Sarbanes-Oxley and the Competitive Position of U.S. Stock Markets
Order Code RL33796
Sarbanes-Oxley and the Competitive Position
of U.S. Stock Markets
January 11, 2007
Mark Jickling
Specialist in Public Finance
Government and Finance Division
Sarbanes-Oxley and
the Competitive Position of U.S. Stock Markets
Summary
Congress passed the Sarbanes-Oxley Act of 2002 (P.L. 107-204) to remedy
weaknesses in accounting and corporate governance exposed by massive fraud at
Enron Corp. and other firms. Criticism of the law, which has been fairly widespread
among business groups, academics, and accountants, focuses on the costs of
compliance, which are said to outweigh the benefits. Several studies and comments
have argued that the rising cost of regulation has created incentives for firms to list
their shares on foreign markets or to withdraw from the public markets altogether,
weakening the international competitive position of U.S. stock exchanges.
Specific evidence cited includes the fact that 24 of the largest 25 initial public
stock offerings (IPOs) in 2005 took place on foreign exchanges, and that there has
been a boom in the private equity market, where U.S. securities regulation is
minimal. This report attempts to put instances like these in context by presenting
comparative data on the world’s major stock markets over the past decade.
In terms of the number of corporations listing their shares, several foreign
markets have shown faster growth than the major U.S. exchanges (the New York
Stock Exchange (NYSE) and Nasdaq). However, these increases appear to be fueled
primarily by growth in the number of domestic firms listing on their own national
markets. While major foreign markets have seen significant declines in foreign
listings as a percentage of all listings, U.S. exchanges have not been abandoned by
foreign companies in significant numbers.
Perhaps the most common reason for firms to delist, or leave a stock exchange,
is a merger with another firm. Lower costs of regulation may be a side benefit of
many mergers, but trends in interest rates and stock prices appear to be the primary
determinants of merger activity. A rising number of corporate acquisitions result in
the acquired firms “going private” — becoming exempt from most regulation — but
this trend is also largely driven by economic conditions. Private equity investment
has boomed since 2000 because debt financing has been abundant and relatively
cheap, and because institutional investors have sought higher yields than what the
stock and bond markets have provided.
Figures on new issues of stock (including IPOs) are volatile, and annual data
may be skewed by a few large deals. Certain foreign exchanges have recovered more
quickly from the 2000-2002 bear market, but, on the whole, there is little evidence
that the U.S. stock market is becoming less attractive to companies seeking to raise
capital. When the bond markets are included, the role of the U.S. securities industry
in capital formation appears to be as strong as ever.
The data surveyed here suggest that rising regulatory costs have not precipitated
any crisis in U.S. markets, and that the outcome of global competition among stock
exchanges depends more on fundamental market conditions than on differentials in
regulatory costs. This report will be updated if events warrant.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Who Are the Competitors? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Trends in Exchange Listings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Foreign vs. Domestic Listings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
New Listings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Delistings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Mergers, Leveraged Buyouts, Going Private, Going Dark . . . . . . . . . 12
IPOs and Capital Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
List of Figures
Figure 1. Shares of Global Market Capitalization: September 2006 . . . . . . . . . . . 4
Figure 2. Percentage Change Since 1995 in Listings . . . . . . . . . . . . . . . . . . . . . . 6
Figure 3. Foreign Listings as a Percentage of Total: 1995, 2002,
September 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Figure 4. U.S. Corporate Underwriting, 1995-October 2006 . . . . . . . . . . . . . . . 21
List of Tables
Table 1. Market Capitalization of Domestic Shares: September 2006 . . . . . . . . . 4
Table 2. Number of Companies (Domestic and Foreign) Listed on Seven
Major Exchanges: 1995 — September 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 6
Table 3. New Exchange Listings (Total, Domestic, and Foreign Companies):
1995-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 4 . Delistings on Selected Exchanges, 1995-2005 . . . . . . . . . . . . . . . . . . 11
Table 5. Completed Mergers and Acquisitions, 1996-2005 . . . . . . . . . . . . . . . . 13
Table 6. Leveraged Buyouts, 1996-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table 7. The Largest Global IPOs in 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table 8. Value of Equity Offerings on Selected Stock Exchanges,
1996-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Sarbanes-Oxley and the
Competitive Position of U.S. Stock Markets
Introduction
The Sarbanes-Oxley Act of 2002 (P.L. 107-204) was enacted in response to
massive accounting fraud at Enron and a long list of other U.S. corporations. The law
sought to improve — or restore — the effectiveness of the gatekeepers who are
supposed to ensure that investors receive accurate information about firms whose
securities are traded in public markets. Under Sarbanes-Oxley, corporate executives,
directors, auditors, accountants, attorneys, and regulators are all held to more stringent
standards of accountability.
Criticism of Sarbanes-Oxley has focused on compliance costs, which to some
observers outweigh the benefits of improved governance and regulation.1 Since direct
measurement of those costs and benefits within a single business is impossible, much
of the debate has looked to the securities markets, where excessive regulatory costs
should be mirrored.
Raising the costs of complying with U.S. securities regulation, as Sarbanes-Oxley
unquestionably did, creates incentives both for firms whose securities are listed on U.S.
stock markets and for firms weighing the costs and benefits of going public and
obtaining such listings.2 Firms in the first group (including non-U.S. companies) that
find compliance costs excessive may choose to delist their shares and become privately
held businesses, or list on foreign stock exchanges, where Securities and Exchange
Commission (SEC) regulations do not apply. Firms in the second group may decide
to avoid SEC regulation by remaining private and seeking funds outside the public
securities markets, from private equity investors, for example. They also have the
option of going public in a foreign country. If significant numbers of firms have
decided since 2002 that the costs of U.S. regulation exceed the benefits of access to
U.S. public securities markets (with their traditional advantages of deep liquidity and
low transaction costs), some or all of the following would be expected:
1 For an overview of criticisms, see Henry N. Butler and Larry E. Ribstein, “The Sarbanes-
Oxley Debacle: How to Fix It and What We’ve Learned,” Mar. 13, 2006, available at
[http://www.aei.org/events/filter.all,eventID.1273/summary.asp].
