The FP List recently spotlighted a few of the contenders for the world's next most powerful stock exchange. It looks like the exchanges in the United States are slipping fast, mainly to London and Hong Kong. John Fund, in an interesting article for the WSJ, lays the blame squarely on laws drafted in the aftermath of the Enron and Worldcom fiascoes. These laws, known as the Sarbanes-Oxley corporate accountability rules, are forcing companies to look elsewhere to list shares and raise capital.
Last year, of the 25 largest initial public offerings in the world, only one took place in America. This year, Hong Kong is likely to end up as the No. 1 market for stock offerings world-wide."
Unfortunately, the increased audit burden placed on companies and executives by the new laws hasn't done much to improve corporate governance. But SarbOx has certainly given places like Hong Kong and London reason to celebrate. At a recent conference in Canada, Henry Tang, Hong Kong's financial secretary, joyously declared, "Thank you, Mr. Sarbanes and Mr. Oxley," referring to Democratic Sen. Paul Sarbanes and Republican Rep. Mike Oxley, the law's chief sponsors. Meanwhile, some observers expect a ripple effect that may hurt, among other things, New York's real estate market if companies continue to push abroad. But all is not lost if reform comes in time:
Hal Scott, a Harvard law professor... told the New York Post that the corporate controls in Sarbox don't exist anywhere else in the world, and compliance costs "are absolutely killing the U.S. in terms of maintaining listings dominance" in world markets. "If we correct it, we have been told to expect an almost immediate turnaround in listings."
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