ONLINE 21, 29(2007);
279. see also Régis Bismuth, Financial Sector Regulation and Financial Services Liberalization at the Crossroads: The Relevance of International Financial Standards in WTO Law, 44 J. WORLD TRADE 489, 497(2010) (arguing that international financial standards are "useful assessment tools for a state claiming the benefit of mutual recognition measures" pursuant to the GATS Annex on Financial Services).
280. 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.
281. See Tafara & Peterson, supra note 9, at 59-61;
282. see also Greene, supra note 9, at 90 (arguing that it "must be a 'forest level,' principles-based assessment in order to be successful" rather than an "in the weeds" rule-by-rule examination). The SEC's press release announcing the Australia assessment indicated that the results would be made public, but they do not appear to be available at this point.
283. See SEC Press Release 2008-52, supra note 131.
284. There is a substantial and growing literature on such quantitative measures.
285. See, e.g., Howell E. Jackson & Mark J. Roe, Public and Private Enforcement of Securities Laws: Resource-Based Evidence, 93 J. FIN. ECON. 207(2009);
286. Howell E. Jackson, The Impact of Enforcement: A Reflection, 156 U. PA. L. REV. PENNUMBRA 400(2008);
287. Howell E. Jackson, Variation in the Intensity of Financial Regulation: Preliminary Evidence and Potential Implications, 24 YALE J. ON REG. 253(2007);
288. Coffee, supra note 24.
289. See Jackson, supra note 9, at 115-16.
290. See SEC ROUNDTABLE, supra note 127;
291. see also Wei, supra note 23, at 262 (citing a study comparing the impact of IAS versus U. S. GAAP on various market proxies for information asymmetry, such as bid-ask spread, share turnover, analysts forecast dispersion, and IPO underpricing).
292. Coffee, supra note 24, at 281. Such quantitative evaluations should, however, take into account the resources devoted specifically to enforcement in cross-border cases. For instance, some research indicates that U. S. private and public securities enforcement "seldom focuses on foreign issuers."
293. Id. at 288, 308.
294. Thus, while the Australian Joint Consultation Paper insists on the importance of enhanced cooperation arrangements for mutual recognition, it refers to the same general definitions of substantive regulatory equivalence used for Australia's unilateral recognition provisions (which provide less relief to foreign entities).
295. See Joint Consultation Paper, supra note 137, at 40, 45, 50. Likewise, while the Australia-New Zealand Agreement obligates each party to ensure that "its securities regulator shall accord complaints from persons in the host country in relation to offers made under the Scheme no lesser priority than similar complaints from persons in the home country in respect of offers made in the home country, " it is unclear how breaches of this provision could be effectively sanctioned (other than, in grave circumstances, by termination of the agreement). Australia-New Zealand Agreement, supra note 7, art. 7, ¶ 2.
296. See Press Release, SEC Office of Investigations, Investigation of Failure of the SEC to Uncover Bernard Madoff's Ponzi Scheme (Aug. 31, 2009), available at http://www.sec.gov/news/studies/2009/oig- 509.pdf.
297. In a report released in April 2010, a Special Investigation Commission established by the Althingi, the Icelandic Parliament, found that the Icelandic Financial Supervisory Authority (FME) "was not well enough equipped to sufficiently monitor the financial institutions when they collapsed in the autumn of 2008" and noted severe shortcomings in its supervision of the banks that ultimately failed.
298. See SPECIAL INVESTIGATION COMM'N, REPORT OF THE SPECIAL INVESTIGATION COMMISSION, ch. 21, 98-104 (2010), available at http://sic.althingi.is/pdf/ RNAvefurKafli21Enska.pdf.
299. Even when the regulator is formally independent, assessing the likelihood that this independence will be scrupulously respected in trying circumstances may require an inquiry into the quality and independence of the foreign country's entire judicial and administrative system.
300. See, e.g., Joint Consultation Paper, supra note 137, at 40 (one of the general criteria for equivalence assessments is that "the overall regulatory regime is clear, transparent and certain (including being subject to a reputable rule of law) ").
301. See Greene, supra note 9, at 92 (recommending pilot programs with jurisdictions that "are already known to have philosophically similar regimes and sufficiently comparable regulations").