2 Throughout this report, “public” is used to describe companies that sell their securities to
the general public (and thereby come under SEC regulation) and the markets where those
securities are traded. “Private” (or “privately held”), on the other hand, refers to
corporations that do not report to the SEC because their stock is not available for sale to
small investors.
CRS-2
! a decrease in the number of firms (domestic and foreign) whose shares
are listed on U.S. exchanges, either in absolute terms or relative to
foreign stock exchanges;
! an upward trend in delistings, reflecting companies that choose to
leave the U.S. public markets; and
! a falling off in the number of new listings on U.S. exchanges, as the
initial public offering (IPO) market shrinks or moves offshore.
Several recent comments and studies have cited evidence that U.S. stock markets
have indeed become less competitive and have suggested that expensive regulation
may be partly to blame.3 Few would argue that Sarbanes-Oxley (or U.S. regulation in
general) is solely responsible for the perceived decline in U.S. markets’ competitive
position. Other factors include several long-term trends, such as (1) the growth of
foreign stock markets, particularly in countries like China and Germany without long
traditions of widespread stock ownership; (2) the lowering of legal and regulatory
barriers to cross-border investment and trading; and (3) the role of computer
technology in reducing communications, information, and transactions costs.
However, policy recommendations to address the perceived decline in competitiveness
tend to focus on regulatory relief, since there is little Congress or regulators can
realistically do to reverse financial globalization or technological progress.
Two facts often put forward are that in 2005, only one of the 25 largest IPOs took
place in the United States, and that going-private transactions have reached extremely
high levels, both in number and value of deals.4 In late 2006, Senator Charles Schumer
and New York Mayor Michael Bloomberg argued that “while New York remains the
dominant global-exchange center, we have been losing ground as the leader in capital
formation.”5
This report attempts to provide a context for evaluating arguments about the
competitive position of U.S. stock markets. The tables and charts below present data
that illustrate trends in global markets since 1995. The first set of data gives a sense
of how the world’s stock exchanges rank in size — in other words, where the
competition lies. Subsequent tables set out data on new listings and delistings at the
major exchanges, and on trends in international listings. Finally, the record in capital
formation is examined: how much have firms raised on the major exchanges through
IPOs, through follow-up stock offerings. Some data ongoing-private transactions are
also presented.
3 See, e.g., Committee on Capital Markets Regulation, Interim Report, Nov. 30, 2006, at
[http://www.capmktsreg.org/research.html], which argues that “the growth of U.S.
regulatory and compliance costs compared to other developed and respected market centers”
is “certainly one important factor” in the loss of U.S. competitiveness, (p. x.)
4 Remarks by Treasury Secretary Henry M. Paulson on the Competitiveness of U.S. Capital
Markets to the Economic Club of New York, Nov. 20, 2006, available online at
[http://www.ustreas.gov/press/releases/hp174.htm].
5 Charles E. Schumer and Michael R. Bloomberg, “To Save New York, Learn From
London,” Wall Street Journal, Nov 1, 2006, p. A18.
CRS-3
Who Are the Competitors?
The World Federation of Exchanges compiles statistics from 51 stock exchanges
around the world. At the end of September 2006, the market value of shares listed on
these exchanges was about $45.6 trillion, but this was not evenly distributed. There
was a top tier of six exchanges, each with more than $3 trillion in market
capitalization.6 Two of these were American (the New York Stock Exchange (NYSE)
and Nasdaq), two Japanese (the Tokyo and Osaka Stock Exchanges), and two European
(the London Stock Exchange and Euronext).7 These six accounted for $31.3 trillion
in market capitalization, or 70.9% of the total.
There is a second tier of exchanges whose market capitalization fell between $1
trillion and $2 trillion: the Toronto Stock Exchange, the Deutsche Börse, the Hong
Kong Exchanges, the BME Spanish Exchanges, and the Swiss Exchange. These five
markets combined accounted for $6.7 trillion in market capitalization, nearly the same
as the remaining 40 exchanges, which added $6.6 trillion, or 14.4% of the total. Table
1 and Figure 1 set out these figures.
All 51 markets are competitors, but when we think of global competition as
framed by Senator Schumer and Mayor Bloomberg — a struggle to become (or remain)
the world’s financial capital — it makes sense to focus on the top tier, without ignoring
the possibility that the second tier markets may rise to the level of global competitors,
either through growth of the domestic corporate sector, merger with other exchanges,
or cost-saving innovation. Indirect evidence for this assumption is provided by the
recent behavior of the NYSE and Nasdaq, which have responded to competitive
pressures by pursuing mergers with Euronext and the London Stock Exchange,
respectively. This report will present data on the top tier markets, and on the second
tier where it seems appropriate.
6 The market capitalization figures cover domestic companies only, because inclusion of
foreign listings would cause double counting.
7 Euronext was formed in 2000 by a merger of the Paris, Brussels, and Amsterdam markets,
and absorbed the Lisbon stock exchange in 2002.
CRS-4
Table 1. Market Capitalization of Domestic Shares:
September 2006
Market
Percent of
Capitalization
Exchange
Total
($ in trillions)
New York Stock Exchange
14.37
31.55
Tokyo Stock Exchange
4.42
9.70
Nasdaq
3.67
8.06
London Stock Exchange
3.44
7.55
Euronext
3.36
7.38
Osaka Stock Exchange
3.04
6.67
Subtotal
32.30
70.91
Toronto Stock Exchange
1.64
3.60
Deutsche Börse
1.43
3.14
Hong Kong Exchanges
1.36
2.99
BME Spanish Exchanges
1.15
2.52
Swiss Exchange
1.11
2.44
Subtotal
38.99
85.60
World Total
45.55
100.00
Source: World Federation of Exchanges.
Figure 1. Shares of Global Market Capitalization: September 2006
16
14.4
14
12
10
8
6.6
6
4.4
3.7
3.4
3.4
4
3.0
1.6
1.4
1.4
1.2
1.1
2
0
E
t
to
n
s
S
aq
ka
iss
Y
don
any
ong
pai
N
Tokyo
asd
sa
S
ther
N
Lon
ronex
O
Toron
erm
Sw
O
Eu
G
ong K
H
Source: World Federation of Exchanges.
