Opening Remarks from Robert K. Steel, U.S. Treasury Under Secretary for Domestic Finance
9:00 am to 9:30 am
Discussion Facilitators: Jack Coffee; Ed Greene (moderator); Rachel Robbins; Bud Rogers; Hal Scott; and Dick Walker.
9:30 am to 12:00 noon
Recently, there have been a number of speeches, conferences and reports addressing the competitiveness of the U.S. capital markets. The three most publicized reports—Interim Report of the Committee on Capital Markets Regulation, Report on Sustaining New York’s and the US’s Global Financial Services Leadership sponsored by Mayor Bloomberg and Senator Schumer and the Report and Recommendations of the Chamber of Commerce’s Commission on the Regulation of the U.S. Capital Markets in the 21st Century—all concluded that the U.S. has lost ground in the increasingly global and competitive capital markets.
Each of these reports has also provided a large number of recommendations to begin addressing this problem, particularly with respect to solutions that can be implemented in the short term. Some of these reports compared and contrasted the U.S. system of regulation to that of the U.K. In addition, there have been numerous press reports and speeches about the attractiveness of the London capital markets and its prudential, more principles-based system of regulation.
This session will address the broader, policy issues raised by the competitiveness debate in order to determine whether there is in fact a need for regulatory reform in the U.S., and, if so, to identify the approach necessary to guide this reform.
Questions for Discussion:
- Defining the Problem. Recent attention on the lack of U.S. competitiveness has tended to focus on the perception that listings on the U.S. exchanges are no longer necessary (or even desirable) for global companies to access U.S. investors or ensure a global following for their stock. U.S. institutional investors are still able to participate in these offerings (on a private placement/Rule 144A basis) but U.S. retail investors are excluded. Does that matter? Are U.S. employees of global companies disadvantaged when their employer's stock is de-listed and they de-register under the new SEC de-registration rule? Are there other aspects of the problem? Why are some non-U.S. companies still choosing the U.S. or maintaining secondary listings there?
- Vision for Regulatory Reforms. There have been a number of recommendations made by various committees and reports in recent months with respect to short-term “patches” to fix the U.S. regulatory model. Focusing more on the longer-term, what changes would have the greatest impact? Is it just time that is needed to implement these changes or are there other obstacles (and are they insurmountable)? What role should self regulation organizations play in the U.S.? Should U.S. regulation place more emphasis on differentiating between the wholesale and retail markets?
- London Markets. Is there any substance to the debate regarding the attractiveness of the London markets? What aspects of the London market have contributed to its success? How significant is the single securities regulator in the U.K that is often effectively the first and last word on interpretation and enforcement? What aspects are importable to the U.S. and what obstacles would arise? Is it possible to enhance the attractiveness of U.S. markets versus London’s AIM market without seriously sacrificing investor protection? What steps can be taken to enhance the competitiveness of U.S. capital markets, particularly for foreign issuers?
- Prudential and Principles-Based Regulation. Following up on the discussion regarding the regulation in London, is it realistic to seek a more prudential and principles-based approach to regulation by the SEC? Would it be desirable? Would either alone fit better in the U.S.? Can it start with the newly merged self regulatory organization? What would be the first steps toward a prudential approach to regulation? Does the U.S. litigation and enforcement model effectively preclude either approach?
- Litigation and Enforcement Reform. With double digit declines in each of the last two calendar years in the percentage of class action securities cases, how serious is the concern for the liability risks in U.S. markets? Is it possible to make any significant progress in regulatory reform without first addressing the litigious environment of the U.S. and the enforcement mentality of some financial markets regulators? Are there any meaningful steps that can be taken to address burdens imposed by the litigious environment in the U.S. short of legislative litigation reform? What is the appropriate role of the states in the prosecution of securities violations? Are there reforms we can take with respect to Section 11 liability in public offerings that will make U.S. markets more attractive to foreign issuers?
Luncheon with a Conversation with SEC Commissioner Annette Nazareth and Alan Beller
12:00 noon to 2:00 pm
Discussion Facilitators: Gary Lynch; John Macey; and Michael Mann (moderator).
2:00 pm to 3:30 pm
Today, the ability of investors to conduct cross-border securities transactions is virtually unlimited. The real question for investors is how willing are they to jump through hoops and absorb certain costs in order to conduct cross-border transactions, and to what extent are they missing out on potential investment opportunities because of restrictions on solicitation. For the issuers, brokers and exchanges involved in those transactions, as well as those side-lined by regulatory uncertainties, addressing the regulatory risk and uncertainty is potentially even more costly.
Securities regulators have long grappled with how national regulators should deal with international markets. International enforcement cooperation is now the norm, not the exception. On the regulatory front, conceptual and actual approaches have been debated for over 20 years. In 1986, the SEC issued a concept release proposing a form of mutual recognition for brokers; such an approach was never pursued. In 1988, the SEC and its counterparts in Canada established a Multi-Jurisdictional Disclosure System with the idea of developing a universal offering model that could be expanded to other countries; it has not expanded beyond Canada. In 1998, IOSCO endorsed a “universal prospectus,” with a similar idea in mind, but regulators impose the requirements so differently that the resulting disclosures are not “universal.”
