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Campos Says Foreign Trading Screen Proposal Possible This Year

SEC Commissioner Roel Campos, in a recent speech in London, predicted that a rule to allow foreign trading screens in the U.S. with reciprocal rules to allow U.S. shares to be sold through screens in foreign jurisdictions, could be developed as soon as this year. The SEC is not ready to accept an application by a foreign regulator or an exchange, he said, but the concept is promising. Campos said the SEC is in the very preliminary stages of transforming the concept into an actual framework. His prepared remarks are on the SEC's Web site.

Campos outlined a cooperative approach that could allow a U.S. broker-dealer to join a foreign securities exchange and sell unregistered foreign securities in the U.S. to retail investors. This approach could protect investors while promoting market competition, he explained. The approach would apply only with jurisdictions that have a regulatory regime comparable to that of the U.S. Campos said it may be appropriate to start out with qualified institutional buyers before opening it up to the retail market.

Campos also addressed the recent reports by the Committee on Capital Markets, Bloomberg-Schumer and the Chamber of Commerce, which had not yet been released when Campos delivered his remarks, which he said essentially all reach the same conclusions. The first two reports present a myth, in Campos' opinion, that the U.S. markets are in decline. The papers blame Sarbanes-Oxley or regulation in general, he said, for the decline of foreign IPOs in the U.S.

Campos cited reports that suggest otherwise and point to the growth and maturation of capital markets outside the U.S. He said the supporters of the Capital Markets and Bloomberg-Schumer reports have a broad ideological agenda against all regulation. Market-based solutions are the best if they can be found, according to Campos, but they still need referees. Campos said that issuers will follow capital and liquidity. It is a losing proposition to attempt to attract listings through lower standards, in his view.

Campos pointed out that the standards imposed by Sarbanes-Oxley are being adopted throughout the world. He believes the initiatives to revise section 404 will lead investors to question why other jurisdictions have not adopted those requirements, including auditor attestations with respect to internal controls. Despite its early implementation costs, Campos said section 404 has led to better regulation around the world.

Campos also reviewed the SEC's proposed foreign private issuer deregistration proposal. He reported that a number of commenters have suggested that the SEC further modify the denominator used for the trading volume test to include worldwide trading volume. Campos said the idea has merit. He said the SEC will seriously consider using worldwide trading volume when it adopts a final rule. The vote has been scheduled for March 21.

Campos said that the elimination of the requirement to reconcile international financial reporting standards to U.S. GAAP remains a work in progress. He reported the discovery in the first year review of IFRS that many foreign private issuers did not use IFRS as issued by the International Accounting Standards Board, but those based on home country adaptations of IFRS. Campos pointed out that the SEC's roadmap contemplates the filing of financial statements prepared using IFRS as promulgated by the IASB.

Without the reference to IFRS as promulgated by the IASB, Campos said the financial statements do not appear to fit under the one set of global standards envisioned by the roadmap. He questioned what will happen in the second year of the roadmap and suggested that issuers and their auditors have a serious discussion about using IFRS as promulgated by the IASB. More companies that file audited financial statements should do so in the manner contemplated by the roadmap, in Campos' view, but he expects to achieve the roadmap's overall objectives.

Jacquelyn Lumb