Saturday, November 7, 2015

US SEC and proposed changes to crowdfunding rule for offer and sale of securities

Raising capital through crowdfunding is evolving and the securities rules have not kept up with business practice. Here are some links to informative discussions on the proposed changes to the US Securities and Exchange Rule 147 and the limitations of those changes. The changes would allow the offer and sale of securities through crowdfunding on the internet through an exemption and not a safe harbor. The new changes propose to facilitate intrastate and regional securities offerings.

See the links below.

Crowdfunding discussion 

SEC press release

Sunday, October 25, 2015

ZIm farmers judgment forces the sale of a home in SA

I previously wrote about a Southern African Development Community (SADC) Tribunal ruling that resulted in a judgment in the South African Constitutional Court. That judgment resulted last month in the sale of a home in Cape Town that was attached for settlement of monies owed.

While described as a symbolic victory, the judgment still has the power to cause other sales to satisfy it. The lawsuit to enforce the decision of the SADC tribunal demonstrated that civil law  functions in Southern Africa, with some help.

Interestingly, a case will be heard in a South African court early next year regarding the complicity of the South African Government in the suspension of the SADC Tribunal in 2011.  I blogged about the suspension here.  The SADC Tribunal is the forum previously given jurisdiction by member states of SADC over human rights violations by those states. 

The missing voice of Africa

After the Asian financial crisis, the voice of emerging economies grew at the global level. Paul Martin, the first chair of the new G20 considered it imperative to the reform of the international financial architecture. Why was the voice of Africa not amplified after the most recent crisis?

I do not know the answer but my guess is perpetuation of parternaistic notions.
Here is a draft version of my most recent essay on the matter.

“…inclusiveness lies at the heart of legitimacy and effectiveness”[1]

Incumbent players in the global capital markets construct barriers to financial development in Africa through the imposition of best standards and policy, created without significant enough input from Africa, in an effort to harmonize securities regulation suiting primarily developed markets, not developing or emerging markets predominantly found in Africa.[2] Capital markets, diverse and distinct by nature, are capable of providing a ladder out of poverty through, for example, capital access for water and road system projects, IT development, and permitting people to collectively share in prosperity.  Africa has experienced steady growth[3] and now participates to a greater extent than ever to the global domestic product – developing world consumers are buying U.S products. [4] We are a global economy. This necessitates that dominant players in the global economic arena shed paternalistic views of Africa and incorporate in the policy dialogue at the global level emerging and developing African economies. Such inclusion is paramount for effective global financial governance. [5]

Extreme poverty is reduced worldwide but still very present in sub-Saharan Africa despite steady and continued growth in the region.[6]  The markets in sub-Saharan Africa are unique because of poverty but also because they are African.[7] Nations, and therefore national exchanges, of Africa share the continent, nevertheless they are distinguished by geography, demographics, history, geology, and level of development. That unique context has not previously been integrated in the legal and economic literature debating how to achieve growth in these capital markets.[8]  This essay argues that the distinctness of Africa mandates that African capital markets have a more meaningful presence and voice in policy and standard setting for global legal matters such as global securities regulation. African capital markets, unencumbered by unrealistic notions of legal conformity and better situated to contribute, will then evolve in a healthy, inclusive global environment reflecting honest global membership rather than an outdated, paternalistic, neo-colonial model of global participation.  

Financial integration in the global economy is defined by the International Monetary Fund (IMF), a global international organization, as a country’s linkages to international capital markets.[9] As integrated economies experience the after-effects of one another’s financial predicaments, the impetus to establish global standards escalate for industries such as international accounting, corporate governance, and securities regulation in the interest of crisis prevention.[10] Emerging and developed markets strive for inclusion in the global economic community to share in the prosperity and possibility. A functioning and stable capital markets can create opportunity domestically and also attract outside investment. Inclusion comes with the expectation of having achieved a stated international standard. This is not uncommon Industries with global members regularly establish best practices and standards.[11]
International financial standards, specifically, are complex and commonly created by a small-community of experts.[12] Moreover, politics plays a role in international standards when they involve public and private entities.[13] For the most part, across the globe, domestic capital markets contain that public and private partnership. [14] Furthermore, there are associated costs for complying with international standards which will vary depending on levels of economic development.[15] The developing economy may bear a greater burden when asked to comply with a standards due to weak financial infrastructure, job skills deficits in the workforce and political instability. These characteristics described above were exactly what led to an increased voice, albeit ever so slightly, of emerging economies in the setting of policy for the global economy. The Group of 20 was created, expanded from the Group of 7[16], signaling a shift to a more inclusive, diverse group in dialogue concerning global economic governance.[17] This shift was in recognition that emerging economies needed to contribute to rule-making at the global level.[18] It was recognized that the powerful few had for too long established economic policy for the world with catastrophic economic results.[19]  The recognition that global policy must be made by inclusive institutions was given lip service after the Global Financial crisis but no changes were implemented.[20] This lack of inclusiveness is evident in organizations that set policy for regulation of the capital markets. International securities regulation standards are set by the International Organization of Securities Commissions (IOSCO). It has historical been controlled by developed economies and is now slowly adding emerging market members. It is too little, too late and more must be done. Furthermore, this essay suggests that it is this very lack of representation at the rule-making table that prevents African capital markets from reaching their potential.             

