Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Wednesday, June 21, 2006

And so to the NIRI annual meeting….

The annual conference of the US National Investor Relations Institute was as usual abuzz with themes and gossip. Big themes were discussed in the bars and on the golf course – the Torrey Pines no less. These included whether, due to the shopping carts being trailed round Europe by the US exchanges, Sarbanes Oxley would arrive in Europe “by the back door”.

In the US, SOX – notably Section 404 on internal controls – is under attack from all sides. The House Government Reform Subcommittee on Regulatory Affairs held a hearing in New York to examine Sarbanes-Oxley's regulatory impact on the U.S. stock markets in terms of liquidity, competitiveness and the overall health of the U.S. markets. Additionally, this hearing evaluated the net benefits of Section 404 of the Sarbanes-Oxley Act, including any value added by Section 404 compliance for investors, as well as business.

"I've met with many bank and business leaders in North Carolina as well as around the country - and they agree: Sarbanes-Oxley has made a dramatic, and sometimes negative, impact on the capital markets," Congressman McHenry who is chairing the meeting said. "Transparency in corporate governance is important. However, as a rule, less government regulation translates to more productivity, economic expansion and job growth - this hearing will study the marketplace costs and benefits of this legislation."

And hence to the concerns about a takeover of Euronext by NYSE and a LSE/ NASDAQ merger. Would these automatically mean an introduction ‘by the back door’ of Sarbanes Oxley standards to companies listed on those combined exchanges?

Not according to the SEC. A senior commission member said this week that Euronext-listed companies would not be forced to comply with U.S. securities rules if the exchange merged with the New York Stock Exchange.

Democratic Commissioner Annette Nazareth's statement was the clearest yet by an SEC official of whether the U.S. regulator's reach would extend to Euronext companies if the proposed $10 billion tie-up went through. As the deal is planned, Euronext companies – and presumably by extension any other mergers - would not have to comply with the Sarbanes-Oxley Act, Nazareth said. That law mandates corporate disclosure and internal controls that some critics have called too burdensome.

Instead the deal contemplated "multilateral regulation" similar to what is currently in the Euronext structure. However, in the long term, greater convergence of regulation internationally is likely.


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