The SEC usually requires foreign
registrants to furnish economic facts substantially comparable to that required
of domestic providers. The SEC’s monetary reporting needs are acknowledged to be
by far the most comprehensive and rigorously enforced of any inside the globe.
Whether the SEC’s needs support or hinder the SEC in meeting its regulatory
objectives is widely debated. The SEC’s reporting specifications are commonly
constant using the objectives of investor protection and industry good quality.
On the other hand, stringent reporting specifications could obtain the aim of
investor protection at the expense of decreasing investment opportunities or
imposing high transaction expenses on investing. Some commentators argue that
the SEC’s monetary reporting needs for foreign organizations deter them from
generating their securities offered within the United States.
As a result, it is
actually claimed, U.S. investors are far more likely to trade in markets such
because the U.S. Over-the-Counter (OTC) market place or overseas markets exactly
where liquidity could be reasonably low, transaction expenses comparatively
high, and investor protection much less vital than on the national exchanges in
the United States. It then is argued that the SEC could offer U.S. investors
with extra investment opportunities inside the regulated U.S. markets by
relaxing its financial reporting specifications; this, in turn, would greater
balance the SEC’s objectives of investor protection and market top quality.
Other people counter that the existing accounting and disclosure system each
protects investors and ensures the quality of U.S. capital markets.
Underlying
this argument are the principles of full disclosure and equal remedy of foreign
and domestic issuers. Indeed, the competitive strength of U.S. capital markets,
which includes their substantial liquidity and high level of investor
confidence, is often attributed (at the least in portion) to the SEC’s existing
disclosure program and vigorous enforcement. Investigation shows that
cross-listing in U.S. markets can significantly lessen a foreign firm’s expense
of capital, especially if the firm is from a country with weak shareholder
protection.The implementation with the 2002 Sarbanes-Oxley Act (SOX) has been
accompanied by new complaints about its Section 404 requiring the chief
executives and chief economic officers of public businesses (and their external
auditors) to appraise and certify the effectiveness and adequacy of internal
controls. Some foreign firms have delisted from U.S. stock exchanges (such as
British organizations Cable and Wireless and Rank Group). Other people are
apparently avoiding U.S. listings and choosing to list on other markets for
example the London Stock Exchange. This problem raises issues similar to those
about the SEC’s reporting requirements. Sarbanes-Oxley has imposed substantial
new audit expenses on providers (estimates range from 35 to 150 percent of
pre-SOX audit charges). But the benefits of improved auditing and additional
trustworthy financial statements are no less actual.
