Moving to allay fears that Sarbanes-Oxley regulations could travel overseas if a U.S. business takes over the London Stock Exchange, the head of the U.K.’s Financial Services Authority made it clear that American ownership of a British stock exchange wouldn’t necessarily mean that U.S. regulations will apply to companies listed there.
“Neither the FSA nor the Securities and Exchange Commission consider that U.S. ownership of the LSE, in and of itself, would result in U.S. regulations, including Sarbanes-Oxley, applying to companies listed or quoted on its markets or member firms of the LSE,” FSA Chairman Callum McCarthy said in June 12 remarks.
Speculation about stock exchanges abounds these days, as Nasdaq has purchased a 25 percent stake in the LSE and the New York Stock Exchange is furiously trying to acquire Euronext, one of the largest exchanges in Europe. McCarthy noted that the acquisitions have fueled rumors of SOX invading European jurisdictions, and promised a full discussion of that idea should any mergers come to pass.
McCarthy
“We would expect any bidder to make clear whether its proposals might lead to such a possibility,” he said. The FSA has been talking with its U.S. counterparts about the regulatory issues raised by combined groups operating exchanges on both sides of the Atlantic, he added, “with a view to considering, for example, whether arrangements to exchange information or strengthen cooperation in the oversight of such groups are necessary.”
SOX rumors are centered on the LSE’s emerging market exchange, called the Alternative Investment Market—which has seen a sharp spike in the number of companies listing on it since SOX went into full effect in 2004. But McCarthy also said his agency has raised the same concerns with the Euronext Regulatory College, should the NYSE succeed in its acquisition efforts there.
Over time, McCarthy said, a combined group might seek to harmonize some aspects of both exhanges while operating them as separate subsidiaries. Some elements of that integration—trading platform technology, for example—would be relatively straightforward from a regulatory standpoint, he said, but elements such as listing standards might present greater cross-border concerns.
Study: Cost Of Being Public Edges Down In 2005
The good news: The overall cost of being public dropped slightly in 2005. The bad news: Those decreases were largely offset by year-over-year increases in audit fees, director and officer insurance, and board compensation for companies of all sizes.
So says Chicago-based law firm Foley & Lardner, which last week released its fourth annual study on the costs associated with corporate governance reform.
According to the firm’s research, costs dropped 16 percent for companies with less than $1 billion in annual revenue and 6 percent for companies with more than $1 billion. Most of the savings were driven by large decreases in lost productivity, legal fees and initial corporate governance reform set-up costs. The reduction in overall cost marked the first decrease in the four years of the study.
Foley partner Tom Hartman, director of the study, said the firm expected to see an overall decrease in the cost of being public this year since many Sarbanes-Oxley provisions required initial one-time implementation expenses. Hartman did not, however, expect to see the continued increase in audit fees.
The study analyzed data from more than 850 proxy statements of public companies for fiscal year 2005. Unlike other reports from earlier this spring (including Compliance Week’s own research), it found that average audit fees continued to increase for large and small public companies: 22 percent for S&P small-cap companies, 6 percent for S&P mid-cap companies, and 4 percent for S&P 500 companies.
Hartman
Hartman also noted that the sharp increase in fees for small-cap companies supports the perception that “corporate governance reform continues to present a more significant financial burden for smaller public companies than it does for larger ones.”
Based on four years of results from Foley’s study, percentage increases in average audit fees year-over-year were generally the same for companies of all sizes until the Section 404 requirements phased-in during 2004. Since then, small-cap and mid-cap companies have experienced larger percentage increases in average audit fees compared to S&P 500 companies.
From 2003 to 2005, audit fees increased an average of $786,000 for small-cap companies and $1.14 million for mid-cap companies, jumps of 141 percent and 104 percent respectively. By comparison, S&P 500 companies experienced only a 62 percent increase during this same period.
Since enactment of the Sarbanes-Oxley Act, the average cost of compliance for companies with less than $1 billion in annual revenue has increased more than $1.8 million to approximately $2.9 million, a 174 percent overall increase, the report found.
Panel Pushes For Single Canadian Securities Regulator
A Canadian committee of securities experts has recommended that our neighbors to the north create one national securities regulator, calling Canada’s current system of oversight by individual provinces “an embarrassment.”
The Crawford Panel, appointed last year by Gerry Phillips, then chairman of the Management Board of Ontario and now minister of government services of Ontario, released its final report last week. The group’s chairman, Purdy Crawford, said the fragmented system Canada employs today undermines the nation’s competitiveness, and said a single regulator can consistently enforce investor rights across Canada.
Canada is the only major country in the world without a single securities regulator, although it does have an association of provincial regulators, the Canadian Securities Administrators, based in Montreal.
The proposed model calls for a Council of Ministers to provide political oversight of capital markets regulation, an independent board to provide governance oversight, and the appointment of a chief commissioner who would select and lead the management team of the Canadian Securities Commission. A separate Canadian Securities Tribunal would conduct hearings into regulatory violations.
The Panel also proposed a single Canadian securities act, the use of principles-based rules and the establishment of regional centers of excellence. It deferred some decisions, such as the location and role of the head office and regional offices, to the board of the Canadian Securities Commission.
Canada’s current “passport” system allows companies to deal with the regulator in their home province and have approvals recognized in all other provinces. All of the provinces but Ontario have joined the passport model. Ontario has said it will only join the passport system upon evidence that it would evolve into a national commission.
Crawford
Crawford said the passport system “is an important initiative that should be permitted to reach its full potential, while interested jurisdictions work toward the establishment of the Canadian Securities Commission.”
“A consistent view we heard was that the groundwork needed to establish the CSC should occur contemporaneously with Ontario joining the passport system,” he said.
The Council of Ministers of Securities Regulation, a group representing ministers from all provinces except Ontario, said it plans to proceed with the passport model.
“We need a chance to review the final [Crawford Panel] report in detail,” said Council Chairwoman Shirley McClellan, finance minister for Alberta. “However, the Council is still determined to pursue the passport system as the best and fastest way to make Canada’s markets more efficient while still respecting the unique needs of each market.”
No comments yet