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Frank Partnoy

Abstract

Whereas these first two forms of regulatory competition are well documented and covered in the legal literature, the third form - which I call "multinational regulatory competition" - is newer and more difficult to characterize. Accordingly, any claims about future regulatory competition in this form necessarily are speculative. By "multinational regulatory competition," I mean competition occurring when a group of regulators from more than one sovereign forms a partnership as a multinational regulator and then seeks to compete with other groups of regulators, also formed from more than one sovereign. There is some recent empirical evidence that regulatory trends in market for single-stock futures are in the direction of multinational regulatory competition. Multinational regulatory competition may be an attractive alternative to other forms of regulatory competition. As discussed in greater detail below, intrajurisdictional competition is subject to costly and inefficient turf battles over regulatory market power. Interjurisdictional competition is not subject to those same problems, but is likely to generate other costs and inefficiencies, as parties engage in territory-related regulatory arbitrage transactions, which are - at best - normatively indeterminate. Multinational competition - which involves competition between partners of regulators of different countries, and therefore captures both intranational and international competition - may be more likely to create race-to-the-top conditions. Part II describes this new framework for analyzing theories of regulatory competition (including the notion of multinational regulatory competition), and applies the framework to the regulation of single-stock futures.Part III discusses several policy issues related to the regulation of singlestock futures, and attempts to address whether or how multinational regulatory competition with respect single-stock futures might be a more efficient regulatory regime than other structures. In particular, Part III expands the discussion to focus on more general international regulatory issues relevant to single-stock futures. The three preliminary conclusions are: (1) single-stock futures will introduce opportunities for substantial leveraging of individual stock transactions in ways that previously were not available; (2) single-stock futures will shift the focus of securities fraud regulation in numerous areas, including insider trading and market manipulation, and (3) single-stock futures will allow investors to avoid costly restrictions on short sales, which should improve market efficiency. On balance, single-stock futures have the potential to make markets fairer and more efficient, and multinational regulatory competition is one likely method of encouraging such improvements.

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