In the past months, there has been much debate about the impact of Sarbanes-Oxley and the US regulatory environment on the USA's capital markets industry, and the trend for this to move away from the USA to Europe. The New York Stock Exchange has merged with Euronext; NASDAQ has its near-30% stake in the London Stock Exchange; and new listings of non-US companies on US exchanges is at an all-time low.
In an article, on Wednesday, in London's Financial Times, Hal Scott, professor of law at Harvard Law School and director of its international financial systems programme, and George Dallas, managing director at Standard & Poor's, based in London, argue that this is not something entirely new. In the past, banks moved to London to escape US regulatory practices, and part of the reason for the creation of the Eurobond market was to escape US taxes. This latest move is part of both the americanisation and the globalisation of capital markets and the US needs to be realistic. It is unlikely to remain the world's centre for capital market activity, and effort should be concentrated on maintaining market discipline as exchanges, banks and investment companies move to a less regulated environment.
In late June, Harvey Pitt, former Chairman of the Securities and Exchange Commission, the US's principal regulator, suggested, also in an interview with the Financial Times, that European-listed companies could become subject to the US's Sarbanes-Oxley rule by being listed on an American-owned exchange. Scott and Dallas argue that this cannot be the case as they are not listed on US exchange or OTC boards, or an exchange that is operating within the USA.
However, they go on to comment that this move of markets is very dependent on the European regulatory environment being sufficiently robust to satisfy investors and market participants. The "comply or explain" approach in Europe must prove its validity against the US's more prescriptive form of governance regulation. Once these concerns are satisfied, US companies could be joining their foreign counterparts in listing in Europe.
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