The Case for the Harmonization of Securities Disclosure Rules in the Global Market

Abstract

The internationalization of the world's securities markets is one of the most significant developments to affect the securities markets of the United States and many other nations. The process of internationalization and the question of U.S. competitiveness in the new global market has been the focus of academics and practitioners since the beginning of the 1990s. This article offers a comprehensive analysis of the fundamental question posed by the internationalization of securities markets: Which regulatory approach should govern securities disclosure rules in the new global market -- competition or harmonization? Utilizing various economic theories, the article suggests that the harmonization of securities disclosure rules would result in more effieint financial markets and imporved investor's protection. The topic of the paper echoes the debate in the U.S. over the competition for corporate charters. However, the question of ?competition or harmonization? of securities disclosure rules in the global market involves the markets of many nations and, therefore, the magnitude of the decision taken will be significantly greater than the decision regarding the regulation of corporate charters within the U.S. This question also has an important practical aspect. In fall 1998, the SEC and the regulators of all other major securities markets are expected to solicit comments on revolutionary proposals regarding the harmonization of accounting rules and the acceptance of a disclosure standard which is to be used by companies engaged in multinational offerings and listings. These proposals are expected to open a public debate in the U.S. and elsewhere. The structure of this article is as follows. Part II offers a brief description of the internationalization of the world?s securities markets. It is necessary to understand the causes and magnitude of this phenomenon in order to evaluate different regulatory approaches. Part III presents the question: ?competition or harmonization?? and addresses the importance of the regulatory approach toward disclosure rules from the perspectives of issuers, investors and regulators. This part further explores why less regulated markets and non-public offerings cannot serve as true alternatives to exchange listing. Special attention is paid to the importance of the regulatory approach toward disclosure from the U.S. perspective. Finally, the third section explores the theories of regulatory competition and harmonization. Part IV identifies the shortfalls of regulatory competition in the global market from the predicted outcomes of competitive markets. The analysis in the fourth part identifies various market failures which limit the efficiency of regulatory competition in the global securities market. This discussion involves both a theoretical analysis of regulatory competition and its practical application to many issues in the area of securities disclosure rules. Finally, Part V explains why harmonization is the most efficient approach to the regulation of securities disclosure rules in the global market. This part starts with a brief overview of the process of harmonizing securities disclosure rules, the structure of the harmonized standards and a description of some of the problems accompanying harmonization. After this overview, the discussion focuses on the ways in which harmonization will improve the operation of markets, reduce the costs of capital and enhance inter-market and inter-firm competition. The analysis further explains how harmonization will best serve the U.S. interest in attracting foreign issuers while preserving a high level of investor protection.