From Monopolists to Markets?: A Political Economy of Issuer Choice in International Securities Regulation

Abstract

It is ironic that during a time of corporate scandal and regulatory soul searching, one of the most spirited debates among corporate and securities law scholars has focused on reform proposals for international securities regulation that essentially call for corporate self-regulation. Scholars have called for international regulatory competition in securities law, arguing that each issuer of securities should be able to pick its own securities regulatory regime. While these "issuer choice" proponents argue for a diversity of and competition among securities laws of the various nations, their proposals also ironically depend on uniformity - or at least international consensus - regarding choice of law rules to allocate regulatory authority among those nations. In particular, in order to create the envisioned international market for securities law, each nation would have to agree to surrender its customary territorial jurisdiction and to honor firms' private choice of law. Proponents of issuer choice have made plausible claims concerning regulators' incentives to compete to supply desirable securities laws, but they have proposed no account of why regulators or other rule givers would care to offer the requisite choice of law rules or how nations would reach agreement on them. The supply side of the issuer choice story is therefore incomplete. In this Article, I argue that the story cannot be completed. The envisioned international market for securities law will not emerge. Adopting the standard public choice assumptions of issuer choice proponents regarding the motives and incentives of political actors, it is difficult to see how appropriate choice of law rules would emerge. In a word, we can't get there from here. I offer alternative predictions as to the path of development for global securities regulation. Among other things, I show that regulators from important jurisdictions will pursue a strategy of regulatory price discrimination.

Keywords: international securities regulation, issuer choice, regulatory competition, public choice

JEL Classification: K22, L51, D73