CRS-5
Trends in Exchange Listings
When a corporation wishes to have its shares traded on an exchange, it applies to
be listed. Exchange listing standards are not uniform, but generally include
requirements regarding corporate governance practices, financial size or condition,
number of shares available for trading, and minimum share price. In addition, listing
on an exchange brings a company under the jurisdiction of the national securities
regulator.8 Other things being equal, therefore, an exceptionally onerous regulatory
regime ought to discourage growth in the number of listings.
Table 2 presents figures on total exchange listings — both domestic and foreign
companies — from the end of 1995 through September 2006, for the largest stock
markets. Figure 2 rebases the same data as an index (the number of listings at the end
of 1995 is set at 100), and shows the percentage change in the number of listed firms
over the period. (Euronext is excluded from the chart, since it was formed by merger
in 2000: Hong Kong is substituted.9)
A glance at Figure 2 suggests that the major U.S. markets have not fared well
over the last decade. NYSE listings have barely risen, while Nasdaq listings have
fallen sharply. However, factors other than international competition may explain this.
The fall in Nasdaq listings reflects the end of the “dot-com” bubble, when thousands
of listed firms that had never made money (and that in retrospect probably never should
have gone public) collapsed.
In the case of the NYSE, the stability of the listings figure before and after the
bust makes it difficult to argue that any single factor, including the response to the
Enron scandals, had a major impact. NYSE’s listing policy appears to focus on quality
rather than quantity — the exchange’s annual financial statement for 2005 describes
NYSE listing standards as “the most stringent of any securities marketplace in the
world,” and notes that “[a]ll standards are periodically reviewed to ensure that the
NYSE attracts and retains the strongest companies with sustainable business models.”10
In other words, the NYSE may not see growth in the number of listings as a goal to be
pursued for its own sake.
8 For foreign firms, the full range of regulation does not necessarily apply: foreign
companies listing on U.S. exchanges, for example, are subject to more stringent reporting
requirements when they are raising capital in U.S. markets (i.e., selling new securities to
U.S. investors) than if they are simply seeking a venue for secondary trading of shares
issued elsewhere.
9 For other second tier exchanges, consistent data is also a problem: the Canadian, Spanish,
and German markets all underwent mergers since 1995.
10 NYSE Group, Inc., 2005 10-K Report, p. 8.
CRS-6
Table 2. Number of Companies (Domestic and Foreign) Listed on
Seven Major Exchanges: 1995 — September 2006
Market
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
NYSE
2,242
2,476
2,626
2,670
3,025
2,468
2,400
2,366
2,308
2,293
2,270
2,257
Tokyo
1,791
1,833
1,865
1,890
1,935
2,096
2,141
2,153
2,206
2,306
2,351
2,368
Nasdaq
5,127
5,556
5,487
5,068
4,829
4,734
4,063
3,649
3,294
3,229
3,164
3,130
London
2,502
2,623
2,513
2,423
2,274
2,374
2,332
2,824
2,692
2,837
3,091
3,212
Euronext
NA
NA
NA
NA
NA
1,216
1,195
1,114
1,392
1,333
1,259
1,210
Osaka
1,222
1,256
1,275
1,272
1,281
1,310
1,335
1,312
1,140
1,090
1,064
1,070
Hong Kong
542
583
658
680
708
790
867
978
1,037
1,096
1,135
1,152
Source: World Federation of Exchanges.
Figure 2. Percentage Change Since 1995 in Listings
250
200
)
0
0
1
= 150
995
1
x ( 100
de
In
50
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
NYSE
Tokyo
Nasdaq
London
Osaka
Hong Kong
Source: World Federation of Exchanges.
What of the markets where listings have increased during the past four years? Has
their growth come at the expense of U.S. exchanges, or was it driven by events in those
exchanges’ home markets? The next set of figures breaks down listings on the leading
exchanges into foreign and domestic companies.
CRS-7
Foreign vs. Domestic Listings
International crosslisting is a fairly recent phenomenon. Until the late 1980s, only
a handful of stocks traded on exchanges in more than one country. In September 2006,
by contrast, the tabulation of the World Federation of Exchanges showed that of 40,888
total listings on global exchanges, 2,738 represented foreign companies.11 Companies
seek foreign listings for two reasons: better access to foreign capital markets and to
seek a more liquid secondary (or resale) market for their shares, which aids capital
formation in their home market.12 Exchanges seek foreign listings as a source of fee
income and for the prestige of being an international financial center.
Competition for foreign listings is intense, and cost-driven.13 How do the NYSE
and Nasdaq compare to other major exchanges? Figure 3 shows the percentage of
total listings on the major exchanges accounted for by foreign companies, at the end
of 1995 (the earliest point in the World Federation of Exchanges data series), at the end
of 2002 (shortly after the enactment of Sarbanes-Oxley), and at the end of September
2006.
Several features of Figure 3 are striking. First, international cross-listing is much
more common in Europe than elsewhere, as might be expected given the historical
economic interdependence of European states, and after more than a decade of
economic integration policies.14 In the Asian markets, on the other hand, nearly all
listings are domestic. The trend over time is also interesting: in every market other
than the U.S. exchanges, the percentage of foreign listings has fallen since 1995.15 The
decline is most pronounced in the U.K. and German markets, where the percentage of
foreign listings was well above U.S. levels in 1995, but is now very similar. On the
NYSE and Nasdaq, the percentage of foreign listings climbed between 1995 and 2002,
and has since held steady.
11 See the monthly statistics archive at [http://www.world-exchanges.org]. Note that because
a single company may be listed on multiple exchanges, the 2,738 listings represent a smaller
number of crosslisting firms.
12 Other things equal, investors will pay a premium for securities that can be resold quickly
and inexpensively.
13 For example, the NYSE has proposed to eliminate listing fees for companies transferring
from other markets. See NYSE Group, Inc., “NYSE to Eliminate Listing Fee Applicable
to Issuers Transferring from Other Markets,” Press Release, Nov. 29, 2006.
14 Euronext and the BME Spanish exchanges are excluded because consistent and
comparable data are not available over the period. The September 2006 percentage of
foreign listings on Euronext is 21.2%, but the meaning of “domestic” is not plain where
several national exchanges have consolidated.