302. Jenah, supra note 29, at 78.
303. Id.
304. See EXPERT PANEL ON SEC. REGULATION, FINAL REPORT AND RECOMMENDATIONS (2009), available at http://www.expertpanel.ca/eng/documents/Expert-Panel-Final- Report-And-Recommendations.pdf. In a study commissioned by the Panel and annexed to the report, Eric Pan argued that "[t]o the extent that the structure of Canada's financial regulatory system hinders Canada's full participation in... international discussions [including mutual recognition negotiations], structural reform should be undertaken to give Canada a stronger and more consistent voice."
305. Eric J. Pan, Structural Reform of Financial Regulation in Canada, in Expert Panel on Securities Regulation, Final Report and Recommendations, app. 3, at 2(2009), available at http://www.expertpanel.ca/eng/reports/research- studies/index.html;
306. see also Press Release, Dep't of Fin. Can., Minister of Finance Announces Launch of Canadian Securities Regulator Transition Office, News Release 2009-064 (June 22, 2009), available at http://www.fin. gc.ca/n08/09-064-eng.asp.
307. For instance, Roberta Karmel argues that the threat that the EU might require U. S.companies to reconcile their financial statements to IFRS "proved an important prod to SEC acceptance of IFRS for reporting purposes by foreign issuers."
308. Karmel, supra note 22, at 1700. Likewise, in response to the EU's requirement that foreign financial conglomerates be subject to home country supervision "equivalent to that provided for by the provisions of this Directive, " the SEC adopted a system of consolidated supervision for U. S. investment banks that were not at that time subject to Federal Reserve oversight.
309. See Parliament and Council Directive 2002/87/EC, art.18, 2003 O. J. (L 35) 12. The SEC's "Consolidated Supervised Entity" program, however, failed to prevent the collapse of two major firms, Bear Stearns and Lehman Brothers, and the remaining firms were either consolidated or converted into bank holding companies, leading to the termination of the program.
310. See Press Release, U. S. Sec. & Exch. Comm'n, Chairman Cox Announces End of Consolidated Supervised Entities Program (Sept. 26, 2008), available at http://www.sec.gov/news/press/2008/2008-230.htm. This experience may well illustrate the limits of the ability of powerful states to induce significant reforms in one another through threats to limit market access.
311. In response to an e-mail query regarding such changes, ASIC declined to comment.
312. See e-mail from Grantly Brown to author, supra note 155.
313. See Kerber and Van den Bergh, supra note 105, at 454-55.
314. Domestic exchanges might request (i) mutual recognition of registration statements (so that foreign securities can be traded in the United States too), and (ii) faster approval process for new products that are easier to set up elsewhere at the moment (e.g. futures, etc.).
315. See SEC ROUNDTABLE, supra note 127, at 43-45;
316. Letter from Joan Conley, supra note 161;
317. see also Hal S. Scott, International Finance: Rule Choices for Global Financial Markets, in RESEARCH HANDBOOK IN INTERNATIONAL ECONOMIC LAW 361 (Andrew T. Guzman & Alan O. Sykes eds., 2007) (describing an analogous phenomenon within the mutual recognition system for European banks).
318. See Kerber & Van den Bergh, supra note 105, at 455-56.
319. This is, of course, easier said than done, as it supposes that regulators can identify ex ante the areas where regulatory competition is likely to be beneficial or harmful, and in the former case will refrain from imposing excessive conditions on recognition to advance their own interests. This question is beyond the scope of this paper, but the fact that bilateral mutual recognition without extensive prior harmonization or delegated collective rulemaking is being seriously considered in important jurisdictions is cause for some optimism.
320. For analogous argument in the trade context, see HELEN V. MILNER, RESISTING PROTECTIONISM: GLOBAL INDUSTRIES AND THE POLITICS OF INTERNATIONAL TRADE 18(1988) (arguing that "greater integration of American industries into the international economy [in the post-World War II period] altered domestic actors' preferences and thus forestalled recourse to protectionism").
321. If this is true, mutual recognition may lead over time to de facto multilateral convergence of regulatory standards, thus bolstering the thesis that the objectives pursued by multilateralism are sometimes better achieved through bilateralism.
