Eric Sirri, the SEC's Director of Market Regulation, spoke late last week about cross-border securities transactions. The text of the speech is here. He described a two-way street, in which U.S. markets are attracting foreign investments and U.S. investors are investing abroad.
Sirri noted that the SEC may need to act under its authority to exempt certain types of transactions from the reach of the U.S. securities laws, but that in so acting the SEC must not "abdicate its obligation to protect investors and further market integrity."
Sirri noted several examples of the SEC's willingness to be flexible in adopting new rules to govern the U.S. markets. He then explained that "the time has come to reconsider our approach and to allow access under conditions that protect U.S. investors and maintain the integrity of U.S. markets." Sirri reviewed the U.S. approach to regulating markets and broker-dealers, including foreign broker-dealers, explaining that the "practical effect of current law is that foreign exchanges and foreign broker-dealers dealing directly with U.S. investors in the United States must either register or be exempt from registration."
Other jurisdictions have questions whether this approach is necessary to protect U.S. investors, or is simply protectionism of U.S. firms and markets. While the SEC must comply with its mandate to protect investors, Sirri posits that the Commission can do more "to reduce costs and frictions of obtaining foreign securities in the US, without jeopardizing investor protection for US investors."
With respect to the SEC's exemptive authority (Exchange Act § 36, 15 U.S.C. 78mm, enacted as part of the National Securities Markets Improvement Act of 1996), the SEC would have to determine that exempting foreign broker-dealers and exchanges is in the public's best interest. Sirri proposes a cooperative approach under which U.S. brokers could join foreign exchanges in other jurisdictions, provided that the other jurisdiction cooperates with the SEC to protect investors. He noted that this approach "would avoid the foreign exchange from needing to file its changes in rules for approval by the SEC."
On the flip side, the SEC would ease requirements for foreign brokers that are subjected to a regulatory scheme comparable to the SEC's. In particular, he believes that foreign broker-dealers could be allowed to deal directly with qualified institutional buyers regarding purchases of government or foreign securities in the U.S. without the need for registration here.
For more on this proposal, read the recent article, A Blueprint for Cross-Border Access to U.S. Investors: A New International Framework, by Ethiopis Tafara and Robert Peterson, two SEC staffers, at 48 Harv. Int'l L. J. 31 (2007).
3 comments:
Didn't the SEC already propose this somewhere?
The SEC has acted under its exemptive authority to exempt banks, savings banks and savings associations in the past. It has also acted with respect to cross-border tender offers. I cannot locate a prior proposal like the one in Sirri's speech. You might be thinking of the SEC's foreign private issuer deregistration proposal.
One big difference between the Sirri proposal and the Tafara/Peterson proposal is institutional investors. Tafara and Peterson's proposal would allow foreign b-ds and exchanges to market to retail investors. By contrast, large institutional investors in the US already take advantage of a chaperoning provision under Rule 15a6 or conduct trades directly through their own foreign affiliates. Consequently, allowing foreign b-ds and exchanges to operate in the US without SEC registration, provided they only sell to institutional investors (i.e., Sirri's proposal), isn't offering much.
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