stringent disclosure requirements than they did a decade ago. Whereas at that time
the SEC may well have been justified in refraining from responding to the challenge
from competing capital markets on the basis that the Commission enforced a quality
not available in other markets, today that argument is less tenable, and other markets
offer credible competition.
Another challenge to the SEC is presented by the continuing growth of cross-ju-
risdictional and multijurisdictional offerings. Five of the ten largest U.S. initial pub-
lic offerings (IPOs) of all time were by non-U.S. companies. The U.S. securities mar-
ket is so large that extremely large offerings are forced to access it for the time being,
but they will only continue to do so if the SEC can continue to make the registration
process attractive for such offerings.
Additionally, at the time of writing, the SEC and the rules it enforces are under
challenge by U.S. and international critics. Several large companies have failed or
have been forced to restate their financial results while the critics ask whether the
rules the SEC has been enforcing, especially as they relate to financial disclosures,
are indeed the standard to which other regulators should aspire.
(a) Development of Competing Capital Markets. In recent years we have seen sev-
eral important developments that affect the competitiveness of the U.S. capital mar-
kets. Many European markets have been restructured or deregulated to improve effi-
ciency, and some markets where foreign ownership of securities was traditionally
prohibited or restricted have opened up to foreign investment. These markets are be-
coming more competitive with the United States as they become more attractive to
investors and to issuers seeking capital.
Markets are additionally becoming increasingly integrated, leading to the devel-
opment of supranational markets that are more attractive than their component do-
mestic markets. The most obvious example of this is the European Union’s (EU’s) ef-
fort to develop a single capital market, without obstacles to the freedom of movement
for capital. In 1985, the EU passed a directive designed to achieve completion of a
single internal market by 1992, spurred on by a perception that the fragmented Eu-
ropean markets were not competitive with their international competitors. The EU
has adopted or has proposed a number of directives that harmonize regulation of the
securities markets in Europe. Harmonization of disclosure requirements, and listing
standards in particular, has made substantial progress. In 1994, the EU adopted a new
directive designed to facilitate stock exchange listings in one member state by com-
panies listed in the other member states. This directive exempts issuers that have
listed in one state for at least three years from the requirement of publishing full list-
ing particulars in the other EU member state. The same also applies to public offers;
the same documents may be used to offer securities simultaneously to the public in
all member countries. In addition, Directive 2001/34 sets forth minimum standards
for the admission of securities to official stock exchange listings in each of the mem-
ber states in an attempt to harmonize listing standards. That directive also prescribes
the information to be published with respect to those securities. Directive 89/298 (the
Prospectus Directive) provides that where public offers are made within a short in-
terval of one another in two or more member states, a public offer prospectus pre-
pared and approved in one state must be recognized as a public offer prospectus in
other member states. In addition, in 1998, the European Council adopted the Finan-
cial Services Action Plan with the aims of completing a single wholesale market, de-
veloping open and secure markets for retail financial services, ensuring the continued
14.4 CHALLENGES POSED TO THE SEC BY INTERNATIONAL DEVELOPMENTS 14 • 7