The rapid pace of technological advances is bringing us closer to the reality of a seamless global capital market. In such a world, investors would have access to increased liquidity, greater diversification, and a wider range of investment options regardless of their location. Capital would be more efficiently allocated throughout the global economy to the benefit of all participants. However, complex political obstacles are hindering such a development. One underlying problem facing the United States is how to balance improved U.S. investor access to foreign investment opportunities with the need to safeguard the integrity of the U.S. market. The Securities and Exchange Commission (“SEC”) is responsible for regulating this balance and is guided by its mission “to protect investors; maintain fair, orderly and efficient markets; and facilitate capital formation.”
In A Blueprint for Cross-Border Access to U.S. Investors: A New International Framework, Ethiopis Tafara and Robert Peterson put forth a seemingly compelling argument to address this problem through the adoption of a new international framework for the SEC’s handling of foreign investment opportunities. Tafara and Peterson argue that change is necessary as the SEC’s current approach to foreign investment opportunities is out of date and needs to adapt to the increasing interconnectedness of global markets. They point out that while the SEC has made accommodations for some foreign issuers listing on U.S. exchanges, its counterparts in other countries have not given U.S. investors similar support and instead offer limited information and several layers of costly intermediaries. The proposed framework aims to rectify this situation through a system of substituted compliance with SEC regulations whereby “instead of being subject to direct SEC supervision and U.S. federal securities regulations and rules, foreign stock exchanges and broker-dealers would apply for an exemption from SEC registration based on their compliance with substantively comparable foreign securities regulations and laws, and supervision by a substantively comparable foreign securities regulator.” However, while such reform may on the surface seem reasonable, the practicability of implementing these changes today is questionable while the risk for U.S. investors is high….
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