U.S. Participation in the Globalization Trend
by Michel V. Hurley *
Emory International Law Review | Fall, 1994

* Candidate for J.D., Emory University, 1995; graduated from Vassar College, 1992, with a B.A. in Political Science. The author dedicates this Comment to her parents, Valerae and William Hurley, in appreciation of their heroic support and guidance.

LENGTH: 19456 words
SUMMARY:
… Finally, in a law review article written in 1992, Duke University Law Professor James D. Cox explained that “my purpose is to develop a set of principles that can guide U.S. policy makers in reaching agreement with other nations on the minimum content of all nations’ securities laws.” …

INTRODUCTION
The word “Globalization” is used widely to summarize a complex worldwide development; it describes the growing number of interweaving dependencies–economic, political and cultural–among countries and the consequent blurring of international boundaries in those areas. 1 The globalization trend complicates the application of local laws to economic activity because the actors and their objects often are not contained within the borders of a single nation or even a single geographical region. One field that has received much recent attention, but few and scattered simplifying solutions, is that of securities regulation. While the General Agreement on Tariffs and Trade (GATT) has proven to be somewhat problematic, it still manages to provide some guidance for the international trade of manufactured goods; the securities field enjoys no such consensus. Thus, renowned securities regulation expert and Harvard Law School professor Louis Loss believes that globalization “very likely will be the central theme of securities regulation through the nineties.” 2

Securities issuers and investors are not waiting idly for governments to reach agreements on uniform rules. Wherever it has been possible to reach out for foreign capital or for new places to invest, people have found ways to skirt prohibitive local laws in order to
[*702] do so. 3 Unfortunately, as this comment will show, such unregulated investing has often led to great inefficiency and inequity, prompting legislators to search for new ways to handle the effects of globalization. Columbia Law Professor Michael Gruson wrote in 1987, “At this point, lawyers seem to be following the driving factor of market forces. Since the markets have so far developed in spite of the many remaining impediments and obstacles, lawyers are now called upon to help simplify and ease the natural flow. . . .” 4 Globalization thus calls either for more systematic planning and direction or at least for the removal of current inconsistent and ineffective regulatory barriers to international securities trading.

Barring some break in the trend–and with appropriate regulatory responses–full integration may result. Morgan Stanley International President Richard A. Debs described the future securities market as one which has no national boundaries, to which participants . . . from all over the world have access, in which price is established by supply and demand from around the world, not from a single domestic market, and in which transactions can be effected on a twenty-four hour basis or close to it. 5

However, the United States, historically the world leader in the field, is not prepared for the globalization of securities markets. In 1987, the Securities and Exchange Commission (SEC) noted that U.S. stock markets were failing to keep pace with others in at [*703] tracting foreign listings. 6 In 1989, the U.S. Senate conducted hearings to determine how to stop the decline in this area. 7 One senator remarked that he was “concerned about the continued ability of U.S. institutions and markets to remain atop the competitive roost. And in fact, by certain measures, we’ve already lost our leading edge in some areas.” 8 Since then, Congress, the SEC, and the various self-regulatory organizations (SROs) 9 have been pondering ways to improve the statistics. Underlying the attention, however, is a usually unexpressed reluctance to change which stems from feelings of U.S. supremacy–the notion that we should not bother to “fix what is already working.” 10

Part I of this comment explains the necessity for further internationalization of U.S. securities markets. Part II discusses efforts made to that end, as well as persisting problems. Finally, Part III attempts to provide a framework for change, taking into account a number of popular theories. It concludes with the suggestion that, in addition to current efforts, a combination of deference to foreign securities laws and limited deregulation in this country is necessary for safe and profitable American participation in the global market. In the words of Michael Gruson, “Lawyers who have a natural tendency to accept without question the regulatory sys [*704] tems of their country will have to keep an open mind.” 11

This comment is offered both as a primer on progress made in the area of internationalization of American securities markets and as a suggested focus for future development. In the interest of brevity, it does not discuss certain relevant issues: State (“blue sky”) laws are not examined in addition to federal regulation, because the states are tending toward deference to uniform laws for foreign issues anyway. 12 Jurisdiction over any trade in a U.S. market is assumed, because there is a “U.S. connection” to any such trade. 13 Finally, this comment examines problems with divergent foreign accounting and disclosure standards to the near exclusion of all other discrepancies, because the author believes these to be the two major obstacles to successful and expedient international securities trading.

