Regulatory Competition and Regulatory Jurisdiction in International Securities Regulation
52 Pages Posted: 8 Jan 2000
Date Written: November 11, 1999
This paper uses the Tiebout model, theories of allocation of prescriptive jurisdiction and theories of antitrust or competition law to analyze the question of regulatory competition in the context of international securities regulation. While showing that there is already substantial scope for regulatory competition in international securities regulation, it argues that the question of how to design regulatory competition cannot be considered separately from the questions of horizontal and vertical allocation of regulatory jurisdiction, and in fact is only a sub-question of those larger questions. The appropriate methodology for comparing different allocations of horizontal and vertical jurisdiction is comparative institutional analysis. This paper then engages in a suggestive comparative analysis of the three main alternative allocational regimes: (a) "rootless recognition," as recommended by proponents of increased regulatory competition, which would call on states simply to accept application of securities regulation by a foreign jurisdiction selected by the issuer, excluding application of the host state's law; (b) territoriality-based national treatment, which is the system generally practiced today, whereby foreign issuers must comply with host country law in order to effect an offering in host country territory; and (c) "managed recognition" with essential harmonization, as practiced in the European Union to require a negotiated level of harmonization of law as a predicate for limited recognition. This paper's suggestive comparative analysis examines the following main factors:
i. Discipline of Government/Avoidance of Risk of Cartelization/Preference Revelation ii. Potential Innovation iii. Government Close to People/Customization/Consumer Choice iv. Economies of Scale and Network Externalities v. Externalization and Commons Problems vi. Costs of Overlapping and Unpredictable Application of Jurisdiction vii. Facilitation of Transactions in Jurisdiction, Including Creation of Organizations, in Appropriate Cases
However, this paper recognizes that decisions aggregating these analyses are best made by political institutions or their delegates. This paper suggests that political institutions may be designed and allocated authority to enhance their ability to manage competition, and allocation of jurisdiction. They may do so by applying national treatment, recognition and harmonization to particular legal rules and in particular circumstances. The EU provides a leading example, and efforts at the International Accounting Standards Committee and the International Organization of Securities Commissions are similarly aimed at essential harmonization as a predicate to recognition.
JEL Classification: F39
Suggested Citation: Suggested Citation