US residents all but denied access to foreign markets.

paulren's picture
Non Thai Article


As published at

The U.S. Securities and Exchange Commission has inflicted American investors with costs both by its actions and its inactions. I will start with its actions, because they are most annoying to international investors like us.

Thanks to our SEC, the German managers of Stada are terrified of giving shareholders like our readers information about their company’s bright prospects, reported elsewhere in this issue.

Thanks to the watchdogs over American stock markets, our readers could not take possession of the 1:1 AXA warrants non-U.S. shareholders in the French insurance companies could exercise. Under the 1933 Securities Act, the warrants would have had to be expensively registered for U.S. holders to be allowed to get them and exercise them.

So instead, the depositary for AXA, Bank of New York, sold our warrants in France, perhaps through an affiliated company according to the notice they sent us, for the kingly sum of a nickel a share. Looking into the Paris trading of the warrants was an eye-opener. There the very same warrants traded at €0.051 per. Now that does not sound like much difference but the euro was worth about $1.16. So the trading price of the warrants comes to 0.564 ¢/sh; BNY made 12.8% in commissions and fees.

Our sister publication ( ran a buy notice from an American Arab hand who knows its management for an Egyptian share called Orascom Telecom S.A., with a London-listed Global Depositary Receipt. The Egyptian company, which has attractive businesses in any case, won the cellular license for Baghdad and environs from the occupying authorities.

Yet when we both (the Arab hand and I) tried to purchase the GDR, our U.S. brokers told us the trade could not be done. Orascom has a cusip and a ticker symbol, but Americans are not allowed to buy it in London. The SEC (and therefore our brokers) ban trading in GDRs because they are felt to be too risky for us.

Another Minutewoman pick came from our stringer in Thailand, Paul Renaud, who found a newly-issued share of a vendor of outdoor advertising. We could not buy that either. The new issue, Master Advertising Co. trades as MACO in Bangkok, a market normally open to foreign investors. But U.S. investors will not be allowed to purchase it until it has been around for 90 days, "seasoned" under SEC rules.

Now none of that would be important except that at our SEC there is a whole litany of lapses. The SEC failed to stop misstatement of earnings by a major U.S. company using opaque offshore controlled subs.

It failed to regulate the auditors supposed to protect U.S. shareholders.

The SEC failed to stop looting of companies by controlling families, executives, board members, and staff in several notorious cases. It failed to control outright favoritism in the allocation of initial public offerings on the U.S. market it is supposed to regulate.

The SEC failed to control illegal late trading under side deals between regulated mutual funds and investment banks, hedge funds, the fund boards, or the fund managers, moreover revealed only thanks to state attorneys-general and not the national regulator.

And it failed to prevent side deals whereby brokers were rewarded for steering investors into certain funds with commissions paid when the funds traded stock, harming the investors the funds were supposed to serve.

The SEC failed to block insider and underwriter pressures on analysts’ reports at investment banks. It failed to prevent rapid in and out trading by hedge funds, mutual fund bosses, and mutual fund staff even when the funds’ own rules outlawed this.

The SEC failed to block stockbrokers using different "letter stocks" and breaking up large orders to cheat mutual fund purchasers of discounts they were entitled to. It failed to even attempt to reform the structure of mutual fund boards (both open- and closed-end) which are beholden to the managing companies.

The SEC failed to trouble itself over gross overpayments in salary and benefits to the top brass of its supposed co-regulator, the New York Stock Exchange. It also only reluctantly and slowly begun to look into the quid pro quo of those payments: the scandal of front-running trades by NYSE market-makers, which

George Soros publicly complained about a decade ago. The SEC has not addressed excessive payments to present and retired CEOs, and the huge disparity between salary and benefits paid to corporate managers and mere employees. It is left to a bunch of nuns and union activists to raise these matters at shareholder meetings.

Nor has it looked at the fixed percentage fee structure of mutual funds, which are not falling as the amount U.S. investors have place with these funds has skyrocketed. The SEC has not seriously cracked down on the tangled web of soft dollars being used for research and services on Wall Street.

The whole culture of backscratching and "do ut des" that has grown in our markets requires a serious effort at reform. Don’t hold your breath waiting for it.


Open to the World? by Paul Renaud,

BANGKOK. Individual Americans are denied access to foreign markets, period. Just like a poor third world country which does not allow its citizens to invest abroad. Regulatory camouflage and "luggage" is the first real obstacle. U.S. broker gross naivete is the second.

U.S. brokers regularly tell novice foreign investorsto- be that it’s "against the law". This even while the U.S. constitution clearly says any American can contract world wide.

When I once gave a Merrill Lynch senior broker a hard time about this very issue, he just said "you can’t fight City Hall". Lehman Brothers in Chicago calls itself a true global investment house, but not if you want to buy a foreign stock. You can’t.

And so 100 million U.S. investors are locked out! Imagine, it’s like saying no U.S. consumer can buy a foreign car. What would that have done to the U.S. car industry? You would all still be driving around in huge inefficient gas guzzlers.

An old friend told mine told me: I buy foreign shares in Chicago, through Deutsche Bank, because Deutsche is not a U.S.-based broker/dealer. Non-U.S. securities cannot be sold in the U.S., as they are not blue skied. Fifty State commissioners outright ban soliciting any stock not registered in the state. Now what fast growing developing country will take time and expense to register its shares in 50 different states? None! Then there is the case of Charles Schwab who years ago told all they can buy non-US shares, only to later have all kinds of problems in getting dividends and rights offerings.

One reason you U.S. residents can’t get warrants and or rights offerings from foreign shares is because the SEC requires an English full U.S.-style expensive prospectus. Now what foreign company will go through that? So investors in those stocks miss out on key shareholder benefits (often including the dividends!) and so one has to wonder who then gets these rights? Charles Schwab? BNY?

In Switzerland you can buy any stock anywhere anytime. While the fees are sometimes high, it is a fully developed country, like the U.S., with a whole different attitude.  It does not force its heavy-handed regulations on foreign sovereign nations.

Paul Renaud, a former US registered representative, and a Swiss,