Thursday, September 14, 2006

The Balls Clause

Good to see I'm not the only one expressing "bafflement" at MP Balls' proposal to give the UK Financial Services Authority a veto over any new "disproportionate" rules at the London Stock Exchange if those nasty Americans ever take over the place. Lombard at the FT imagines this amusing scenario.

At the same time, the FT leads today with this article by Norma Cohen and Jean Eaglesham ("
City welcomes move to fend off regulation from overseas"), and this one (below the fold on the first page, no less) by Norma Cohen, Jean Eaglesham and Jeremy Grant ("Britain to legislate on LSE regulation"). I particularly like the reaction of "bafflement" by the SEC. (Ethiopis Tafara, the SEC's director of international affairs, stated that MP Balls' speech “seemed inconsistent with the conversations we’ve been having with the FSA”, given that the SEC and FSA in March signed a landmark regulatory co-operation agreement on how to deal with issues raised by exchange consolidation including Sarbanes-Oxley.)

Tafara also question the need for the legislation, noting,
as I did yesterday, that it is impossible for its rules to apply to UK companies unless they seek listings in the US. One interesting angle on this, however, is expressed by an investment banker quoted in one of the two FT articles. "Investment bankers cited concerns about how Congress might one day view a US-owned exchange that was outside US regulation. 'The Securities and Exchange Commission are pretty sensible,' one banker said. 'But you don't know what Congress will do.'"

Yeah, well except that Congress will do what Congress will do, and the U.S. Congress won't care whether the British Parliament has passed a law about it or not. If Congress ever were to pass something so blatantly extraterritorial in nature (and, hey, it wouldn't be the first time), at the end of the day it would come down to enforcement and whose is bigger.

Interestingly, at the time that the UK Parliament is marking its territory over fears that those regulation-crazy Americans are about to take over the place (Jeez, they almost make us sound like we're the French...), Euronext (which really is partly French) is siding up to the New York Stock Exchange, despite a higher buyout offer from the DeutscheBorse. And it is doing this precisely because Euronext sees an American merger as a way to maintain its independence. If Euronext gets bought out by the Germans, the trading platforms merge and Euronext is as independent as Chrysler is independent of Daimler. However, if Euronext merges with the NYSE, there is no practical way for the trading platforms to merge, since the regulatory structures are just too different.

So what's the UK's deal?

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