Open Markets for Competition Globally

Government regulation will kill competitiveness in the world wide market - the United States will be the loser - Whaz up?

Good article from the Wall Street Journal detailing the problems -


*The Other Market Crisis*
December 10, 2007;
Page A18 WSJ

The subprime mess is grabbing all the headlines these days, but allow us to focus on another problem for American financial markets: their growing lack of global competitiveness. In the past year, that problem has only grown worse.

That's the judgment of the latest report of the Committee on Capital Markets Regulation, which started a debate last year with its initial study on how and why American public stock markets are losing global market share. Last week the committee -- a volunteer group of academics, investors and business leaders led by Harvard's Hal Scott -- published its first follow-up report, which highlights two troubling new trends.

First, the delisting of foreign companies from U.S. markets leapt this year -- to 56 so far, up from 30 in 2006 and 12 a decade ago. Those 56 represented 12.4% of all listed foreign companies. In part, the jump is the result of an SEC rule change that lowered the bar for delisting. But don't take comfort in that. "Pent-up demand" to delist is still demand. Companies that maintain their listings only because they can't escape the SEC hardly signal confidence in U.S. markets.

A second trend is the increasing number of U.S. companies going public outside the U.S. Between 1996 and 2001, a mere three American companies went public by listing only on a foreign exchange. In the first three quarters of this year, 15 firms made the same choice. That's 9.2% of all U.S. initial public offerings in that period. Given the natural affinities to listing in one's home market, this exodus is remarkable. It's also alarming to the extent it reflects more serious underlying problems. And as the report notes, regulatory burdens -- especially post-Sarbanes-Oxley -- and litigation costs are driving companies out of our publicly traded markets.

This matters because the strength of financial markets is an important source of national prosperity. It gives American firms, and others that list here, access to the deepest and most liquid pools of capital anywhere. It also lets average Americans share in the ownership of the country's great businesses.

To cite another example from the new report, since 2002 four out of five foreign companies that chose to raise capital in the U.S. through an IPO did so outside publicly traded exchanges. Instead they used what's known as the far more restricted Rule 144a offering. Ten years ago, more than half of these "Global IPOs" that came to the U.S. for part of their offering listed on a public exchange. But companies that go the Rule 144a route can only sell their shares to "qualified" investors, and thus those companies are not subject to Sarbox, the Securities Exchange Act of 1934 or to strict liability in shareholder suits.

To put it another way, 80% of the foreign companies that do raise capital in the U.S. do so outside of the reach of most of the laws that are supposed to protect investors. These companies must think the costs of complying with regulation and avoiding litigation are no longer worth the benefits of a ticker symbol on the New York Stock Exchange.

This isn't a partisan issue, or at least it shouldn't be. Democrats ought to appreciate that hollowing out our publicly traded markets in favor of foreign markets, or private markets open only to the rich, does not serve the small investor. Yet after last year's general alarm over these trends, this story has disappeared from our politics and media. Perhaps this is because our politicians and media elites know that they have helped to promote the lawsuits and regulation that are doing such harm. Meanwhile, the British, Chinese and Arabs are only too happy to steal our financial business.