322. See Gabriella Blum, Bilateralism, Multilateralism, and the Architecture of International Law, 49 HARV. INT'L L. J. 323, 326(2008) (arguing that "ideologies and values that are commonly associated with one type of regulation may, in some cases, actually be better served by using the other");
323. Kene Boun My, Alban Verchere & Stéphane Bertrand, Does Bilateralism Foster Cooperation in Europe?, 47 J. COMMON MARKET STUD. 891(2009) (offering experimental evidence of greater cooperation under a protocol involving parallel bilateral interactions relative to one involving a single decision to cooperate or defect on a multilateral basis).
324. In Europe itself, while the 1992 Program may have laid the groundwork for the more ambitious post-1999 reforms, the entire process relied on Europe's preexisting institutions to supply supranational rulemaking and enforcement capacity.
325. See Mügge, supra note 69, at 1008-09.
326. A 2008 Deutsche Bank Research Report estimated that integration of the U. S. and EU financial markets would reduce trading costs by more than $48 billion per year and raise the volume of securities trading from $21 trillion to $31 trillion per year. Deutsche Bank Research, EU-US Financial Integration-A Work in Progress, 8 EU MONITOR, June 2008, at 1, 8, available at http://www.dbresearch.de/PROD/DBR-INTERNET-DE-PROD/ PROD0000000000225963.pdf.
327. These numbers are based on earlier estimates in BENN STEIL, COUNCIL ON FOREIGN RELATIONS, BUILDING A TRANSATLANTIC SECURITIES MARKET (2002), available at http://www.cfr.org/publications/8282/building-a-transatlantic-securities- market.html.
328. See, e.g., European Commission Directorate-General for Trade, Communication from the Commission to the Council, the European Parliament and the Economic and Social Committee: A Stronger EU-US Partnership and a More Open Market for the 21st Century, at 9, COM (2005) 196 final (May 18, 2005);
329. Kern Alexander et al., Transatlantic Financial Services Regulatory Dialogue, 7 EUR. BUS. ORG. L. REV. 647(2006).
330. More specifically, Annex 6 on financial markets stated the relevant goal as: "Work on greater regulatory convergence toward highest quality and most effective regulation and, where appropriate, mutual recognition in the fields of securities regulation. " Framework for Advancing Transatlantic Economic Integration, U. S.-EU, Annex 6, Apr. 30, 2007, available at http://www.eeas. europa.eu/us/docs/framework-trans-economic-integration07-en.pdf. The Framework also provided for the establishment of a Transatlantic Economic Council to oversee regulatory cooperation efforts, but recognized that "the Financial Markets Regulatory Dialogue will continue its own, separate, work program described in Annex 6, and updating the Council on its progress as appropriate."
331. Id. at Annex 1.
332. See SEC Press Release 2008-9, supra note 129.
333. TRANSATLANTIC ECONOMIC COUNCIL, REVIEW OF THE PROGRESS UNDER THE FRAMEWORK FOR ADVANCING TRANSATLANTIC ECONOMIC INTEGRATION BETWEEN THE UNITED STATES AND THE EUROPEAN UNION, Annex 1(2008), available at http://ec.europa.eu/ enterprise/policies/international/files/progress-report-tec-iii.pdf.
334. See Call for Evidence, supra note 6, at 3.
335. In a May 2010 article, Eddy Wymeersch, chairman of CESR, stated that "[o]ne can expect these discussions to be resumed once the crisis has subsided: mutual recognition is indispensable in today's intertwined financial world, but presupposes a sufficient degree of confidence in the effectiveness of each other's supervisory systems... The issue of mutual recognition with third states continues to be on the table of the CESR, coordinating the action of its members in their dealings with these jurisdictions."
336. Eddy Wymeersch, Global and Regional Financial Regulation: The Viewpoint of a European Securities Regulator, 1 GLOBAL POLICY 201, 203(2010).
337. This question is raised in Alexander et al., supra note 195, at 665-66;
338. see also Deutsche Bank Research, supra note 194, at 17.
339. See Howell E. Jackson, The Impact of Enforcement: A Reflection, 156 U. PA. L. REV. 400, 406-407 (2008);
340. Howell E. Jackson, Variation in the Intensity of Financial Regulation: Preliminary Evidence and Potential Implications, 24 YALE J. REG. 253, 255(2007).