Not surprisingly, there is continued interest in exploring whether the international regulatory community can develop a shared approach to regulation that would enhance cross border access to markets. This panel will discuss three alternative approaches:
- Mutual Recognition of National Regulation – based on a shared understanding of regulatory principles, regulators would determine on a bilateral or multi-lateral basis that regulation in particular jurisdictions was substantially equivalent and therefore sufficient to permit foreign registrants to operate (or foreign securities to trade) in a local jurisdiction without further registration;
- Unilateral Recognition of Territorial Oversight – [Caveat Emptor] – a system permitting unregulated foreign access to a local market with the understanding that all resulting transactions would be governed by the law of the country of the foreign person seeking such access. Regulators would enhance enforcement mechanisms to ensure that each had access to the information needed on a cross border basis to oversee such a system;
- Agreements on Jurisdiction–a system where regulators would negotiate an explicit understanding that defines the limits of each of their ability to assert jurisdiction in relation to cross border transactions and identify whose national legislation should apply.
Questions for Discussion:
- Mutual Recognition of National Regulation: Has there been sufficient evolution of national regulatory systems to facilitate such a negotiation? Would there be sufficient benefits to justify the effort? If pursued, would it be possible to focus on particular products (e.g., equities, mutual funds, etc.) or market professionals ((e.g., brokers, advisors, etc.)?
- Mutual Recognition of Territorial Oversight: Would it be feasible to establish an "open system" into which an investor could opt that would be governed solely by the law of the jurisdiction where the securities transaction actually occurred? What type of disclosure would be necessary to ensure that the investor understood the risks involved? If such a system were established beside the local regulatory system would it cause a "race to the bottom" that would lead to business migrating to less regulated jurisdictions?
- Agreements on Jurisdiction: Would an increase in such predictability be constructive and assist in facilitating cross border business? What areas should such understandings encompass (e.g., market conduct rules)?
Discussion Facilitators: Alan Beller; Jim Cox (moderator); and Greg Palm.
3:30 pm to 5:00 pm
Currently, securities regulation is territorially based, so that the disclosure standards and format are guided by the host country, not the home country of the issuer. Similarly, broker-dealers are regulated in the markets in which they operate, so that multinational firms find their transactions subject to multiple regulatory regimes. To this multi-tiered approach, there have been several responses proposed.
Reconciliation: This is the current U.S. pattern in the U.S. where, for example, foreign issuers, with limited exceptions for particularly items, are required to reconcile their financial reports to U.S. GAAP so as to isolate the effects of any differences posed by financial reports prepared under a different set of standards.
Convergence: Regulators engage in cooperative and coordinated efforts to develop reasonably similar regulatory approaches and requirements.
Mutual Recognition: Once cooperating regulators identify minimum standards that must be satisfied, companies and market participants meeting at least the minimum standards of their home country can transact business in the host country without having to engage in reconciliation or any other additional regulatory steps. An example of this process are the steps take more than a decade ago with the SEC’s Multi-Jurisdictional Disclosure System which continues to be limited to Canadian issuers.
With global offerings and trading regulatory borders introduce friction and allied costs that are likely not optimal. The discussion in this portion of the roundtable focuses on approaches to reducing these burdens or perhaps creating a borderless global financial market.
Questions for Discussion:
- Mutual Recognition of Disclosure Documents. Is mutual recognition of disclosure documents inevitable (i.e., will this occur de facto through a process of convergence of disclosure standards and practices)? If mutual recognition is to occur, should it be limited to only highly visible, large capitalization issuers or should mutual recognition be based not on the characteristics of a particular issuer but on the strength of its home country regulator? If the latter, what criteria should be applied to evaluate countries eligible for their issuers to be so recognized in the U.S.? Are there any areas of the current U.S. disclosure requirements that are not only materially different from practices in the U.K. or Japan but also are so central to the overall objectives of financial reporting that the U.S. should not accept less than obeisance to a U.S. norm? Is the quest for mutual recognition broader than a two-party undertaking, i.e., the U.K. and the U.S.? How best can it be facilitated?
- Periodic Reporting. Are the large international markets prepared to move, as has the U.S. with the 2005 Offering Reform, toward increasing reliance upon the periodic reporting system for disclosures related to the public offering of securities? Is the U.S. ahead or behind the curve vis-à-vis foreign capital markets with respect to facilitating the efficient public offering of securities? The private placement of securities?
- IFRS. Is it realistic to believe that reconciliation of International Financial Reporting Standards (IFRS) to U.S. GAAP can be accomplished earlier than or even by the projected 2009 date? Assuming that even upon recognition that there has been overall convergence of accounting standards between IFRS and U.S. GAAP, is there a case to be made for smaller issuers who are not likely followed closely by analysts and institutional investors that reconciliation is appropriate where material differences between IFRS and U.S. GAAP exist? Will mutual recognition of IFRS weaken or slow the pace of the FASB to develop a more principles-based system? How strong is the case post the SEC’s acceptance of IFRS in SEC filings for the continuing separation of the International Accounting Standards Committee and the FASB?
- Auditor Oversight. Has the PCAOB taken the correct approach with respect to oversight of foreign accounting firms that certify financial statements of U.S. listed foreign issuers?
- U.S. Liability Regime. Is the existing liability regime in the U.S. the tail that wags the disclosure guideline dog so that whatever progress is made on convergence or mutual recognition will not yield the expected benefits absent substantive and procedural reform of private securities fraud prosecutions?
Park Hyatt Hotel
5:00 pm to 7:00 pm