Reconciling Federal and State Interests in Securities Regulation in the United States and Europe

Abstract

Securities law in the United States is found primarily in the federal securities laws administered by the Securities and Exchange Commission and interpreted by the courts. The federal securities laws were preceded by state securities laws administered by state securities commissions and stock exchange regulations and listing requirements. Although key aspects of state securities regulation have been preempted, other aspects remain in tact. Stock exchange requirements now are part of the federal securities laws. Further, corporation law is primarily state law, even though it is sometimes overriden by the federal securities laws. All of this regulation results in a fair amount of regulatory competititon that frequently is difficult to reconcile. Europe is struggling with similar problems in reconciling federal and state law and regulation concerning capital markts and public companies. This article outlines the framework and historical development of securities law in the United States and Europe and the long term trend toward federal regulation despite some countervailing actions by local interests. It also discusses the tension between federal and state interests in takeover law as an example of an effort to reconcile competing regulatory goals. One of the author's conclusions is that politics and economic history are more important than theory in explaining the dominance of federal over state regulation. Further, regulatory competition is not an appropriate method for making investor protection the reconciling principle between federal and state interests.