Regulating Listings in a Global Market, 86 N.C. L. Rev. 89 (2007)
Non-U.S. companies increasingly appear to spurn U.S. stock markets and choose to list their securities abroad. The drivers behind this shift are complex, but many believe that a principal cause is regulatory. TheSEC has promulgated arguably overburdensome, one-size-fits-all rules that fail to account for the heterogeneous desires of non-U.S. companies for differing levels of regulation. This was even before the Sarbanes-Oxley Act.
Previous proposals to ameliorate this problem have all suffered from the same analytical flaw: they have approached this issue from the supply side and argued that regulation should be structured to meet the desires of issuers. This Article is an attempt to reformulate this debate. I argue that analysis of the proper level of U.S. regulation for non-U.S. companies should take into strong account the demand-side interests of U.S. retail investors who are deprived of investing opportunities abroad when non-U.S. companies do not list in the United States. The SEC should therefore craft regulation to foster investor equality and opportunity and ensure that global investments are, to the extent feasible, available to U.S. investors.
To achieve this, the SEC should adopt a different regulatory standard for non-U.S. companies listing both in the United States and in their home market. This regulatory standard would borrow from mutual recognition principles embedded in conflict-of-laws jurisprudence. Under this standard, a non-U.S. company's compliance with its home market rules would be deemed satisfactory unless the quality of home market regulation was deemed to be sufficiently incomparable to U.S. regulation such that the benefits of investor access were outweighed by insufficient investor protections. This approach would create a regulatory scheme that would serve U.S. interests by attracting foreign listings while sufficiently protecting domestic investors. It would also benefit U.S. stock markets and other U.S. market actors by allowing them to differentiate and provide regulatory products tailored to the individualized nature of the non-domestic listing decision.