Harmonization of U.S.-EU securities regulation: The case for a single European securities regulator

Law and Policy in International Business, Winter 2003 by Pan, Eric J

The EU's version of mutual recognition, however, does not produce true regulatory competition. The mutual recognition scheme ties down established entities to their home country regulations, which deprives entities of complete freedom of movement.64 Furthermore, there is a limitation on the diversity of legal regimes. Directives provide for mutual recognition, but also provide for minimum standards.65 Minimum standards prevent competition below a prescribed regulatory floor.66 Thus, the conditions for regulatory competition are not entirely met.

D. Understanding the European Securities Market: The Jackson-Pan Study

1. The Jackson-Pan Study

In 1999-2000, Howell Jackson of Harvard Law School and I conducted a study of cross-border securities offerings in order to test three assumptions:

1. There does not exist issuer choice in the U.S.-EU securities regulatory regime;

2. The SEC is not entirely responsive to the changing needs of issuers and investors; and

3. The market would take advantage of the differences in regulatory regimes from the demand side (i.e., investors would differentiate between regimes effectively) and the supply side (i.e., issuers would take advantage of the diversity of regimes available).67

During a three-week period in July 1999 and an additional ten days in November and December 1999, we conducted interviews with about fifty professionals in London, Brussels, Paris, and Frankfurt. The average length of each interview was between one hour and ninety minutes. The largest group of interviewees (twenty-eight) were lawyers practicing in Europe (mostly in London). Seventeen of these interviewees were practicing U.S. law, seven were practicing English law, and the remaining four were practicing law of other European jurisdictions. The second largest group (thirteen) consisted of regulatory officials, and the balance of the interviewees were investment bankers (nine).68

In selecting our list of interviewees, we attempted to reach a range of individuals who would have direct personal knowledge of the European capital markets and trans-Atlantic securities offerings. In terms of law firm interviewees, we interviewed representatives of many of the largest law firms in Europe and the United States with offices in London and Frankfurt.69 Our regulatory contacts covered most of the principal regulatory agencies in the relevant jurisdictions. Our investment banking interviews included meetings with representatives from approximately one-half of the major firms doing business in London, measured by the volume of capital raised for issuers over the past few years.

2. State of the European Securities Market

The Jackson-Pan Study revealed significant harmonization of the U.S.-EU securities market.70 First, issuer choice does exist in Europe.71 A European company can offer equity securities in six different types of transactions. The most limited transaction is a "home offering," in which the company offers its securities to only retail and institutional investors in its home market. The company needs to comply only with its home country's securities laws. These transactions are extremely rare today because the relative size of the investor market is so limited and, as will be discussed later, the marginal cost of doing a much larger offering is relatively low.72