Citations:
n3 Total American investments in foreign securities amounted to $ 340 billion in July, 1993. Alyssa A. Lappen, International Investing’s Hottest Hands, INSTITUTIONAL INVESTOR, July 1993, at 63. Robert McCabe, chief market analyst at Merill Lynch in New York, notes that in recent months nearly 40 percent of American mutual fund money has been ploughed into overseas investments. Larry Black, After the Deluge of U.S. Cash; A Wall of American Money Has Hit World Share Markets This Year, INDEPENDENT, Dec. 30, 1993, at 27. Mutual funds are groupings of investments in many different stocks and/or bonds (depending on the fund for the purpose of lowering risk). See infra note 44.

All Articles, Poems & Commentaries Copyright © 1971-2021 Alyssa A. Lappen
All Rights Reserved.
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by Patrick T. Finegan, Stern Stewart & Co.
Journal of Applied Corporate Finance | Vol. 4, Issue 1 | Spring 1991 pp. 35-40

A
11 companies are in the same business–the competition for capital. In most instances, the issues that predominate are measuring performance, identifying profitable investment opportunities, and securing capital for expansion. Although the context sometimes differs for a private company (fewer disclosure requirements, more concentration of ownership and control, and informal methods of resolving disputes), these issues are still central management concerns. Yet the very features often cited as the attractions of remaining private–less scrutiny and interference from outsiders, and a family orientation—frequently conspire to make the issues more confounding.

Consider the case of Microsoft, arguably the most innovative and successful high-tech company (of the 1980s. The company went public in March 1986, unleashing millions of dollars of hard-won value for its founder, Bill Gates, while fueling expansion for still greater value in years to come. So favorable was the market’s reaction that four other software issues followed in Microsoft’s footsteps. One would think, midst the fanfare and applause, that the financial scrutiny paid by management to the offering would have rivaled what they paid to their highly successful products.

On the surface, this appears to have been the case. Total transaction fees, including underwriters’ compensation, were about $4.6 million, or only 7.1 percent of the $65 million in primary and secondary shares sold. I say only 7.1 percent because that percentage is frequently higher, even for much larger offerings. (Bet Public, for example, incurred $2.8 million in exchange and listing fees alone on its $75 million offering, nudging total fees above 12 percent.) For much smaller offerings–those, say, less than $10 million–transaction costs can become stratospheric, consuming as much as 15 to 25 percent of the equity raised. It’s not surprising that fees become the thorn in an owner’s side when evaluating the prospect of going public.1

So Microsoft did a good job of monitoring expenses, but then missed the boat on pricing. The closing price of Microsoft’s shares on the day of offering was $28, a price that held firm for several weeks thereafter. Too bad their shares entered the market at only $21. The $22 million in underpricing (or 33 percent of the $66 million offered) dwarfed what Gates and Microsoft paid in fees (see Table l)–a fact that escaped the press amid investor jubilation.

But why pick on Microsoft? Studies by several leading finance scholars confim that the average first-day runup for all initial public equity offerings, excluding investment funds, is on the order of 15 and 20 percent, and that the standard deviation of these run-ups is between 35 and 40 percent.’ In layman’s terms, not only is underpricing on the order of 50 to 60 percent not unheard of, it’s statistically certain in one out of six public offerings. For very small offerings-those of companies with sales of less than $500,000-the average run-up exceeds 25 percent, the standard deviation 50 percent. Add 15 to 25 percent in fees and it’s little wonder so many cash-poor companies resist going public. Continue reading “Maximizing Shareholder Value at the Private Company” →

All Articles, Poems & Commentaries Copyright © 1971-2021 Alyssa A. Lappen
All Rights Reserved.
Printing is allowed for personal use only | Commercial usage (For Profit) is a copyright violation and written permission must be granted first.

by Mary Joyce, Warren J. Keegan, Sandra E. Moriarty, Thomas R. Duncan, Kathleen A. Krentler

Prentice Hall, 1991
ISBN 0137197411, 9780137197415
p. 367

Alyssa A. Lappen, “Defying the Law of Gravity,” Forbes, Apr. 3, 1989: 76-77; and Gary Slutsker, “To Catch a Particle,” Forbes, Jan. 23, 1989: 88-91.

All Articles, Poems & Commentaries Copyright © 1971-2021 Alyssa A. Lappen
All Rights Reserved.
Printing is allowed for personal use only | Commercial usage (For Profit) is a copyright violation and written permission must be granted first.