15 Actually, the percentage of foreign listings in Osaka rose, but only from zero to 0.1%.
CRS-8
Figure 3. Foreign Listings as a Percentage of Total: 1995, 2002,
September 2006
60
50
40
30
20
10
0
NYSE Nasdaq Toronto German London
Swiss
Hong
Tokyo
Osaka
Kong
1995
2002
2006
Source: World Federation of Exchanges.
The data in Figure 3 do not provide clear support for a claim that regulatory costs
have driven foreign firms away from U.S. stock markets. One might argue that the
percentage of foreign listings on Nasdaq and NYSE would have continued their
upward trend had U.S. regulation not been tightened in 2002, but is that likely, given
that foreign listings appear to be in decline on major markets around the world? A
more natural inference from the data would be that Nasdaq and NYSE have remained
competitive, since U.S. exchanges have retained foreign listings since 2002, while
other markets have been losing them.
With the data in Figure 3 in mind, we might suppose that in the markets (shown
in Figure 2) where total listings have risen faster than in the United States — Hong
Kong, London, and Tokyo — growth was driven by new listings of domestic
companies. In Table 3, which breaks out new foreign and domestic listings on the six
largest markets, we can observe this process directly.
New Listings
The data in Table 3 show one common feature: a dropoff in new listings after the
peak of the bull market of the 1990s. In five of the six markets, there were fewer new
listings in 2001 than in 2000. (The exception was the NYSE, where the decline began
earlier and 2000 was the trough year.) This is the predictable result of a global bear
market — trends and levels of stock prices affect the prices investors are willing to pay
for new shares.
The decline in new listings is most dramatic on the Nasdaq and Euronext markets,
probably because more highly speculative business ventures were taken public there
CRS-9
than elsewhere.16 There is no consistent pattern among the markets in the recovery
from the crash.
Over the 11-year period shown in Table 3, London and Nasdaq are the clear
leaders in the number of new listings, and particularly in domestic listings. Since the
crash, however, the two markets have fared differently: London recorded record
numbers during 2004 and 2005, while Nasdaq remains well below the peak levels of
the late 1990s.
Both U.S. markets registered sharp drops in new listings during 2003, the year
after Sarbanes-Oxley was enacted, despite the fact that stock prices (as measured by the
S&P 500) rose 26% during that year. “Regulatory shock” might explain some of this,
or it may be that firms took a wait-and-see attitude as to whether the recovery in stock
prices from the trough in October 2002 would last. According to Nasdaq’s 2005
Annual Report, “the fluctuation in the number of U.S. IPOs on The Nasdaq Stock
Market from 2003 to 2005 was primarily due to market conditions. Over the past few
years, competition for new listings has come primarily from the NYSE, although there
is also strong international competition.”17 In 2004 and 2005, the number of new
listings on both U.S. markets rose above the low figure of 2003.
16 This assumes that the bulge in Euronext listings between 1997 and 2000 is the result of
IPO activity, rather than acquisition of new listings through merger with other exchanges.
The WFE data do not make this distinction.
17 Nasdaq, 2005 Annual Report, p. 9.
CRS-10
Table 3. New Exchange Listings (Total, Domestic, and Foreign Companies): 1995-2005
Nasdaq
NYSE
Tokyo
Osaka
Euronext
London
Year
Total
Dom.
For.
Total
Dom.
For.
Total
Dom.
For.
Total
Dom.
For.
Total
Dom.
For.
Total
Dom.
For.
1995
476
413
63
173
138
35
32
32
0
27
27
0
28
22
6
330
285
45
1996
655
598
57
278
219
59
61
59
2
38
38
0
74
63
11
397
347
50
1997
648
573
75
273
210
63
51
50
1
27
26
1
121
110
11
254
217
37
1998
487
437
50
205
162
43
57
54
3
13
13
0
287
266
21
202
169
33
1999
614
553
61
151
123
28
75
75
0
24
24
0
119
102
17
187
161
26
2000
605
486
119
122
62
60
206
203
3
61
61
0
108
98
10
399
366
33
2001
144
123
21
144
93
51
93
92
1
55
55
0
49
36
13
245
236
9
2002
121
NA
NA
151
118
33
94
94
0
41
41
0
18
15
3
201
193
8
2003
56
53
3
107
91
16
120
120
0
26
26
0
24
14
10
201
194
7
2004
170
147
23
152
132
20
153
152
1
30
30
0
32
20
12
423
413
10
2005
139
117
22
146
127
19
99
98
1
27
26
1
34
32
2
626
605
21
Note: Euronext figures before 2001 represent the sum of new listings on the Brussels, Amsterdam, and Paris markets.
Source: World Federation of Exchanges.
CRS-11
Comparing Tables 2 and 3 makes clear that the increase in total listings is
considerably less than the number of new listings. New listings are offset by
delistings, which are set out in Table 4.
Delistings
Table 4 shows no consistent pattern in delisting trends among the six top-tier
exchanges between 1995 and 2005. Nasdaq delistings peaked in 1998 and 1999,
before the end of the boom; the NYSE peak was a year or two later. Neither market
shows an increase in delistings subsequent to 2002.
Table 4 . Delistings on Selected Exchanges, 1995-2005
Year
Nasdaq
NYSE
Tokyo
Osaka
Euronext
London
1995
79
136
23
4
63
258
1996
121
98
19
4
97
320
1997
717
171
19
8
94
235
1998
906
194
32
16
88
292
1999
873
254
30
15
100
336
2000
700
286
45
32
124
299
2001
815
215
48
30
140
287
2002
535
145
82
65
99
261
2003
410
111
67
198
82
337
2004
322
107
53
80
67
279
2005
332
135
54
53
65
372
Note: Euronext figures before 2001 represent the sum of delistings on the Brussels, Amsterdam, and
Paris markets.
Source: World Federation of Exchanges.
