TEXT OF COMMENTARY
BOB MOON: U.S. regulators are expected to unveil a new rule today making it easier for foreign companies to avoid some regulations of Sarbanes-Oxley. Current rules say foreign companies with more than 300 U.S. shareholders must remain registered with the SEC even after delisting in the U.S. The end result of that is that those foreign companies are still forced to comply with Sarbanes-Oxley. But the proposed change would require only companies with a certain percentage of share trading volume based in the U.S. to register.
So how much more complicated is it really to do business here in the United States?
Last week, a private-sector group called the Committee on Capital Markets Regulation offered a number of measures to ease up the regulatory burdens on companies that sell their shares publicly in the U.S. Their rationale was the U.S. financial market need to stay competitive around the world. The group has the unofficial support of Treasury Secretary Henry Paulson. He’s fretted publicly himself about American stock exchanges becoming uncompetitive.
To that, commentator Robert Reich says: Don’t you believe it.
ROBERT REICH: This business about American capital markets losing their competitiveness is total nonsense. Returns to the financial sector in the U.S. are higher than in any other sector of the economy, and now higher than ever before.
Investment bankers are awash in money. So are hedge fund managers, private-equity managers, the managers of large pension and mutual funds. Year-end bonuses will hit a record.
Uncompetitive? What are they talking about?
Now it’s true that the percent of big global initial public offerings listed on U.S. stock exchanges is declining, while the percent of IPOs done through financial centers in London, Hong Kong, and elsewhere is rising. This year, the U.S. accounted for 28 percent of all new equity raised in the world’s largest financial markets. That’s down from over 40 percent in 1995.
But that doesn’t mean Wall Street is becoming uncompetitive. Capital markets are now global. So of course other financial centers are going to gain a larger share of IPOs.
Meanwhile, Wall Street is doing deals all over the world. Mergers and acquisitions in Europe, China, Latin America. Hedge funds taking in money from all over the globe.
American capital markets are fully competitive. America is still the world’s largest magnet for foreign capital. Foreign investors held over $2 trillion of U.S. stocks last year. That’s more than the total stock market capitalization of all other markets except the UK and Japan.
In fact, foreign companies that list both on a U.S. and a foreign stock market typically trade at a premium over foreign firms that list only outside the U.S.
Why are investors willing to pay more for listings in the U.S.? Because the U.S. capital market is more stable and transparent, and its tough accounting standards give investors better protection. In other words, because of the very regulations that the Committee on Capital Markets Regulation wants to get rid of.
The Committee has come up with a bad solution to a problem that doesn’t even exist. Hank Paulson should disregard their report. To paraphrase an old saying, if it ain’t broke, don’t break it.
BOB MOON: Robert Reich was Labor Secretary under President Clinton. He teaches public policy at the University of California at Berkeley.
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