International securities regulation has arrived at the forefront of the
country’s debate on financial market reform. The global economic crisis
has exposed the enormous systemic risk that can arise where securities
are sold across borders. Meanwhile, the Bernie Madoff and Allen
Stanford frauds have illustrated the international reach of swindlers
and conmen. Consequently, policymakers have vociferously called for not
only domestic securities law reform, but also a more effective
international regulatory architecture.
Yet international securities regulation is poorly understood. Securities scholars traditionally view the SEC as a global regulatory monopolist due to the size of US stock exchanges. But they overlook the rise of foreign capital markets and the diminished influence of the SEC. International law scholars view international securities regulation as involving what game theoreticians would call an “assurance” game where information sharing through informal networks of regulators facilitates swift agreement on standards. But they ignore the asymmetric costs of adopting international standards and thus underestimate the obstacles to convergence.
This Article overcomes these limitations and offers a fuller theoretical account of international securities regulation. It argues that due to increased global competition for securities transactions, coordination among securities regulators often comprises a “battle of the sexes” game where regulators are not necessarily incentivized to adopt the other’s regime. It also shows how the SEC, cognizant of this development, is forming club-like alliances that offer foreign regulators special rewards, like preferential market access, for adopting its policy preferences. The Article then assesses the effectiveness of this approach and concludes that clubs have better prospects of success in enforcement cooperation than in substantive areas of securities law.