In 2005, 1,011 companies were delisted by the top six exchanges. The
exchanges do not publish statistics on the reasons for delisting. Nasdaq and NYSE
annual reports provide some information, however. Nasdaq reports that delistings
occur for three primary reasons:
! failure to meet listing standards (generally minimum financial
criteria);
! mergers and acquisitions, where all of the target company’s shares
are purchased by another firm (or traded for shares in the merged
company); and
! switching to another venue.18
18 Nasdaq describes the third reason as occurring “to a lesser extent.” Ibid., p. 10.
CRS-12
Of the 332 firms that ceased listing on Nasdaq during 2005, 85 (25.6%) had
failed to comply with minimum share price or other financial criteria, or had failed
to file required SEC disclosures on time, which is also grounds for automatic
delisting.19 The NYSE reports a similar percentage: between 2000 and 2005, 27%
of all delistings involved failure to maintain the minimum financial criteria required
for continued listing.20
Of the nearly three-quarters of delistings that happened for reasons other than
financial distress, most involved a change of ownership or a change in the form of
ownership. This includes several forms of transactions:
! mergers and acquisitions, where two firms become one;
! leveraged buyouts, where a firm’s management or outside investors
purchase all publically traded shares in a listed company and take it
private; and
! “going dark” transactions, where a company voluntarily delists itself
from a major exchange and has its shares traded instead on the over-
the-counter, or “pink sheets” market. The firm thus becomes exempt
from SEC reporting requirements.
These forms of “voluntary” delistings are where regulatory costs are most likely
to be a factor. The next section analyzes trends in mergers and going-private deals
and the possible role of Sarbanes-Oxley costs.
Mergers, Leveraged Buyouts, Going Private, Going Dark. In most
large corporate mergers, the consolidated firm remains a public company. Thus,
regulatory compliance costs are not eliminated, though they may be reduced as a
percentage of earnings if two public companies merge into one. Basic data about the
corporate merger market, presented in Table 5, do not support an inference that
Sarbanes-Oxley costs are a major factor in the volume of deals. The number and
reported value of deals increased each year between 2002 and 2005, but remained
below the figures for 1998 through 2001, when soaring stock prices encouraged
mergers in which target company stockholders received stock in the acquiring firm
rather than cash payments for their shares.
19 Ibid., p. 24.
20 NYSE Group, Inc., 2005 10-K Report, p. 8.
CRS-13
Table 5. Completed Mergers and Acquisitions, 1996-2005
Year
Number of Deals
Value
($ in billions)
1996
7,347
563.0
1997
8,479
771.5
1998
10,193
1,373.8
1999
9,173
1,422.9
2000
8,853
1,781.6
2001
6,296
1,155.8
2002
5,497
625.0
2003
5,959
521.5
2004
7,031
857.1
2005
7,298
980.8
Source: Thomson Financial. (Only deals worth more than
$10 million are included, and dollar figures include only
deals for which price data was made public.)
Table 6. Leveraged Buyouts, 1996-2005
Year
Number of Deals
Value ($ billions)
1996
189
20.1
1997
192
15.4
1998
186
22.3
1999
197
28.7
2000
305
51.2
2001
153
18.9
2002
163
24.8
2003
164
41.4
2004
327
82.0
2005
450
117.4
Source: Thomson Financial. (Only deals worth more than
$10 million are included, and dollar figures include only
deals for which price data was made public.)
CRS-14
One of the benefits to corporations involved in leveraged buyouts, a subset of
corporate mergers in which all public shares are purchased and taken off the market,
is the elimination of SEC compliance costs. This market has shown rapid growth
since 2001, as shown in Table 6. How much of the rise can be attributed to
increased regulatory costs? Several studies have addressed this question by
attempting to measure changes in the propensity of U.S. firms to go private before
and after Sarbanes-Oxley. Kamar, Karaca-Mandic, and Talley find that small firms
were induced to leave the public markets, but that large firms were unaffected.21
Engel, Hayes, and Wang find a “modest but statistically significant increase in the
rate at which firms go private in the post-SOX period,” with the effect more
pronounced among smaller firms.22 Other researchers address the difficulty of
separating the impact of regulatory costs from other factors:
Because buyouts occur for many reasons, and SEC disclosures to shareholders
in public companies will focus on the value of the consideration to be received
compared to current market values, it is difficult to determine what role the costs
of compliance with SOX and other securities laws played in these decisions.23
An important factor behind the increase in leveraged buyouts is the rise of the
private equity market. Private equity investors purchase companies, either private
or public, and seek to improve operating results by restructuring or by providing
capital. The activity is not new, but is now a more significant factor in the market
than ever before. The growth has been driven by institutional investors searching for
higher returns. Yields on both debt and equity investment in the public markets have
been depressed over the past several years: blue-chip stock indexes remained below
2000 levels until the fall of 2006, while both long- and short-term interest rates have
been low by historical standards. At the same time, there has been a “glut” of
international capital seeking investment opportunities, making capital abundant at
low interest rates.24 As a result,”alternative” investments have thrived, including
private equity funds.
In short, the boom in mergers and private equity has been produced by a
combination of economic factors and market conditions. The boom continued in
2006, as a recent Business Week article attests:
[W]hat’s driving this year’s merger mania is quite different from what prompted
AOL to plop down $182 billion for Time Warner Inc. in 2000. That boom was
fueled by inflated stock prices in an overheated equities market that made
21 Ehud Kamar, Pinar Karaca-Mandic, and Eric L. Talley, “Going-Private Decisions and the
Sarbanes-Oxley Act of 2002: A Cross-Country Analysis,” USC CLEO Research Paper No.
C06-5, August 2006, 60 p.
22 Ellen Engel, Rachel M. Hayes, and Xue Wang, “The Sarbanes-Oxley Act and Firms’
Going-Private Decisions,” May 6, 2004, p. 3. Available at SSRN: [http://ssrn.com/
abstract=546626]
23 William J. Carney, “The Costs of Being Public After Sarbanes-Oxley: The Irony of
‘Going Private,’” Emory Law and Economics Research Paper No. 05-4, February 2005, p.
13.
24 See CRS Report RL33140, Is the U.S. Trade Deficit Caused by a Global Saving Glut? by
Marc Labonte.
