Supreme Court holds that §10(b) of the Exchange Act applies only to domestic securities transactions

Purpose – The purpose of this paper is to explain the June 24, 2010 decision of the US Supreme Court in Morrison v. National Australia Bank Ltd concerning the territorial scope of the Securities Exchange Act of 1934 (“Exchange Act”). Design/methodology/approach – The paper describes the complaint, the reasoning of the earlier lower court decision, the reasoning of the Supreme Court decision, and the practical effects of the Supreme Court decision. Findings – Addressing the territorial scope of the Exchange Act for the first time, the Court rejected the widely applied “conduct” and “effects” tests and instead prescribed a new “transactional” test. Finding no affirmative indication that §10(b) of the Act applies extraterritorially; the Court found that its application depends on whether the purchases and sales of securities were made specifically in the USA, and not upon the place where a deception may have originated. Originality/value – The paper provides expert guidance from financial services lawyers.