14.6 THE FUTURE. Over the next few years, the SEC is likely to be faced repeatedly
with demands that it recognize and accept foreign disclosure, especially financial
statements, prepared otherwise than in accordance with U.S. GAAP. There are several
reasons for this. First, multinational offerings are unlikely to diminish. The British pri-
vatization of several industries in the 1980s were in the multibillion-dollar range, and
five of the top ten IPOs of all time in the United States were made by non-U.S. com-
panies, mostly in recent years. Such offerings cannot be absorbed in the home market.
As the newly capitalist countries of Eastern Europe and some emerging markets move
to market economies, they are privatizing state-owned industries in much the same
way as their Western European counterparts. Again, these offerings have to be made,
at least in part, outside their domestic markets. If they have to exclude the United
States or limit U.S. offerings to private placements because U.S. requirements, in-
cluding disclosure standards, cannot conveniently be met, U.S. investors are likely to
increase pressure on the SEC to encourage such offers to be made in the United States.
In the interests of competitiveness, the U.S. securities exchanges are likely to con-
tinue to pressure the SEC to accept foreign accounting standards. By 2005, all European
regulators will accept accounts prepared according to IASs. Increased competition
among stock exchanges is likely to result in those exchanges that have the least accom-
modating attitudes to foreign issuers being at a disadvantage. The SEC can be accom-
modating with regard to the needs of the exchanges to attract foreign issuers, as has been
demonstrated in the past, when the Commission approved rule changes by the New York
Stock Exchange and the American Stock Exchange, permitting them to waive rules that
were otherwise applicable to foreign issuers, including quarterly earnings reporting.
There will be competition, not only among the world’s exchanges, but also among
the markets themselves: Newly deregulated markets may prove to be more attractive
to issuers than the United States, especially as smaller markets integrate into larger
entities, as is happening in Europe and will increase as technological advances, such
as a much debated pan-European trading system, are developed.
At the same time as the U.S. authorities are being urged to make accommodations
to their standards, they are, in effect, being met halfway, as non-U.S. countries that
in the past had less rigorous disclosure requirements develop more stringent disclo-
sure. This process can be seen in the European Union, where the EC directives pre-
scribe minimum standards to be met in all countries, some of which previously had
less onerous national requirements. International standards, too, as prescribed by
IOSCO and IASC, have become much more stringent.
However, it is possible that domestic issuers in the United States will become
more sensitive to the fact that the disclosure standards that they are being held to are
stricter and perhaps more expensive than those being applied to foreign issuers. The
SEC’s challenge will be to hold domestic issuers to U.S. GAAP, while at the same
time attempting to encourage a substantial number of foreign issuers to access the
U.S. markets, which will depend on relief from strict compliance with the SEC’s re-
quirements, especially U.S. GAAP reconciliation, being available.
SOURCES AND SUGGESTED REFERENCES
EU Directive 80/390 (Listing Particulars).
EU Directive 89/298 (Prospectus Directive).
EU Directive 2001/34.
SOURCES AND SUGGESTED REFERENCES 14 • 23