IOSCO was established in the 1970’s with the purpose to set global standards for world securities exchanges, [21] over 90 percent of the world stock exchanges are members.[22] The IOSCO has a board and committees which set policy. Only in 2013, did the IOSCO allow, for the first time, an African member on the Growth and Emerging Markets Committee.[23] The Chair of the Africa/Middle East Regional Committee is the Director General of the Securities and Exchange Commission of Nigeria.[24] The governing board of IOSCO was previously reserved for the largest capital market countries but in 2014 two seats were made available for emerging markets,[25] and  the stated goals of the organization are to press forward the Financial Stability Board[26] and G20 agendas, which have little or no African representation. That same governing board has 34 members with 53 percent representation from the largest capital markets based on market capitalization.[27] The growth and emerging markets committee currently has a member from South Africa. Membership in IOSCO is a key part of a developing and emerging capital markets entry into the global economic marketplace historically. However, its membership still reflects the same hegemony that was rejected 15 years ago only now Asia is sitting at the table.[28] The reassessment regarding institutional inclusion that occurred at the global level after the financial crises’ of the late 1990’s did not take place after the recent financial crisis. And yet, economies are integrated like never before and are vulnerable to systemic risks leading some economists to argue that full financial integration should not be the goal as it does not appear to lead to greater stability by spreading the risk.[29]  Regardless, we are integrated. Dialogue about how fully that should take place and resulting policy remains dominated by developed economics and does not include Africa in a meaningful way.

Currently, Africa is underrepresented in the global economic policy making forums. African economies are a growing contributor to global domestic product and still suffer recessions and financial set-backs resulting from foreign economic activity.  African economies host stock exchanges,[30] bond markets,[31] as well as commodity and derivative markets[32].Many are currently regulated with governance structures that were imposed through standard-setting[33] and those regulations have very little bearing on transactions on the exchange trading floor or how disputes are resolved.[34]  This essay argues that until there is significant representation of African emerging markets in global economic dialogue, with organizations like the IOSCO, growth in those economies will remain elusive and donor dependent.

