Thursday, November 09, 2006

NYSE's Thain on competing for global capital: Why does everyone get this wrong?

The New York Stock Exchange's chairman John Thain spoke before the first annual conference of the Securities Industry and Financial Markets Association (SIFMA) in Boca Raton, Florida this week. (This is the first conference for the SIFMA because it only came into existance this year, as a merger of the Securities Industry Association and the Bond Markets Association.)

Jeremy Grant of the Financial Times writes about Thain's speech here. Unfortunately, neither the NYSE or the SIFMA have yet to publish Thain's remarks, so I'm not sure what he actually said (since I didn't attend the conference). But Grant's description of this speech, which includes the now-expected language about how Sarbanes-Oxley, state regulators, and class action lawsuits are pushing foreign companies away from U.S. capital markets, includes this:
[H]e said that the proliferation of lawsuits, Sarbanes-Oxley and overlapping regulations could stifle the country’s ability to compete for global capital. In a thinly veiled reference to London’s success in attracting company listings, Mr Thain acknowledged that US competitiveness was also threatened by exchanges around the world.

Most people, regardless of what they might think about this whole capital markets competitiveness debate (see here, here, here and here, if you want more), might just pass this off as typical speechifying. But it actually makes the same mistake that Stephen Bainbridge made a few weeks ago and which I wrote about here. That is, competing for public offerings and securities listings and competing for capital are not the same thing! Competing for capital means you are competing to attract investors -- i.e., the suppliers of capital. Competing for listings means you are competing to attract companies -- the users of capital. Of course, over the long-term, if you are good at attracting capital you will attract companies wanting to list on your market. But over the short- and medium-term, it's not at all clear that laws and regulations companies find onerous has any effect on your ability to attract capital (that is, investors). Indeed, you can easily imagine a situation where such laws actually attract investors, who become more confident in the integrity of your market. (Capital gains taxes, on the other hand, might actually hurt your ability to attract global capital.)

Why are these concepts so easily confused?

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