International Banking & Finance Law
Fall 2011
Professor Kevin Carreno
Stetson University College of Law.
International Finance Outline
I. Introduction
A. Elements of international financial transaction
1. Types of Financial Intermediation
– Indirect Finance
o Banks (liability to depositors) transmitting money from Savers to Borrowers
– Direct Finance
o Securities firms (no liability) connecting issuers (notes, bonds, equity) to investors
2. Cross-Border International Transactions
a) NY Bank lending to German Co.
b) NY Company issuing securities to German Investors
3. Non Cross-Border Transactions
a) NY bank lending Euros to a U.S. Co
b) NY bank in London (branch or sub) making Pound loan to U.K. Company (Duffy and Chung do not regard it as international)
c) Japanese Co. Issuing Securities to U.S. investor in Tokyo
§ the U.S. wants to protect people wherever they are and would extend the reach of our securities laws to even U.S. investors located abroad
B. Evolution of international financial markets
– International Lending of Banks (1982)
o Japan 11% (lending to non-residents in foreign currency)What changes between 1982 and 2002, most significant in Japan, lending in foreign currency is much more to non-residents than residents and loans in dollars in Japan has fell, reasoning: in 1982 there was a lot of regulations of the Yen (exchange controls), they lent in dollars because of lower regulation of the Yen
o USA 17% (lending to non-residents in home currency)
o A long-term policy in which federal reserve discourages making foreign currency loans inside the United States
o UK 72% (lending to non-residents in foreign currency)
o 1982 – U.S. Greatest % of International Assets, 2002 – Germany
– Off Shore Banking Centers
o Functional (London) or booking (Bahamas)
– Move from banks as providers of capital to securities and capital markets
C. Costs and benefits of international finance
Benefits:
– access to worldwide capital mkts may allow a country to smooth its financial needs (borrow in bad times, lend in good).
– promotes domestic investment and growth
– capital flows may police bad govt behavior
– may rationalize domestic regulation
– increased competition btw financial services providers means more efficient banking systems and securities markets.
Costs:
– countries needing help don’t get it b/c of low profits
– volatility of capital flows can destabilize a country’s economy
– “contagion” of economic problems btw countries
– increased competition leading to demise of local financial institutions
II. International Aspects of U.S. Securities Regulation
A. Internationalization of U.S. Securities Market
– More Foreign Securities held
– More Foreign Listing on NYSE
– More Foreign Issues
– Greater U.S. Global Equity Market Cap
1. Reasons why Foreign Companies List
– Bonding to higher disclosure standards
o Siegel disputes this because he says there is no enforcement of regulations against foreign firms
B. U.S. Treatment of Foreign Issuers
– Much fewer causes of action against foreign v. domestic issuers
a) Obstacles to Foreign Issuers in Public Offerings
– No exit from ’34 Act (if more than 300 U.S. shareholders)
– Disclosure Costs
– Corporate Governance
o Sarbanes-Oxley
– Distribution Restrictions
b) April 2003 settlement for Independent Research Analysts
o Separate research and investment banking
o Analyst compensation cannot be based on investment banking revenues and cannot be determined by investment bankers
o Analysts can’t go on roadshows
o Resea
ect of these rules?
o Retaliation, other countries complain even when they get national treatment (SOX)
g) Ways to get around U.S. requirements
– Private Placement — We have long had Private Placements, what changed in 1990 was to develop a secondary market for private placements (see slide)
o Rule 144A Offering
§ Either to QIB’s
§ An Investment Bank, which then resells to QIB’s
§ Then there is private, secondary QIB Market
· one system is PORTAL. Only QIB can trade within the system, creating a more liquidity market
o Information requirement for non-34 Act reporting companies without 12g3-2(b) exemption
o 10 (b)-5 and 17 (a) liability (Parmalat)
§ Parmalat issued bonds under 144A, SEC tried to find fraud liability of Parmalat and/or underwriter, this has sent a shiver through the market this was supposed to be the market was less regulated
o Look up British Aerospace: bond spreads
o Can be made more attractive: QIB definitions, No information for non-reporting, non-exept users, Reduce liability, clarify due diligence
– Home Country Rules: MJDS
o Just Canadian, get to issue stock on U.S. markets with their own disclosure, accounting rules
o Have to be real Canadians
o Get U.S. Fraud liability
o Supplemental disclosures required
o U.S. Auditor Independence
o U.S. GAAP reconciliation
o Sarbanes-Oxley applies
o Prett much the same, very little change
o Should be extended?
§ Scott says major Concerns
