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.