Viepwpoint: Capital Markets Need Regulatory Relief
Evans, Donald L., American Banker
Last week the Treasury Department and the U.S. Chamber of Commerce hosted important events that explored how to ensure the U.S. capital markets remain the world's gold standard.
This high level of attention is important, because the answers to this question are complex. There are a range of factors at play.
The forces of globalization and the increasing sophistication, higher liquidity, and lower registration costs of foreign markets are part of the equation. This sort of competition is healthy. Open and competitive markets are essential to providing the environment for the U.S. and global economies to grow at their full potential.
However, there are drags on the competitiveness of the American capital markets, suc h as unnecessary regulatory burdens and a litigation environment that is putting America at a disadvantage that we can and should address. the U.S. capital markets have led the globe for decades and remain the world's largest, most liquid, and most efficient. However, mounting evidence suggests that the United States must do more if we are to maintain our place as the world's leading capital marketplace.
Capital is the lifeblood of any economy's strength and well-being, enabling the research, investment, and risk-taking that fuels competition, innovation, productivity, and prosperity. Having the world's premier capital markets within our borders has produced significant advantages for the United States.
The financial services industry accounts for one out of every 19 American jobs and contributes more than $1 trillion, or 8%, to our gross domestic product. More fundamentally, broad and liquid markets yield substantial benefits for investors and issuers of securities alike.
While Sarbanes-Oxley has unquestionably restored confidence to the markets in the wake of corporate scandals, the price tag for complying with certain aspects of the law, especially section 404, may be hurting U.S. competitiveness by driving registrants and companies to cheaper exchanges abroad.
The London Stock Exchange surveyed 80 companies that listed there in 2005. Of those that had considered listing on U.S. markets, 90% said Sarbanes-Oxley had been a factor in their decision to list in London instead. Sarbanes-Oxley has proven especially burdensome for small public companies, which often find the compliance costs of the law overwhelming, driving them overseas to list their shares.
Randal Charlton, the CEO of Asterand PLC, a Michigan biotech firm, described his company's decision to list on London's Aim market over Nasdaq in a biotechnology trade journal. "The reason we decided to consider the Aim market was because of discussions I've had with directors and executives in Nasdaq-listed companies," he wrote. "They confirmed that the effect of Sarbanes-Oxley was to add significantly to the cost of maintaining a Nasdaq listing. …