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In this incisive analysis of securities regulation, Roberta Romano demonstrates that the current approach toward U.S. securities regulation--exclusive jurisdiction by the Securities and Exchange Commission--is misguided and should be revamped by implementing a regime of competitive federalism. Under such a system, firms would select their regulator from among the states, the SEC, or other nations. She asserts that competitive federalism harnesses the high-powered incentives of markets to the regulatory state to produce regulatory arrangements compatible with investors' preferences. Firms will locate in the domicile investors prefer so as to reduce the cost of capital, and the feedback from the net flow of firms across securities regimes will provide regulators with the incentives and information to adapt their securities regimes to firms' domicile decisions.

Romano contends that empirical evidence does not indicate that the SEC is effective in achieving its stated objectives. The commission's expansions of disclosure requirements have not had a significant impact on investors' wealth. In addition, she asserts, evidence from institutional equity and debt markets and cross-country listing practicesdemonstrate that firms voluntarily disclose more information than they would under mandatory requirements because firms want to provide the information investors demand. Romano concludes that under competitive federalism, the aspects of the SEC's regime that are valuable to investors will be retained, those that are not will be discarded, and the resulting regime will better meet investors' needs than the present one. [More . . .]

Roberta Romano is the Allen Duffy/Class of 1960 Professor of Law at Yale Law School. She is the author of The Genius of American Corporate Law and editor of Foundations of Corporate Law. A member of the American Academy of Arts and Sciences, Ms. Romano is a past president of the American Law and Economics Association.