Much Ado About Nothing
This confusion over the word "platform" also means the oft-heard implication that consolidation is accelerating 24-hour trading for U.S. traders, to the point of being around the corner, simply is not true. European and other foreign companies that deliberately have chosen not to list in the U.S. because of SOX and other concerns will not be registered mandatorily, nor will they suddenly overcome their objections to a U.S. listing and voluntarily list just because their home country bourses are owned by a transatlantic holding company. They will continue to list as they do today for the same reasons. In fact, if anything, we are more likely to see U.S. companies choose secondary listings in Europe since they may view any additional burden of European regulation as light enough to warrant the greater access an overseas listing will provide to European investors.
Cross-Border Exchange Regulation Is Tricky
While the regulatory issues are overblown in the case of NYSE/Euronext or Nasdaq/LSE, and have been misleading investors and citizens alike, this does not mean that there are not truly complicated issues with regard to cross-border exchange regulation. The question of at what point foreign exchanges will be deemed to be operating in the U.S., triggering U.S. regulation, is not easy to answer. In fact, outside of the equities world, there has been intense controversy over the definition of a "foreign board of trade," prompted by charges by competitors that the Atlanta-based Intercontinental Exchange (ICE) is engaging in regulatory arbitrage by listing financial instruments at its London-based ICE Futures subsidiary but really operating in the U.S.
It's actually a much tougher case because a contract listed in London but based on U.S. crude oil and primarily traded by U.S. traders is a far cry from a European-based company held mostly by Europeans listed in Europe. That said, even with the recent Amaranth debacle triggered by natural gas bets gone awry - including on the ICE - the U.S. Commodity Futures Trading Commission (CFTC) issued a statement of policy at the end of October affirming the use of the staff no-action process for foreign boards of trade that seek to provide direct access to their electronic trading systems from the U.S., effectively choosing to stay out of the regulation equation.
So, let's at least focus on the real regulatory issues and not get caught up in obfuscation, confusion and hysteria that have come to characterize some of the statements surrounding the NYSE/Euronext merger and a potential Nasdaq/LSE deal.
About the Author:
Joe Gawronski is President of Rosenblatt Securities, an agency-only execution firm trading both listed and OTC securities. Gawronski formerly was a securities lawyer with Sullivan & Cromwell and currently is a term member of the Council on Foreign Relations.
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