Chapter 16

 

INTERNATIONAL SECURITIES REGULATION

 

In the modern world of corporate transactions and deals, it is often necessary for several persons, corporations and/or other legal entities, such as general partnerships, limited partnerships or joint ventures, to enter into agreements for the purchase of securities in a particular venture.[1] It is more than likely that the parties will reside in different states, or even countries.

It is also possible to have the involvement of federal securities laws in a transaction in a foreign country or countries.[2]

The federal securities laws can have an effect on a transaction involving United States citizens investing in a foreign transaction.[3]

It is necessary for all attorneys and business executives involved in modern business transactions to be fully aware and cognizant of the possibility that federal securities law is applicable to many such transactions conducted in foreign countries.[4]

Section 416 of the Restatement of the Foreign Relations Law of the United States[5] as revised by the American Law Institute provides that the United States generally has jurisdiction to prescribe with respect to any transaction in securities in the United States to which a national or resident is a party, to conduct, regardless of where it occurs, significantly related to such transaction, if the conduct has, or intends to have, a substantial effect in the United States, and to conduct occurring predominantly in the United States related to a transaction in securities, even if the transaction occurs outside the United States.[6]

Section 403 of the Restatement of the Foreign Relations Law of the United States[7] as revised by the American Law Institute provides that the judging of whether or not the exercise of jurisdiction is reasonable or unreasonable requires evaluating all relevant factors, including, the extent to which the activity takes place within the regulating state, or has substantial, direct, and foreseeable effect upon or in the regulating state.[8]

Section 1905 of the Federal Securities Code[9] proposes to apply federal securities law to a sale of a security, an offer to sell or buy a security, or an inducement not to buy a security, a proxy solicitation, a tender offer, or any activity as an investment adviser that occurs within the United States although initiated outside the United States, as well as to any prohibited, required, or actionable conduct whose constituent elements occur to a substantial, but not necessarily predominant, extent within the United States or some or all of whose constituent elements occur outside the United States but cause a substantial effect within it.

 

EUROPE & OVERSEAS COMMODITY TRADERS v. BANQUE PARIBAS LONDON, 147 F.3d 118 (2d Cir. 1998)

 

A number of agreements are in effect between various exchanges and market systems in the United States and other such entities in foreign countries to foster the international trading of securities.[10] In addition, agreements are in effect, usually consisting of a Memorandum of Understanding or a mutual assistance treaty,[11] between securities regulators in the United States and securities regulators in a number of foreign countries to facilitate the sharing of information and to provide official assistance in obtaining information.[12]

 

ENFORCEMENT, Securities and Exchange Commission 1998 Annual Report

 

SEC REGULATION S, 17 C.F.R. 230.901-.904 (1990)

 

STATEMENT OF THE COMMISSION REGARDING THE USE OF INTERNET WEB SITES TO OFFER SECURITIES, SOLICIT SECURITIES TRANSACTIONS, OR ADVERTISE INVESTMENT SERVICES OFFSHORE, Securities Act Release No. 33-7516 (March 23, 1998)

 

More and more foreign countries have local securities laws that affect securities transactions.[13] Many of these countries are currently in the process of modernizing their securities laws to reflect the growing globalization of the trading markets as well as complex transnational financing arrangements.[14]

 

INTERNATIONAL DISCLOSURE STANDARDS, Securities Act Release No. 33-7745 (September 28, 1999)

 

2000 Harry Stansbury

 

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[1] See RON CHERNOW, THE HOUSE OF MORGAN 695-99 (1990).

[2] See Note, American Adjudication of Transnational Securities Fraud, 89 Harv. L. Rev. 553, 563-71 (1976).

[3] SEC Securities Act Release No. 6568 (Feb. 28, 1985), reprinted in 32 SEC DOCKET 707 (1985); SEC Securities Act Release No. 6866 (June 6, 1990), reprinted in 46 SEC DOCKET 7 (1990); see 2 LOUIS LOSS & JOEL SELIGMAN, SECURITIES REGULATION 792-806 (3d ed. 1989); see, e.g., Manuel Lorenz, EEC Law and Other Problems in Applying the SEC Proposal on Multinational Offerings to the U.K., 21 Int'l Law. 795, 795-99 (1987); Louis Loss, Extraterritoriality in the Federal Securities Code, 20 Harv. Int'l L.J. 305, 305-14 (1979); Robert C. Pozen, Disclosure and Trading in an International Securities Market, 15 Int'l Law. 84, 84-90 (1981); Morton R. Pierce, SEC Looks at Multinationals, N.Y. L.J., Sept. 10, 1990, at 5; Jorie Roberts, Symposium Airs Multinational Issues, Harv. L. Rec., Mar. 2, 1979, at 6.

[4] See HENRY J. STEINER & DETLEV F. VAGHTS, TRANSNATIONAL LEGAL PROBLEMS 1047-74 (2d ed. 1976); Note, Predictability and Comity: Toward Common Principles of Extraterritorial Jurisdiction, 98 Harv. L. Rev. 1310, 1314-16 (1985); Martin Mayer, Bernie Cornfeld's First Billion, Fortune, Mar. 1968, at 138.

[5] RESTATEMENT (THIRD) OF THE FOREIGN RELATIONS LAW OF THE UNITED STATES 416 (1987).

[6] See RICHARD W. JENNINGS & HAROLD MARSH, JR., SECURITIES REGULATION 1582-86, 1592-97 (6th ed. 1987).

[7] RESTATEMENT (THIRD) OF THE FOREIGN RELATIONS LAW OF THE UNITED STATES 403 (1987).

[8] See RICHARD W. JENNINGS & HAROLD MARSH, JR., SECURITIES REGULATION 1582, 1597-1603 (6th ed. 1987).

[9] FEDERAL SECURITIES CODE 1905 (1980).

[10] See 5 LOUIS LOSS & JOEL SELIGMAN, SECURITIES REGULATION 2567-70 (3d ed. 1990).

[11] See Stuart J. Kaswell, An Insider's View of the Insider Trading and Securities Fraud Enforcement Act of 1988, 45 Bus. Law. 145, 171-75 (1989).

[12] See Roberta S. Karmel, The SEC Goes International, N.Y. L.J., June 20, 1985, at 1.

[13] See, e.g., NORMAN S. POSER, INTERNATIONAL SECURITIES REGULATION 1.4, at 8-9 (1991); David M. Barnard, The U.K. Financial Services Act, 1986: A New Regulatory Framework, 21 Int'l Law. 343, 344-48 (1987); Kelly C. Crabb, The Reality of Extralegal Barriers to Mergers and Acquisitions in Japan, 21 Int'l Law. 97, 101-04 (1987); Sam S. Miller, Regulating Financial Services in the United Kingdom - An American Perspective, 44 Bus. Law. 323, 323-25 (1989).

[14] See, e.g., NORMAN S. POSER, INTERNATIONAL SECURITIES REGULATION 4.2, at 376-78 (1991); Manning G. Warren III, Global Harmonization of Securities Laws: The Achievements of the European Communities, 31 Harv. Int'l L.J. 185, 185-209 (1990); Nina Easton, Reuters Goes Public in Unusual Style, Legal Times, June 11, 1984, at 1; Merrill Lynch: Bullish on the World, Forbes, Nov. 1, 1972, at 30; Ann Monroe, Morgan Stanley Banks On a Hybrid Strategy As Its World Changes, Wall St. J., June 27, 1985, at 1; Lois Moore, New U.K. Laws On Insider Dealing, N.Y. L.J., Dec. 3, 1992, at 5.