The Securities and Exchange Commission (SEC) seeks to increase investors' access to foreign markets by negotiating bilateral agreements with foreign regulators pursuant to a policy known as "mutual recognition." Under mutual recognition, a foreign entity seeking to access U.S. capital markets would be permitted to substitute compliance with its home country's regulations for compliance with U.S. regulation, as long as it agrees to submit to SEC antifraud jurisdiction in its dealings with U.S. investors. Similarly, U.S. entities could enter foreign markets without subjecting themselves to a second layer of regulation on top of what the SEC already requires. This article suggests that the best way for the SEC to pursue mutual recognition is to recognize foreign securities regimes that achieve investor protection outcomes comparable to those achieved by the SEC, and provides a concrete and workable approach for the SEC to follow.

Houman B. Shadab writes about how current discussions on regulations and policies about financial instruments by policymakers fail to distinguish between Credit Default Swaps and the actual mortgage-related debt securities, entities, and practices at the root of the financial crisis.

In this article Houman Shadab addresses the inaccessibility of the U.S. hedge funds market.

Today, individual U.S. retail investors have virtually limitless opportunities to invest their money, with a notable exception: they cannot directly invest in securities of foreign issuers and still be protected under U.S. law. This missing opportunity deprives U.S. investors of the ability to fully diversify their investments and also imposes undue costs and risks upon investors seeking to invest directly overseas. This paper demonstrates that a Securities and Exchange Commission (“SEC”) policy of “mutual recognition” of foreign regulatory regimes that achieve investor protection outcomes comparable to those of the SEC would solve this problem.

This article is forthcoming in the New York University Journal of International Law and Politics (2008).Summary…

Although the use of Credit Default Swaps (CDS) by certain banks and insurance companies to trade mortgage-related risks exacerbated losses from the financial crisis, CDSs were not a fundamental cause of the crisis and in important ways even helped to reduce its impact.

Senior Research Fellow and member of Mercatus's Financial Markets Working Group Houman B. Shadab looks at how hedge funds have faired during the financial crisis and argues that they have been, and will continue to be, a stabilizing force throughout the crisis.

In the United States, unlike in several other advanced economies such as Ireland and Hong Kong, the law requires individuals to be wealthy (e.g., earning $200,000 in income if single) to be qualified to invest in hedge funds. Although this regulation is intended to protect investors, limiting hedge funds only to the wealthy prevents financially sophisticated yet non-wealthy investors from using the funds to minimize losses to their investment portfolios.

Senior Research Fellow and member of Mercatus's Financial Markets Working Group Houman B. Shadab presented testimony before the House Committee on Oversight and Government Reform on November 13, 2008.

Mercatus Senior Research Fellow Houman B. Shadab delivered this testimony before the House Committee on Oversight and Government Reform. Shadab discusses the academic law and economic literature regarding explanations for increased compensation among public company executives and other empirical findings relevant to potential conflicts of interest among executive compensation consultants.

This Public Interest Comment addresses the Dubai Financial Services Authority's query as to whether the hedge fund industry may prefer a more prescriptive approach to defining best practices.