U.S. Markets Still the Gold Standard, Says Stock Expert
The tension between the need to regulate capital markets and resistance from the business community to such regulation has served the New York Stock Exchange (NYSE) well. It’s the very thing that attracts U.S. and foreign-based investors to U.S. capital markets, according to Regina Mysliwiec ’72, former senior vice president of the New York Stock Exchange (NYSE).
Mysliwiec spoke Friday in Caplin Pavilion as part of the business law symposium on “The Competitive Edge: Is the U.S. Losing Ground in the Capital Markets?” The event was sponsored by the Virginia Law & Business Review and the Virginia Law and Business Society.
Noting that the NYSE pre-dates the Securities Exchange Commission (SEC) by some 140 years, Mysliwiec said the exchange was a pioneer in market regulation. “In its time, all of these innovations of corporate law were opposed by the business community because of the burdens that they would impose on issuing shares and drag on capital formation.”
But worries that U.S. markets are losing ground today may be oversold. Last year “may not have been a banner year for IPOs [Initial Public Offerings],” Mysliwiec observed, “But the NYSE and its merger partner Euronext did not lose out to London or Hong Kong.” She added, “By the end of the year NYSE/Euronext markets raised a total of $78 billion in proceeds, including closed-end funds”—more than any other market in the world.
Still, Mysliwiec warned that “Any issue of a Chinese bank that lists in Hong Kong or London but does not list in the U.S. can tilt these totals significantly because the numbers are huge.”
Mysliwiec quoted from a speech by U.S. Treasury Secretary Henry Paulson in November 2006 before the Economic Club of New York, noting that in 1995, $550 billion in U.S. equity securities were held by non-U.S. investors. That figure rose to $2.3 trillion by 2005. At the same time, non-U.S. equities held by U.S. investors in 1995 amounted to $790 billion, rising to $3 trillion in 2005. “We are still the gold standard,” Mysliwiec said, but “It’s important that those issuers continue to issue in the U.S. market.”
In the Paulson speech, Mysliwiec cited four possible aspects that could harm the competitiveness of U.S. capital markets. “While not all are under our control, the stock exchanges can be leading an effort to improve our competitiveness,” she said.
The first potential problem—the growth and maturity of other global markets—is not necessarily a negative development because it offers choice to American investors, she said.
Second, the burden of the legal system may prove too onerous, particularly tort litigation, class action, and plaintiff suits, which scare many issuers away from listing in the U.S. market. She acknowledged that, regardless of cross-border and joint-venture agreements, “The SEC’s, Exchange’s, and private right of actions can’t be curtailed by agreement, so companies will still have to contend with the regulatory and legal structure in the U.S.”
The third problem is a complex and confusing regulatory structure and enforcement environment. “I see that differently. I am first, last, and always an enforcement attorney,” Mysliwiec said. “I see that the vigorous enforcement climate in the U.S. actually increases investor confidence and willingness to invest.”
Finally, the fourth potential drag on U.S. competitiveness concerns new accounting and governance rules, notably in the Sarbanes-Oxley Act, Congress’ response to the Enron and Worldcom scandals. Mysliwiec said that implementation of such additional regulation, while perhaps necessary, created unnecessary costs and introduced new risks to our economy. Mysliwiec explained, however, that changes proposed and later adopted by the SEC lessened the impact of those rules and demonstrated the flexibility of the system.
“Global competitiveness is promoted when markets take the lead in promoting refinements and implementation of governance, financial reporting and other regulatory requirements,” Mysliwiec concluded. “It’s good business for the exchanges to lead this effort and it certainly is good for the U.S. capital markets when they do so.”
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