CRS-15
companies feel like they were playing with funny money. This time the drivers
are low interest rates, low valuations, and robust debt markets. One telling
difference: 60% of this year’s deals have been paid for in cash, vs. 29% in
2000.... The biggest change, though, is the unprecedented heft of private equity
firms. Morgan Stanley estimates that buyout shops are now armed with at least
$2 trillion in purchasing power, far more than ever before. The number of
public-to-private deals in 2006 is set to nearly double the number in 2000, to 205,
while their value has soared more than tenfold, says Paul J. Taubman, global
head of M&A at Morgan Stanley. Yet there’s still plenty of room for the boom
to continue. Many companies still look cheap.25
Preliminary figures indicate that the value of companies taken private in 2006
reached a record level: $150 billion worldwide, with former NYSE listings
representing $38.8 billion; London, $27 billion; and Nasdaq, $11 billion.26
Another way a public firm can shed its SEC reporting burden is by “going dark.”
In this process, firms voluntarily give up their exchange listing and deregister with
the SEC.27 They do not entirely abandon the public markets; their shares continue
to trade on the over-the-counter (or “pink sheets”) markets. Several studies have
linked Sarbanes-Oxley costs to the growing number of going-dark transactions in
recent years.28
However, firms that go dark are not a representative cross section of listed
companies. The studies find that they tend to have serious financial problems (which
might have led to an involuntary delisting by the exchange). In addition, Leuz,
Triantis, and Wang find evidence that “controlling insiders go dark to protect their
private control benefits and decrease outside scrutiny, particularly when corporate
governance is weak and outside investors are less protected.”29
Healthy firms rarely go dark because there is typically a strong negative market
reaction. Thus, even if the causal link between rising regulatory costs and going-dark
transactions is robust, the competitive position of U.S. markets may not suffer as a
25 Emily Thornton, “What’s Behind the Buyout Binge: Merger Monday,” Business Week,
Dec. 4, 2006, p. 38. See also the Committee on Capital Market Regulation’s Interim
Report for discussion of the growing liquidity in the private equity market, with the
development of secondary trading of limited partnership interests (pp. 34-38).
26 Peter Smith and Norma Cohen, “Record $150bn of Delistings,” Financial Times, Jan. 2,
2007, p. 1.
27 In order to deregister, firms must have had fewer than 300 shareholders of record (or
fewer than 500 shareholders and less than $10 million in assets) for the preceding three
years. When deregistration is complete, the firm ceases filing financial statements with the
SEC.
28 Christian Leuz, Alexander J. Triantis, and Tracy Yue Wang, “Why do Firms go Dark?
Causes and Economic Consequences of Voluntary SEC Deregistrations,” Robert H. Smith
School Research Paper No. RHS 06-045, March 2006, 58 p. and: Engel, Hayes, and Wang,
“The Sarbanes-Oxley Act and Firms’ Going-Private Decisions.”
29 “Why do Firms Go Dark? Causes and Economic Consequences of Voluntary SEC
Deregistrations,” p. 3.
CRS-16
result: firms going dark are unlikely to be subject to international competition for
listing.
IPOs and Capital Formation
The discussion above has focused on the number of companies listing on U.S.
and competing international exchanges, but listing trends are only part of the picture.
The basic economic function of a securities market is to intermediate between savers
and businesses seeking investment capital. The capacity of an exchange to facilitate
capital formation is also an indicator of its competitive position.
One of the most frequent claims regarding the declining competitiveness of U.S.
markets is that they now handle a much smaller share of the world’s initial public
offerings than they once did. Of particular concern is the fact that of the 25 largest
IPOs in the world in 2005, only one took place on an American exchange. Have
rising regulatory costs driven U.S. firms abroad in search of equity capital, or have
foreign firms that might have considered a U.S. offering gone elsewhere?
To begin with the first question, an examination of the 25 largest IPO deals (set
out in Table 7) suggests that the answer is no. The only firm on the list domiciled
in the United States listed its shares on the NYSE.
Table 7 is dominated by French (five) and Chinese (four) IPOs. Most of these
deals, including the China Construction Bank Corporation, the China Shenhua
Energy Limited, the Bank of Communications, the China COSCO Holding
Company, and France’s Electricite de France, Gez de France, Sanef, and Eutelsat,
were privatizations of huge state-owned enterprises. It seems unlikely that the
French or Chinese governments would look favorably on a foreign listing for these
firms.
The table indicates that most of the IPO firms chose to list their shares on
domestic exchanges. For example, all the Chinese firms listed on the Hong Kong
Stock Exchange and all of the French firms listed on Euronext. The same holds true
for the Austrian, Australian, Danish, Dutch, German, and Japanese firms.30
It may be noteworthy that the exceptions to this pattern — the two companies
from Russia and Kazakhstan — chose to list in London. Regulatory considerations
may have been a factor in this choice. Did the NYSE or Nasdaq seek to obtain these
listings?31
30 Ernst & Young, which compiled the list, states that the Chinese Government played a role
in encouraging firms to list on the Hong Kong Stock Exchange, in order to bolster the firms’
good governance credentials. See Ernst & Young, “Accelerating Growth,” Global IPO
Trends 2006, February 2006, p. 15.
31 A search of periodical databases yields no hint that they did. (Kazakhmys stock trades in
the United States on the over-the-counter “pink sheets” market, suggesting that it might not
meet Nasdaq listing standards.) On the other hand, the London Stock Exchange appears to
have pursued listings from ex-Soviet countries energetically: “More than 40 Russian
(continued...)
CRS-17
Table 7. The Largest Global IPOs in 2005
(in millions of U.S. $)
Primary
Company Domicile Industry
Proceeds
Exchange Listing
China Construction
China
Banks 9,227
Hong
Kong
Bank Corp.
Electricite de France
France
Energy and Power
8,200
Euronext
Gaz de France
France
Energy and Power
4,128
Euronext
China Shenhua
China
Mining
3,276
Hong Kong
Energy Ltd.
Bank of
China
Banks 2,165
Hong
Kong
Communications
Tele Atlas N.V.
Netherlands
High Technology
1,946
Euronext
Partygaming Gibraltar
Professional
Services
1,658
London
Goodman Felder
Australia
Consumer Stables
1,599
Australia
Ltd.
AFK Sistema
Russia
High Technology
1,593
London
Huntsman Corp.
U.S.
