Lawmakers and securities regulators have been surprisingly silent on the recent alliance between the New York Stock Exchange and Euronext (the first trans-Atlantic securities exchange), and the future possibilities for mergers due to take place in Japan, India and other regional stock exchanges that the big board has under their radar.
The globalization of the world’s securities markets is an exciting opportunity for investors and the companies that seek finance capital, but is a securities regulator’s nightmare and also seems not to address the conflicts that already exist between the US and foreign law.
With regards to NYSE-Euronext, the most important issues of corporate governance, accounting disclosures and compliance requirements seem to have been resolved behind the closed doors of these discussions, and the compromise of having an equal amount of board members has been the quick fix to create the balance of control necessary to prevent one side from imposing their regulatory will over another. However, it is not the responsibility of a board of directors for a publicly traded company to be the policy makers when it comes to shareholder protection, it is the responsibility of lawmakers and the governments to establish effective regulatory bodies to oversee and police the financial markets.
In the last several months and up to now, none of our political leaders have publicly questioned the future complications that will immediately exist with this deal and others that may soon follow.
For example, online gambling companies are legally traded entities in European markets, but online gambling is illegal here in the United States. Would an investor who profited from investing in one of these companies be subject to prosecution for helping to finance them? Would buying stock of an online wagering company be a violation of the Wire Act? This issue alone presents a huge problem and could lead to a complete re-examination of our laws regarding legalized gambling.
Who will be the global anti-trust police? This merger itself opens up questions into an anti-competitive environment, since there are no real alternatives for investors to trade their securities cross-border. For now, only if Nasdaq’s recent bullying of the London Stock Exchange coerces them into accepting Nasdaq's hostile bid will the playing field level somewhat, but it will be unlikely for the British to surrender to an American company’s hardball tactics.
Who will be the global environmental regulators? The FDA will not have jurisdiction in Europe, Asia or any other region whose environmental laws are not designed to penalize corporations who violate them.
Who will write the new international securities laws, and how are they to be enforced? In an international arbitration association, or an international court?
If, the next time a foreign entity wants to, say, do business in our nation’s shipping ports, will they be able to circumvent our lawmakers’ policies simply by bringing public a shipping company into Europe, financed by American investors, and then awarded a contract within our borders?
If Martha Stewart calls her broker in France to sell her US listed shares, then her broker calls his Euro based clients to sell their shares, how would we be able to prosecute him for insider trading? He isn’t subject to US securities laws. What if he is Jacques Chirac’s son? Can Bush call the SEC and order an illegal wiretap? Or maybe send troops?
The next issue to consider, and the one I find most amusing, is the thought of seeing the money hungry brokers and traders give up their night life of martinis and Heinekens, in exchange for Red Bull and smelling salts in an attempt to trade for 14 hours (2:00am to 4:00 pm EST) every day, while adding 10,000 more stocks and thousands of other instruments (bonds, options, ETFs and mutual funds) to their research watchlists. At least untll now, Investors were able to take some solace in the fact that when the market closed here, they could go to bed and not worry about their stocks falling 15-20 percent by the time they woke up for trading the next day, nor have to worry about currency fluctuations for the trading day in case they want to liquidate a position.
The separation of trading exchanges, by country, offers certain protections to capital flows and influences of dominant market players abroad, including monetary policy makers that can have tremendous effects positive and negative on the domestic economy of smaller, less regulated markets.
Our lawmakers need to step in and make sure that there is the proper regulatory oversight and resolution guidelines to resolve cross-border conflicts and disputes, while preserving the integrity of the financial markets. Sarbanes-Oxley opponents will have the perfect forum now to propose changes, but there needs to be better planning of the enforcement and compliance strategies. Whether there will be true international co-operation remains to be seen.