"For a government regulatory agency – an aggressive one, at that – to be willing to draw back from asserting outreach jurisdiction, to recognize that there are others elsewhere…who have approaches to the same problems that differ from ours but who may be just as insightful…is truly remarkable."
- August 29, 1988 "Globalization of the Securities Markets" – Address by SEC Commissioner Edward H. Fleischman to the First General Plenary Session of the U.S./Japan Bilateral Session: A New Era in Legal and Economic Relations
The SEC produced a massive study in 1987 on the internationalization of the securities markets. Mandated by Congress, and spearheaded by the SEC General Counsel's Office, the study is thousands of pages long, exploring a wide range of subjects on international securities markets from the economic, institutional, and regulatory forces shaping the process of internationalization to a comparison of disclosure and accounting requirements in different countries. Almost every SEC division contributed a chapter to the report, in which they broadly asked what questions, tensions, and concerns did international markets create and how the SEC should respond.
One of the impetuses for the study was the continuing need for new rules so that the United States would be able to compete with the Eurobond markets and a quickly developing Euroequity market. By 1985, the London Eurobond market was the world's largest securities market as measured by new issue volume.(93) Even more troubling, the growth of the securities markets in countries such as Japan and even Italy was outpacing the growth of U.S. securities markets.(94)
Furthermore, the Big Bang had occurred in the United Kingdom in 1986. The Big Bang refers to U.K. reforms during the Thatcher Era, enacted in part to further internationalize capital markets. Part of these reforms included the deregulation of brokerage commissions, the restructuring of the London Stock Exchange and the creation of a new regulatory framework for the securities markets. The London Stock Exchange also began aggressively pursuing international equity listings. As Richard Ketchum, former SEC Director of the Division of Market Regulation, recalls, the Big Bang made the LSE "much more of an equivalent competitive market –a competitive alternative to the United States…. it is a central marking point for how regulatory philosophy had to change."(95) Finally as all recognized, new technologies had created a world where information could be quickly exchanged.
The process of writing the study was far from easy, requiring extensive original research, interviewing large numbers of participants in the international markets and consulting with various regulators, academics, economists, lawyers, accountants and other experts. One of the drafters of the study remembers that collecting information "was really like pulling teeth." It was a slow and painstaking process trying to determine what other countries were doing and comparing it to U.S. law.(96)
The goal of the study was to describe the complicated and fast-moving changes taking place in the world's securities markets, to identify the SEC's concerns and to make recommendations for the future. Many of the most significant issues identified in the study would ultimately be addressed in the 1990s. It might be fair to say that the results of the study, combined with continual technological change, increasing competition, and the growth of institutional investors in the marketplace, ushered in a new frame of thinking for the SEC, in terms of how it approached countries with fully-developed capital markets.
In a 1988 speech to IOSCO, Chairman Ruder reflected this new thinking, affirming that securities regulators, in seeking international solutions, needed to "be sensitive to cultural differences and national sovereignty."(97) As the Commissioners traveled the world, they now emphasized a new willingness on the part of the SEC to be flexible and to recognize that there may be more than one model for regulation. In a 1988 speech in Tokyo, Commissioner Edward Fleischman highlighted this change, telling the audience the SEC in the future would attempt "to proceed on the basis of comity, reciprocity, and territoriality."(98).
(93) Norman S. Poser, International Securities Regulation: London's "Big Bang" and the European Securities Markets (Boston: Little, Brown, 1991), 22.
(94) July 27, 1987 Internationalization of the Securities Markets, Report of the Staff of the SEC to the Senate Committee on Banking, Housing and Urban Affairs, and the House Committee on Energy and Commerce (courtesy of Stuart J. Kaswell)
(95) April 17, 2008 Interview with Richard G. Ketchum
(96) February 4, 2008 Interview with Sarah Hanks
(97) June 2, 2004 An SEC Chairman's Recollection, by David S. Ruder (prepared for the museum by David S. Ruder)
(98) August 29, 1988 "Globalization of the Securities Markets" – Address by SEC Commissioner Edward H. Fleischman to the First General Plenary Session of the U.S./Japan Bilateral Session: A New Era in Legal and Economic Relations (Government Records)
(Courtesy of Stuart Kaswell)
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