Sunday, September 16, 2007
The Relative Merits of Principles-Based versus Rules-Based Securities Interventions, by MATTHEW R. MCCUBBINS, Case Western Reserve University School of Law, was recently posted on SSRN. Here is the abstract:
Securities rules and regulations, or interventions, are created by the Securities and Exchange Commission via two different methodologies: principles-based and rules-based. Principles-based interventions can be characterized as general expressions of what to do and what not to do. For example, a principles-based speed limit sign may say “don't drive too fast for the conditions present.” Rules-based interventions are concrete expressions of what to do and what not to do. Using the speed limit sign example, a rules-based sign may say “Speed Limit 55.”
Over the years, the SEC has moved back and forth between the two methodologies in creating and amending securities laws. Both methodologies have their pros and cons. This paper explores and compares principles-based and rules-based securities interventions and ultimately comes to a conclusion on which methodology is superior to the other.
Stock Exchanges and the New Market for Securities Laws, by CHRIS BRUMMER, Vanderbilt University - School of Law, was recently posted on SSRN. Here is the abstract:
Leading scholars have lamented for nearly a decade the absence of what can be termed a market for securities laws. Unlike U.S. corporate law, which prompts the fifty states to compete with one another to attract firms due to rules that allow companies to incorporate anywhere domestically, no competition for firms animates the enactment of federal securities laws. Indeed, the conventional view is that the U.S. government has enjoyed a virtual monopoly over securities laws since the passing of the 1933 Securities Act. In response, academics such as Roberta Romano, Andrew Guzman, and Stephen Choi have proposed a variety of reforms aimed at generating competition among securities regulators by giving either issuers or stock exchanges expanded choice as to the legal regime governing their securities transactions.
This Article argues that these proposals fail to take account of dramatic changes in the structure and operation of stock exchanges that are already making possible a vibrant market for securities laws. First, the Article identifies what can be viewed as a “public” market for securities laws. In this market, the services offered by stock exchanges are increasingly commoditized as exchanges transition from floor trading to electronic trading. As a result, national regulators eager to protect or expand their financial centers are incentivized to provide attractive rules for securities issuances. Second, the Article demonstrates how the acquisition of foreign competitors by U.S. stock exchanges has created a nascent “private” market for securities laws. The Article shows that by merging with foreign competitors, stock exchanges are now able offer firms greater choice as to where their securities will be sold, and, as a result, greater choice over the regulatory regime governing their offerings. The Article then assesses the degree of regulatory competition created by these new markets for securities laws by comparing them to the reform proposals advanced by the critics of the current securities law regime.