In the past six months, three studies have been published on the declining role of the US in global capital markets. This decline is often blamed on the Sarbanes-Oxley Act (Sox, passed in 2002). But the US share of the global market for initial public offerings has been falling since the late 1990s. Hence this decline could not have been primarily due to Sox.Instead it resulted from a mix of factors including improvements in non-US markets and the threat of US litigation

The main factor in market selection for global IPOs is the country where the issuer has its headquarters. Of the 10 largest global IPOs in 2005, eight were headquartered in China and Europe, so they launched in the Hong Kong and European markets.

This preference for nearby markets is facilitated by Securities and Exchange Commission rule 144A, which allows foreign companies to raise capital from US institutional investors without an SEC registration. In 2006 foreign companies raised a record $10.5bn in SEC registered offerings, but $133bn from US institutions under rule 144A.

Similarly, the US share of cross-listings of already public companies has declined from 1998 to 2006. While the premiums for US cross-listings of foreign companies were lower before 2002 than afterwards, this reduction was concentrated in issuers from countries where the local markets have substantially improved.

These markets have enhanced their technological platforms, while maintaining lower underwriting spreads and listing fees than New York. London, in particular, gives protections to minority shareholders that are stronger in certain respects than those in the US.

This is not a race to the least regulated market: no global issuers are launching from Nigeria or Burma. Global IPOs are gravitating to those markets that have the highest ratio of investor benefits to company costs.

Global executives cite litigation costs as the primary factor pushing them away from US markets. While the UK's Financial Services Authority is a vigilant regulator, it will try to resolve a problem informally before suing a company. By contrast, the SEC is widely viewed as more prone to litigate.

Some suggest that the SEC should rely more on general principles than detailed rules. But the FSA has more than 8,000 pages of detailed rules. The SEC's challenge is to decide when to regulate through informal guidance based on principles and when through rule proposals that are subject to public comment.

Global executives are also concerned about the volume and size of class action claims against publicly traded companies in the US. Although the number of new class actions fell markedly from 2005 to 2006, they were still filed against 110 companies with $294bn in damage claims. In Europe, shareholders rarely sue. As a result, premiums for directors' and officers' liability insurance in the US are six times as high as coverage in Europe.

One likely reform is the linking of class actions to SEC settlements, which often include large fines paid by corporate defendants and distributed to investors who have been harmed. These fines should reduce damages in class actions based on similar claims.

Another question, now before the Supreme Court, is what specifically must be pleaded in class actions alleging securities fraud in order to survive a motion to dismiss. (If cases survive a motion to dismiss they are usually settled to avoid costly discovery.) This is important because the pleadings in many such cases are based principally on two facts: the company announced an adverse event and then its stock price dropped sharply.

In this litigious environment, Sox is a deterrent to foreign issuers considering cross listings in the US. The key problem with Sox is its auditor-attested reviews of a company's internal controls, which have been too costly relative to their benefits. In response, US regulators have proposed revisions that would focus these reviews on controls reasonably designed to prevent materially misleading financial statements. While the definition of materiality should be more quantitative, the wording of the new rules matters less than the attitude of the government inspectors in their annual examinations of large audit firms.

In short, the rise of large global issuers in Asia, the easy access of US institutions to non-US IPOs and the enhanced attractiveness of the London markets are irreversible forces that will prevent the US from regaining its dominant position of the mid-1990s.

Nevertheless, the US can increase its relative share of global capital markets through different types of guidance from American regulators, better procedural constraints on frivolous class actions and more flexible implementation of Sox.

The writer was a member of both the Scott Committee and the US Chamber Commission on the Regulation of US Capital Markets in the 21st Century