SEC acts to ease fears over regulation

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The US Securities and Exchange Commission on Friday issued a statement designed to damp speculation that a transatlantic merger of stock exchanges would force European companies to conform to US Sarbanes-Oxley corporate governance rules “through the back door”.

But SEC commissioner Annette Nazareth told the Financial Times: “I cannot conceive of how that is going to happen. US law does not apply unless you are listed in the US, or you choose to do business in the US.”

She added that she could not see why it would be in the interests of the exchanges for US regulation to apply to non-US companies.

The SEC’s statement came after weeks of intense political criticism in Europe of the proposed merger between NYSE Group, which controls the New York Stock Exchange, and the pan-European stock exchange Euronext. European politicians have complained that this could force European companies to submit to US regulation.

Edward Balls, a UK treasury minister, warned earlier this week that “nothing should be done to put at risk a light-touch, risk-based regulatory regime.” Sarbanes-Oxley requirements are regarded as very onerous and expensive for companies, and have led to a sharp fall in the number of foreign companies listing in the US since the law was adopted in response to the Enron and WorldCom corporate scandals.

In its statement, the SEC said the proposed structure for the NYSE-Euronext merger “would not result in the mandatory registration of a non-US exchange’s listed companies with the SEC or the mandatory compliance with the provisions of the federal securities laws, including the Sarbanes-Oxley Act, that would derive from that registration.”

It said a non-US exchange would only become subject to US regulation “if that exchange is operating within the US, not merely because it is affiliated with a US exchange.”

Meanwhile John Thain, chief executive of the NYSE, angrily dismissed the European speculation about Sarbanes-Oxley in an interview with the Financial Times. He said: “Sarbanes-Oxley doesn’t apply, and can never apply, to non-US registered companies.”

Describing it as “completely misguided” to raise this as a possibility, he said: “From my perspective, the ability to compete for international listings where companies don’t want to be subject to Sarbanes-Oxley is one of the big attractions of this transaction. It would not make any sense for us to have the Sarbanes-Oxley provisions apply anywhere but in the US.”

Earlier this week, the UK, Financial Services Authority said that a merged trans-Atlantic exchange might “seek to harmonise aspects of both markets in respect of rules, membership arrangements and listing of companies” and that this could theoretically lead to UK exchanges no longer being subject to UK regulations. Euronext includes London’s Euronext.Liffe derivatives exchange.

Responding to the FSA’s analysis, Mr Thain said: “Of course that’s correct, but nobody is suggesting doing that. We are suggesting exactly the opposite — maintaining the local exchanges and the local regulation of those exchanges.”

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