Materials
1,593
New York
Raiffeisen
Austria
Financials 1,456
Vienna
International Bank
Premiere AG
Germany
Media and
1,354
Frankfurt
Entertainment
SUMCO Corp.
Japan
High Technology
1,346
Tokyo
China COSCO
China
Marine Transport
1,227
Hong Kong
Holdings
Spark Infrastructure
Australia
Energy and Power
1,223
Australia
Group
Telenet Holding NV
Belgium
Telecommunications
1,190
Euronext
RHM
UK
Consumer Staples
1,171
London
Kazakhmys
Kazakhstan
Energy and Power
1,166
London
EFG International
Switzerland
Financials
1,097
Swiss Exchange
Sanef
France
Industrials 1,088
Euronext
SP Ausnet
Australia
Energy and Power
1,057
Australia
Eutelsat
France
Telecommunications
1,030
Euronext
EuroCommercial
France Real
Estate
1,026
Euronext
Properties
TrygVesta
Denmark
Financials
1,008
Copenhagen
Source: Ernst & Young.
31 (...continued)
companies attended a London Stock Exchange ‘roadshow’ last year. Several are tipped to
seek listings in the coming months, including Open Investments, owned by Vladimir
Potanin, the Norilsk Nickel billionaire.” See Conal Walsh, “Russia’s ‘Google’ aims for
London share listing,” The Observer (London), Jun. 12, 2005, p. 2.
CRS-18
Table 8 presents more comprehensive statistics on the IPO market, showing the
value of equity offerings on the six top-tier exchanges and Hong Kong (a second-tier
exchange that appears several times in Table 7). Total equity issues include both
IPOs and sales of new stock by established public companies.
These figures show considerable year-to-year volatility, reflecting not only the
variability of stock prices (which affect the attractiveness of equity sales as a means
of raising capital) but also the skewing of single-year data by the presence (or
absence) of a few very large transactions. The ratio of IPOs to offerings by
established public companies also shows great variation from year to year, probably
reflecting the impact of large individual transactions in either category.
Preliminary data suggest that 2006 was a record year for IPOs, with global
underwriting exceeding $250 billion.32 Russian and Chinese firms accounted for just
over a quarter of this total. IPO value on Euronext was up 60% (to $24.5 billion)
over 2005, and doubled on the Deutsche Börse (to $8.8 billion). IPOs on the NYSE
raised a total of $25 billion in proceeds (excluding closed-end mutual funds) in 2006.
There were 18 IPOs by non-U.S. companies, raising $6.5 billion.33 The NYSE
continues to be a big fish, but the IPO pond is growing.
The most visible international trend is that all markets show a significant drop
in equity underwriting in 2000 or 2001, with the end of the bull market.34 The
performance of the two U.S. exchanges since that time is markedly different: Nasdaq
underwritings remain far below the boom levels — 2005 equity issues were less than
10% of the 2000 peak. On the NYSE, by contrast, the 2005 figure was 78% of the
2000 level.
The post-2000 recoveries in equity issuance on the European exchanges have
been strong; London experienced only a mild drop-off and reached a record high in
2004, while Euronext in 2005 recorded 75% of its 2000 peak, very similar to the
NYSE experience.
What does Table 8 suggest about the competitiveness of U.S. markets? The
most striking fact is the dominance of the NYSE as a market for new equity. Its $175
billion in 2005 underwriting was more than double that of the nearest competitor, and
in fact accounted for 29.3% of total global equity issues. However, the argument is
32 Norma Cohen and Peter Smith, “Upsurge in IPOs and Private Deals,” Financial Times,
Jan. 2, 2007, p. 15. In the authors’ view, U.S. regulation does not account for the “relative
decline in popularity of U.S. exchanges.” Rather, they argue, “companies domiciled outside
the U.S. increasingly look to their maturing home markets, or to the largest capital market
closest to them, as a listing venue of choice.”
33 NYSE Group, Inc., “2006 Highlights,” Press Release, Dec. 29, 2006.
34 In securities markets, underwriting refers to the process by which companies raise capital
by selling (also called issuing) stocks or bonds to investors. This is also known as the
primary market, as distinguished from the secondary (or resale) market, where investors
trade securities among themselves and the company that originally issued the securities does
not share in the proceeds.
CRS-19
made that the degree of supremacy is diminishing — in 1996, the NYSE accounted
for 38.3% of the value of global equity issues.35
Several factors underlie the growing share of equity issuance going to foreign
markets. Many countries in the world did not have well-developed equity markets
until recently; these include not only China and Eastern Europe, but also France,
Germany, and other continental European states where corporate finance was
historically dominated by universal banks. Economic liberalization has provided an
impetus for the development of equity financing, and computer technology has made
it possible to replicate the sophisticated trading mechanisms of the New York and
London exchanges at relatively low cost.36 Markets have also expanded rapidly in
the high-growth emerging economies of Asia and Latin America.
In short, the fact that U.S. stock exchanges are losing market share in global
equity trading may reflect positive developments elsewhere, rather than impediments
imposed here by regulatory and other burdens. NYSE and Nasdaq have certainly not
been complacent in the face of rising competition. On the contrary, they have taken
steps like the following:
! pursued mergers with major foreign exchanges (NYSE with
Euronext, Nasdaq with London);37
! invested heavily in new trading technology to compete with
alternative trading systems (cheap, computerized transaction
facilities); and
! restructured themselves as for-profit, shareholder-owned
corporations, in part to prevent entrenched exchange constituencies
(such as the NYSE specialists) with a financial stake in the status
quo from blocking innovations needed to remain competitive.
35 Global totals from World Federation of Exchanges, annual statistics archive.
36 Cheap computer technology has inspired many predictions of the imminent demise of the
NYSE over the past decade or so.
37 In fact, the mergers are driven in large part by the European markets’ need to cut their
trading costs to U.S. levels, rather than U.S. markets’ fear of competition. See “Finance and
Economics: A War on Two Fronts; Stock Exchanges,” Economist, vol. 381, Nov. 18, 2006,
p. 92.
