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November 13, 2006
Restoring competitive position in finance
Last month, I posted an item about the competitive position of US financial markets. New York seems to be losing out in the IPO race and Mayor Bloomberg has commissioned a study on how to restore the US position. In my posting, I hoped that the study would do more than just repeat the standard line about less regulation and looser oversight. It appears that the New York Times shares my concerns, based on Sunday's editorial The Corporate End Run:
United States markets lost their dominance of initial stock offerings for numerous reasons that had little to do with regulation. Some of last year’s biggest deals were Chinese and French privatizations. Markets elsewhere are bigger and more liquid than they once were. There are also intangibles, such as America’s recent unpopularity, increased barriers for visa seekers and extraordinary budget and trade deficits, which might make an issuer think twice about a dollar-denominated stock.
The London Stock Exchange, one of the leading beneficiaries of the American decline, commissioned a study showing that underwriting fees in London are just 3 percent to 4 percent of a transaction, compared with an average of 6.5 percent to 7 percent in the United States.
When workers confront globalization, they are told to adapt, take their pink slips and go to night school. It is the harsh downside of an integrated world economy that has on balance significantly enriched the country. When financiers feel the pinch from competition in Hong Kong and London, they run to the Bush administration for rule changes.
America’s investor protections and corporate regulations have made it a nation of share owners, with almost 57 million American households owning stocks either directly or through mutual funds. The Securities and Exchange Commission has already signaled that it will smooth the implementation of Sarbanes-Oxley, especially for smaller companies. And abuses of the private litigation system like pay-to-play should be stopped. There is room for reform. But over all, the system is working. It may need tweaks, but it does not need a revamping.
London fees are twice what they are in the US? Mr. financial entrepreneur, call your office -- there is market opportunity here (and it doesn't have anything to do with regulation).
Posted by Ken Jarboe at November 13, 2006 8:44 AM
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