Tuesday, November 14, 2006

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What deep capital markets you have!!

A common lament among financial market analysts in the U.S. is that the onerous provisions of Sarbanes-Oxley (SOX) are costing American equity markets lost listing oppotunities, threatening a sector that's vital to the United States. These people find unlikely allies in Nancy Pelosi and Barney Frank.

I certainly support making SOX compliance easier for new start-ups, but it should be noted that I don't see the U.S. losing its primacy in equity markets anytime soon. For those doubters out there, click over to this Foreign Policy list of candidates to supplant the New York Stock Exchange.... in a century or two. The most important sentence in the piece is the first one: "The New York Stock Exchange dominates global trading. At nearly $23 trillion, its market capitalization—the value of the stocks it lists—is more than four times that of its closest competitor."

posted by Dan on 11.14.06 at 08:34 AM


Maybe if they reduced their fees SOX might not be as big of a deal.

Just maybe though.

posted by: mickslam on 11.14.06 at 08:34 AM [permalink]

You missed one important issue. Companies around the world have raised more money in London and Hong Kong than in US for the first time. While for long (as you might well know) companies preferred to list in US than anywhere else as the perceived risk premium was less in US than anywhere else. Now the cost of SOX compliance has gone through the roof (in terms of time, money and legalities), companies now prefer to stay out of US. This indeed is a worrying factor.
FT had an op-ed on this issue (similar to my response) last week.

posted by: Aruna urs on 11.14.06 at 08:34 AM [permalink]

All of that honesty nonsense is just ruining Wall Street and making life impossible for our poorly compensated CEOs.

The fearless leaders of capitalism can only be effective when they have license to steal from the stupid little people.

Sarcasm intended of course.

posted by: save_the_rustbelt on 11.14.06 at 08:34 AM [permalink]

The buzz among the accounting firms is how to make compliance more efficient the 3rd or 4th time around. Simply put - there was a considerable amount of start-up costs but once a company gets its controls into place, the recurring costs are not that high. So maybe the fuss as to how costly SarbOx is turns out to be confusing matters.

posted by: pgl on 11.14.06 at 08:34 AM [permalink]

I was told in London last week that people in the City would like to erect a statue dedicated to Sarbanes-Oxley. My advice to them was that this was just about the only thing I could imagine which might wake Americans up to what they have done.

posted by: ZF on 11.14.06 at 08:34 AM [permalink]

The evidence is pretty overwhelming that the London Stock Exchange's AIM branch is absorbing lots of IPOs that used to go to NASDAQ. The irony of SOX is that the accounting firms, who are largely responsible for the auditing failures that allowed scandals to proceed, have been given vastly greater market power through consolidation and the new regs.

posted by: srp on 11.14.06 at 08:34 AM [permalink]

I don't know what figures Foreign Policy was using, and I'm sure that they were accurate. A lot of that is about currency strength, though. It's not purchasing parity and so currency shifts make those numbers appear more volatile than they should be. Wiki suggests, with figures that seem reasonably recent, that the No.1 stock exchange was bigger than Nos.2-10 put together.

posted by: James of England on 11.14.06 at 08:34 AM [permalink]

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