Why London is Creaming Wall Street

So far this year, there have been just 17 international IPOs on the New York and Nasdaq stock markets, worth a mere $6bn in total. This is in stark contrast to the booming London IPO scene, where the London Stock Exchange (LSE) and its small-cap Alternative Investment Market (AIM) have grabbed 59 floats worth $16bn. It was not always thus: as recently as 2000, before the collapse of the dot.com bubble, 78 foreign firms listed in the United States, against just 12 in London.

This is a big British success story but the temptation to crack open the bubbly should be resisted. Britain’s continued progress in this area has more to do with the failings of other countries than with any positive developments in London.

In fact, as in virtually every other area of economic life, Britain’s tax and regulatory framework has worsened over the past few years. By a huge stroke of luck, however, the attractiveness of London’s main rival – New York – has collapsed at a much faster rate, thus boosting Britain’s competitiveness by default.

The Sarbanes-Oxley regime imposed by a short-sighted Congress in the wake of the Enron and WorldCom scandals can now be seen to be a gross over-reaction, making it excessively onerous to list on US stock exchanges or to raise capital in America. Sarbanes-Oxley’s complex reporting requirements mean that international companies like the lighter regulation they encounter in London, a location they also find attractive for a wide variety of cultural, linguistic and time-zone reasons.

London’s stunning success is the reason why Nasdaq is continuing to build up its stake in the LSE; it now owns 25% and could eventually buy the exchange. In theory, this should not be a problem: there is no real reason why a British-based company taken over by a US-based rival would suddenly have to impose US regulations on its new British operations. Companies listing in London would only be subject US rules if they were to raise capital or provide financial services in America.

In an age when the US legal system – as well a that of many other countries – is increasingly prone to extra-territoriality and often wishes to apply domestic rules even to foreign countries, what if the new US owners were suddenly forced by US courts and shareholders to introduce disastrously prescriptive American red tape to London?

For once, the British government has come up with the right answer: allow anybody to buy and own the LSE, regardless of nationality, but make sure that destructive foreign rules cannot be imposed on London.

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