[1] The Honorable Paul Martin, Minister of Finance of Canada, first chair of the newly formed G20. Germain, Randall (2001) ‘Global Financial Governance and the Problem of Inclusion’, Global Governance, 7: 412, 411–26
[2] Africa is used for convenience to refer to the over 25 equity, commodity and bond markets on the continent. 
[3] ; see also Regional Economic Outlook Sub-Saharan Africa April 2015
[4] Wall street journal “US Stock Market can’t sidestep emerging markets trouble this time around: Recent troubles in developing economies could pack more punch for US investors. 10/14/15.
[5] Germain, Randall (2001) ‘Global Financial Governance and the Problem of Inclusion’,
Global Governance, 7: 411–26. (Arguing that technical issues such as transparency, moral hazard and prudential regulation alone would not be enough to reform the global financial architecture after the Asian financial crisis. It was the inclusion of emerging market economies for the very first time in the Financial Stability Forum and the G-20 that would increase the legitimacy of the global financial architecture and that without this political component the technical reform would not be effective.)  
[6] World Economic report, International Monetary Fund. 2015. World Economic Outlook:
Adjusting to Lower Commodity Prices. Washington (October), 16.
[7] The author has visited and interviewed brokers and CEOS of stock exchanges including the Zimbabwe Stock Exchange, Malawi Stock Exchange, Uganda Securities Exchange, Dar es salaam exchange (now the TSE) and the Lusaka Stock Exchange.    
[8] June McLaughlin, “Towards a Contextualized Appraisal of Securities Regulation,” in The Political Economy of Development and Underdevelopment in Africa, edited by Toyin Falola and Jessica Achberger (New York: Routledge 2013):  121. 
[9]  E. Prasad, et al.,  “Effects of Financial Globalization on Developing Countries; Some Empirical Evidence,” IMF Occasional Paper No. 220, p. 1 (Washington DC: IMF, 2003)
[10] Layna Mosley,  Attempting global standards: national governments, international finance, and the IMF's data regime,  Review of International Political Economy 10:2 May 2003: 331, 332
[11] See, International Association of Oil and Gas Producers, Global Healthcare Data Standards,  
[12] Mosley, supra note 6 at 335. (Discussing the political economy of international financial standards and the interplay of government and private actors in their effectiveness and acceptance). This is certainly true with international securities regulation.
[13] Id.
[14] Many world stock exchanges are demutualized and trade as private entities on an stock exhange. They are regulated at the federal or national level; some self-regulate. Broker dealers and brokers are also regulated in the U.S. by the Securities and Exchange Commission but also by the Financial Industry Regulatory Authority which regulates its members; brokers and broker dealers.   
[15] Id at 336-37. (Describing the effectiveness of standards
[16] G7 consisted of finance ministers and central bank governors from Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
[17] See, Mark Beeson and Stephen Bell, The G-20 and International Economic Governance: Hegemony, Collectivism, or Both?, Global Governance 15 (2009) 67-86. The only African economy included in the G20 was South Africa primarily due to the insistence of the Honorable Paul Martin, first chair of the new G20.  See, G20 Governance for a Globalized World, .John J. Kirton, Ashgate, (2013).
[18] Germain, supra note 4 at 418.
[19] Martin Khor, Globalization and the South: Some critical issues, United Nations Conference on Trade and Development (UNCTAD), Discussion paper, April 2000, (describing the rise of Bretton Woods institutions such as the International Monetary Fund (IMF) and multinational corporations setting a global agenda focused on commerce and the diminishment of United Nations focus on principals of partnership and fulfilment of human needs). 
[20] McLaughlin, supra note, at 107. (African nations not members of the G20 submitted a paper giving an African perspective. No new memberships were extended.)
[21] See generally, Rhys Bollen, The International Financial System and Future Global Regulation, 23 J. Int’L Banking L. 458 (2008).
[22] June McLaughlin, “Taking Responsibility—Securities Regulation Reform and the Global Financial Crisis: The United States, United Kingdom, and East Africa,” Transnational Law and & Cotemporary Problems, Vol.19, (2008):128.
[23] A South African was voted Vice-Chair of the Growth and Emerging Markets Committee (GEM) after the African Middle Eastern Regional Committee pressed for more representation on the IOSCO Board. From 2010-2012 the Chair of that committee was from Turkey, 2008-2009 Chile, 2007 Jordan, 2006 India, 2004-2005 Turkey.
[24] Director Gerneral Arunma Oteh.
[25] IOSCO Annual Report of the Growth and Emerging Markets Committee.
[26] [incomplete documentation]
[28] Handbook of Safeguarding Global Financial Stability: Political, Social, Cultural and Economic Theories and Models. Editor-in-Chief, Gerard Caprio, Chapter 46 “D.W. Arner, “Organizations of International Cooperation in Standard-setting and Regualtion”, (contrary to the author’s statement IOSCO does not have wide spread membership)
[29] Joseph E. Stiglitz Capital Flows, Contagion, and Regulatory Responses †
Risk and Global Economic Architecture: Why Full Financial
Integration May Be Undesirable American Economic Review: Papers & Proceedings 100 (May 2010): 388–392
[30] There are twenty-three stock exchange members of the African Stock Exchange Association
[31] 24 local currency bond markets in sub-Saharan Africa, See IMF Working Paper, Bond Markets in Africa, Yibin Mu, Peter Phelps, Janet Stotsky. ,
[32] 17 commodity and derivative exchanges collectively
[33] McLaughlin, “Taking Responsibility,” p. 120
[34] I have visited the Zimbabwe Stock Exchange, the Malawi Stock Exchange, the Uganda Securities Exchange, the Dar es salaam exchange (now the TSE) and the Lusaka Stock Exchange.