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
Cannabis, Africa, Business law, Academia, student research: reconceiving my writing to include new interests. I am a lawyer, educator, academic, and founder.
Saturday, November 7, 2015
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.
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] http://www.un.org/sustainabledevelopment/poverty/
; 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 http://www.iogp.org/international-standards,
Global Healthcare Data Standards http://www.ghxeurope.com/global-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] http://www.iosco.org/annual_reports/2013/AMERCReport1.html
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. http://www.iosco.org/annual_reports/2013/AMERCReport1.html
[25] IOSCO
Annual Report of the Growth and Emerging Markets Committee. https://www.iosco.org/annual_reports/2014/GEMCChairReport1.html.
[26] http://www.financialstabilityboard.org/
[incomplete documentation]
[27] https://www.iosco.org/annual_reports/2014/generalInformation1.html
[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
http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.2.388
[30] http://www.african-exchanges.org/members/
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. ,
https://www.imf.org/external/pubs/ft/wp/2013/wp1312.pdf
[32]
17 commodity and derivative exchanges collectively http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Guidebook_on_African_Commodity_and_Derivatives_Exchanges.pdf
[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.
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