Mark Hynes - thoughts on corporate disclosure

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

Wednesday, May 30, 2007

Another busy week on US market’s competitiveness for listings.

The charge on making the US markets more attractive for issuers continues. The Fed, the SEC, the PCAOB and Bloomberg have all contributed to the soul searching on ways to restore New York’s pre-eminence, without compromising quality.

And in the midst of this reflection, one of the UK’s largest companies, ICI, has chosen to delist and register its DR and move to trading OTC, citing compliance costs as the principal reason.

Last week, Federal Reserve Chairman Ben Bernanke argued for the U.S. to develop a U.K.-style, principles-based, risk-focused approach in its financial market regulation.

And recently the chairman of the SEC, Christopher Cox, said the U.S. and Europe should be able to achieve a single accounting standard by 2009, with foreign issuers potentially able to cease US GAAP reconciliation.

But perhaps more urgent, the SEC has released its final guidance to management for implementing Section 404 of the Sarbanes-Oxley Act of 2002. “Our guidance enables companies of all sizes to focus on what truly matters to the integrity of the financial statements – risk and materiality,” said Conrad Hewitt, Chief Accountant. “Providing management with its own guidance for evaluating internal control over financial reporting will ensure an appropriate balance between management's evaluation process and the audit process. While the guidance is intended to help public companies of all sizes, smaller companies, which will begin complying with Section 404 this year, should benefit from its scalability and flexibility.”

And in theory to reduce costs is perhaps the unspoken message.

Meanwhile – a shock headline. Bloomberg released research indicating that the slide on new listings in US continues. But this time its personal. For the first time since the Second World War, US bankers are on the verge of earning less from initial public offerings than those in Europe.

The gap between the US and Europe is hardly noticeable: more than $1.1 billion in fees from IPOs in Europe so far this year, compared with about $1.4 billion from initial public offerings on American stock exchanges. This compares with 2002, when investment banks earned five times as much taking companies public in the US as they did in Europe.

And more impetus, if they needed it, is added by ICI’s decision to delist its ADR from NYSE, to deregister and to terminate its U.S. reporting obligations. The company believes on the basis of its hard work in enhancing governance standards, that it no longer makes sense from a cost and administrative perspective to submit to US compliance obligations. This will save it an estimated £4 million.

Which may exemplify why there is clearly a hurry-up in the changes being proposed in the US.


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