SEC Says Some Rules Hurt U.S. in Global Markets

Americans are missing investment opportunities in the mushrooming international securities markets because of U.S. disclosure regulations and other restrictions that foreigners find distasteful, said a government study released Wednesday.

While U.S. securities markets have been a model for other countries to follow and still reign as the world’s largest, they now face growing foreign competition, the study by the Securities and Exchange Commission said.

“The internationalization of the world’s securities markets presents new challenges and opportunities for the U.S. securities markets and its regulators,” it said. “Investors may be confused by the lack of comparability in disclosure standards and unaware of the risks of investing outside of their domestic securities market.”

The exhaustive, two-inch-thick study, “Internationalization of Securities Markets,” was prepared by the SEC staff at the request of the House Energy and Commerce Committee and the Senate Banking Committee.

At a hearing Wednesday before the Telecommunications and Finance subcommittee, acting SEC Chairman Charles Cox said foreign firms are sometimes unwilling to offer stock in the United States despite special breaks that apply to them.

“There is no simple regulatory answer to the reluctance of some foreign issuers to register their securities in the United States,” Cox said.

The study noted that the number of foreign stocks traded in U.S. markets has changed little during the 1980s.

Perplexing Situation

On the one hand, the reluctance of foreign companies to offer shares in the United States hurts U.S. investors and markets. But on the other, the government cannot abandon requirements that ensure that investors have access to all the information available about a certain stock, Cox said.

To some extent, the reason U.S. investment in foreign stocks lagged behind the growth of foreign investment in U.S. stocks lies in foreign objections to U.S. laws governing tender offers, and disclosure and registration requirements.

“This could adversely affect the ability of U.S. markets to compete with foreign markets, as well as result in additional costs to U.S. investors,” it said.

U.S. stock markets, which at the end of last year had a value of $2.6 trillion, are still the largest and most sophisticated in the world, representing about 43% of the value of the world’s stock markets, it said.

But in recent years, the growth of stock markets of other countries, particularly Japan, has outpaced the expansion of the U.S. markets, the SEC said.

Restraint Urged

Assistant Treasury Secretary Michael Darby urged the House panel to resist what he called protectionist pressures to put new restrictions on foreign investment in U.S. securities.

“We should encourage a growing level of foreign participation in our markets and our market-based financial system to help keep our institutions competitive in the global environment,” Darby said.

“But that is not enough,” he added. “We must also work with other nations to chart new paths for regulation, surveillance and law enforcement.”

The study suggested revising some regulations to make U.S. markets more appealing to foreign companies offering stocks. It also cited practical problems that arise from automated international trading links and obstacles that U.S. authorities have encountered in policing the foreign markets because of secrecy laws in other countries.

“In addition, the ability to move capital quickly across national boundaries and to engage in securities transactions through offshore entities provides new mechanisms for the unscrupulous to engage in securities fraud and presents new obstacles for law enforcement agencies,” it said.

It noted that the United States has struck some bilateral agreements and is negotiating others aimed at ensuring mutual cooperation in investigating trading abuses.