341. See Schammo, supra note 165, at 858.
342. Call for Evidence, supra note 6, at 3.
343. See, e.g., Comment letter from Pierre Bollon, Chief Executive, AFG, to Carlo Comporti, Secretary General, CESR (Dec. 23, 2009);
344. Comment letter from Peter DeProft, Director General, EFAMA, to CESR (Aug. 16, 2010). as Scott points out, the U. S. tax regime for mutual funds would likely prevent cost-effective access by foreign funds to U. S. investors even if they were exempted from U. S. regulation.
345. See Scott, supra note 30, at 807-10.
346. The comments received from industry groups, banks, intermediaries and exchanges were generally positive. Responses to Call for Evidence on Mutual Recognition with Non-EU Jurisdictions, CESR, http://www.cesr-eu.org/index.php? page=response&samp;id=139 (last visited Nov. 7, 2010).
347. Call for Evidence, supra note 6, at 3. Comments from various market participants revealed interest in mutual recognition with Asian jurisdictions, Switzerland and Australia, among others.
348. See, e.g., Grp. of 20, supra note 3, at 19 ("We will not retreat into financial protectionism, particularly measures that constrain worldwide capital flows, especially to developing countries.").
349. See, e.g., Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, §§ 113 (b) (2) (H), 115 (b) (2) (B), 121 (d), 165 (b) (2) (2010). Other provisions of the Act that direct U. S. regulators to take into account home country regulation or to engage in international cooperation include those dealing with: access by foreign banks and broker-dealers to U. S. markets; foreign derivatives clearing organizations, swap execution facilities, boards of trade and clearing agencies; international harmonization of swap regulation; and international cooperation relating to bankruptcy of nonbank financial institutions.
350. See Commission Regulation (EC) No 1569/2007 of 21 December 2007 Establishing a Mechanism for the Determination of Equivalence of Accounting Standards Applied by Third Country Issuers of Securities Pursuant to Directives 2003/71/EC and 2004/109/EC of the European Parliament and of the Council, 2007 O. J. (L 340/66);
351. Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on Credit Rating Agencies, art. 5, 2009 O. J. (L 302/1).
352. See, e.g., Martin Arnold, Sam Jones and Nikki Tait, Geithner Warns of Rift over Regulation, FIN. TIMES, Mar. 10, 2010.
353. See Charter of the Association of Southeast Asian Nations, Nov. 20, 2007, available at http://www.aseansec.org/21069.pdf. The member states of ASEAN are Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
354. See ASEAN Economic Community Blueprint (2007), available at http://www.aseansec.org/21083.pdf.
355. Id. at 16-17.
356. Implementation Plan, supra note 8, at 7.
357. See id. at 17, 21-24.
358. This is sometimes referred to as the "ASEAN Way."
359. See Daniel Seah, The ASEAN Charter, 58 INT'L. & COMP. L. Q. 197, 198-99 (2009). As Seah points out, "the Charter has been carefully drafted to preserve the sovereignty of each member State as the ultimate source of authority that enacts and enforces laws within their territorially defined units." Id. at 202.
360. See Implementation Plan, supra note 8, at 8 ("The initiatives should begin with products, services and activities that are consistent with market preferences, likely to add most value to capital market development within ASEAN and/or are easy to implement. Taking regulatory action to facilitate crossborder transactions is not sufficient to promote regional integration unless the action generates increased private sector cross-border activities.").
361. Id. at 20.
362. Id. at ii.
363. GDPs per capita in 2008 at current prices in U. S. dollars range from $479 (Myanmar) to $40, 326 (Singapore). IMF WORLD ECONOMIC OUTLOOK DATABASE (April 2010), http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/ weoselgr.aspx. While the most advanced economies within ASEAN (e.g., Singapore, Malaysia, Thailand) have large and active financial markets and well-established regulators, those in the least developed countries (e.g., Cambodia, Laos, Myanmar) are in their infancy. Likewise, political systems in member states include democracies, single-party states, and military rule.
364. Implementation Plan, supra note 8, at 9.
365. See Press Release, ASEAN Capital Markets Forum, Malaysia, Singapore and Thailand Implement the ASEAN and Plus Standards Scheme (June 12, 2009), available at http://www.asean-society.org/asean/press-release-malaysia- singapore-and-thailand-implement-the/.
366. See Implementation Plan, supra note 8, at 16.
367. Id. at 2 (emphasis added).
368. See Verdier, supra note 1.
369. See, e.g., Guzman, supra note 44, at 132-33.