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The urge of American exchanges to buy overseas may reflect the exodus of overseas companies from the US. Thirty-five companies with quoted American Depositary Receipts, or 7 per cent of the total, delisted last year, including O2 and Electrolux. Up to a fifth of those remaining want to leave, including bellwether stocks such as Vivendi Universal.
Most began ADR programmes in order to widen their base of investors and gain the kudos of meeting Securities and Exchange Commission listing requirements. Since then, new international accounting rules mean there is another reporting benchmark available. Most US investors now invest directly into local European stock markets. Finally, Sarbanes-Oxley has struck many as a regulatory burden too far. Reflecting this, Nasdaq’s proposed bid for the LSE makes clear that its regulator would not change.
Still, it is far too early to call the end of ADRs. While delisting from an exchange is easy, escaping onerous SEC rules is not. New proposals, ridiculously, allow big companies to stop SEC filings only if Americans own less than a tenth of their global free float. Few big European corporates pass this test.
If a reluctant stock of European ADRs seems the best standalone US exchanges can hope for, a further concern is their failure to attract the next generation of capital-hungry companies from markets with parochial disclosure and weak infrastructure.
According to Bank of New York, 106 non-US companies, mainly from emerging markets, started depositary receipt programmes in 2005. Only 29 of these chose the US, with most opting for London or Luxembourg. American exchanges’ expansionary instincts are borne in part of Wall Street’s shrinking pulling power.
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