Securities Disclosure in a Globalizing Market: Who Should Regulate Whom

One of the most dramatic examples of increasing interaction across national boundaries in recent years has been the burgeoning volume of transnational transactions in corporate equities. Most developed capitalist countries impose affirmative obligations on issuers of corporate equity to disclose certain information about themselves. While these obligations are imposed on issuers, they are triggered by transactions. The growth in transnational transactions is thus increasingly raising difficult issues concerning the reach of differing national regimes. Given the magnitude of legal resources devoted to compliance with such disclosure regulations, they promise to feature prominently in the larger discussion of the role of national legal regimes in a world of growing interdependence. A securities transaction has several dimensions of nationality: the nationality of the issuer, the place of execution, the residence of the buyer and, if it is a secondary transaction, the residence of the seller. A transaction is transnational if at least one of these dimensions involves a country different from the country of the other dimensions. Each of the countries associated with a transnational transaction can make a claim for imposing its regime on the issuer whose security is involved. This article addresses the question of which of these countries should have the authority to regulate the issuer’s disclosures. The answer to this complex question is of growing importance for the proper functioning of the global economy. Strong arguments can be made that appropriate disclosure regulation corrects market failures that otherwise would lead to misallocations of capital and management inefficiencies. Disclosure regulations can also increase investor utility under certain circumstances. Compliance with these regulations, however, is costly, and the mere prospect of their application can deter potential transactions that would be beneficial to the parties involved. Complicating the matter further, the proper balance between these considerations of benefit and cost is not the same for all issuers around the world under all circumstances. Also, for any issuer of a given country and set of circumstances, knowledge about what the appropriate balance is will not be evenly spread around the world, nor will there be a consensus about it, even among the persons who are the best informed.