Channeling Competition in the Global Securities Market

Abstract

Global capital markets are becoming more integrated. With the free flow of capital has come increased competition between different financial centers. For those in favor of increased regulatory competition, the growing integration of world financial markets is generally viewed as a positive occurrence. Nevertheless, this essay casts some doubt as to the value of regulatory competition along dimensions other than the supply of investor protection. Regulators may compete not over the types and quality of investor protection but rather over jurisdictional boundaries and the extraterritorial application of law. This, of course, does not mean that regulatory competition lacks merit. Indeed, those that take the view that regulatory competition will lead to a race to the bottom must contend with the reality that a degree of competition is already with us. The essay concludes that investor welfare may be improved if we move more to a fully competitive system under which regulators could only compete along one dimension -- the provision of investor protection.