CRS-20
Table 8. Value of Equity Offerings on Selected Stock Exchanges, 1996-2005
(dollars in billions)
NYSE
Nasdaq
London
Euronext
Tokyo
Osaka
Hong Kong
Year
IPO Other Total
IPO Other Total
IPO Other Total IPO Other Total
Total
IPO Other Total
IPO
Other Total
1996
50.0
111.0
161.0
24.1
27.7
51.8
16.7
14.0
30.7
NA
NA
NA
19.0
NA
NA
NA
4.0
8.9
12.9
1997
43.9
133.7
177.6
11.0
25.2
36.2
11.6
10.7
22.3
NA
NA
NA
9.5
NA
NA
NA
10.5
21.1
31.6
1998
43.7
112.7
156.4
13.8
19.7
33.5
6.6
10.8
17.4
NA
NA
NA
11.8
NA
NA
NA
0.8
4.2
5.0
1999
71.4
129.5
200.9
50.4
53.5
103.9
7.4
16.0
23.4
NA
NA
NA
89.2
NA
NA
NA
2.2
17.0
19.2
2000
73.3
149.7
223.0
52.6
80.8
133.4
14.8
21.3
36.1
49.4
38.0
87.4
16.7
NA
NA
NA
17.0
60.0
77.0
2001
28.5
49.3
77.8
7.8
24.0
31.8
7.8
21.0
28.8
32.1
45.3
77.4
16.9
NA
NA
NA
3.3
8.0
11.3
2002
27.2
60.2
87.4
NA
NA
4.5
8.1
26.3
34.4
3.5
32.5
36.0
15.7
0.1
2.2
2.3
6.7
7.5
14.2
2003
27.4
54.2
81.6
NA
NA
6.4
7.8
22.6
30.4
0.7
50.5
51.2
29.0
0.1
4.9
5.0
7.6
19.9
27.5
2004
54.5
93.4
147.9
NA
NA
15.0
13.8
18.6
32.4
11.7
33.2
44.9
25.9
0.3
5.2
5.5
12.5
23.7
36.2
2005
44.1
130.9
175.0
NA
NA
12.2
31.2
20.7
51.9
21.2
44.7
65.9
24.6
0.3
6.2
6.5
21.3
17.0
38.3
Source: World Federation of Exchanges. (Tokyo figures are not broken down into IPOs and follow-on offerings.)
CRS-21
Finally, while equity markets have been an important locus for capital formation
for U.S. businesses, they are only part of the larger securities market. Corporations
seeking investment funds have many options, and in recent years of low interest rates
they have turned increasingly to the bond markets. Figure 4 shows annual dollar
figures for U.S. corporate underwriting between 1996 and November of 2006. Total
underwriting, which measures funds going directly to firms issuing securities, has
shown a fairly steady rise throughout the period, suggesting that costs related to the
Sarbanes-Oxley Act’s tightening of securities regulation have not materially harmed
U.S. businesses’ ability to raise funds in securities markets.
Figure 4. U.S. Corporate Underwriting, 1995-October 2006
3.5
3
2.5
2
1.5
1
0.5
0
95
96
97
99
00
02
03
05
06
19
19
19
1998 19
20
2001 20
20
2004 20
20
Equity
Debt
Source: Securities Industry Association.
Conclusion
This report has not attempted to make a direct measurement of the impact of
Sarbanes-Oxley compliance costs on firm behavior in the equity markets. Instead,
the data presented above seek to provide a context for evaluating claims that such
costs have put U.S. stock markets at a competitive disadvantage. There have been
three developments in recent years that might plausibly be attributed (at least in part)
to rising regulatory costs:
! over the past decade, the total number of listed companies on U.S.
exchanges has fallen (in the case of Nasdaq) or failed to grow (in the
case of the NYSE), while several foreign exchanges (notably Hong
CRS-22
Kong, Tokyo, and London) have experienced significant growth in
listings;
! there has been a boom in the number and size of going-private
transactions, which result in firms being taken off the public markets
and outside the SEC’s regulatory jurisdiction; and
! the share of global IPO volume handled by U.S. markets has fallen,
especially among the very largest deals.
However, there are alternative explanations for each of these phenomena, based
on market conditions and global economic trends:
! The drop in Nasdaq listings must be viewed in the context of the
aftermath of the 1990s bubble, when thousands of technology firms
were taken public even though they had no real prospects of ever
turning a profit. The NYSE’s stable listings figure, on the other
hand, may be due to a policy of maintaining stringent listing
standards that exclude all but the largest and most financially sound
corporations.
! The private equity boom has been driven by market forces including
the availability of relatively abundant and inexpensive debt
financing, the pressure on pension fund managers and other
institutional investors to seek returns higher than those offered since
2000 by traditional investment classes, and the high compensation
levels earned by private equity managers.38 Research has indicated
that rising regulatory costs have a discernible impact on going-
private decisions primarily among small firms, particularly those
with financial or governance problems.
! Growth in foreign equity underwriting appears to reflect growth in
foreign economies (such as China’s) and/or the development of
equity markets in countries that historically relied on bank financing
(such as Germany). Corporations continue to show a strong
preference for listing on their domestic market, or the closest major
financial center. The data do not suggest that many U.S. firms are
choosing to list on foreign exchanges, or that foreign firms have
abandoned U.S. markets in significant numbers since Sarbanes-
Oxley was enacted.
The impact of Sarbanes-Oxley costs is difficult to measure, but quantification
of the benefits is even more elusive. It is worth noting, however, that international
competition among stock markets has not up to now taken the form of a regulatory
“race to the bottom,” in which markets attempt to lure companies by offering a more
lax regulatory regime than their competitors. There is no equivalent in equity
38 Andrew Ross Sorkin and Eric Dash, “Private Firms Lure CEOs with Top Pay,” New York
Times, Jan. 8, 2007, p. A1.
CRS-23
markets to the offshore banking centers and tax havens that thrive in small
jurisdictions like the Dutch Antilles, the Isle of Man, or Vanuatu. This fact reflects
a market judgement that investor confidence, which is nurtured by the perception that
exchanges and regulators devote significant resources to the prevention of fraud, has
real economic value. Where stock market growth has been fastest, as in London and
Hong Kong, the securities regulators are generally recognized as capable and
vigorous.
The outcome of global stock market competition has different implications for
different market participants. If U.S. issuers and traders go overseas, to take
advantage of lower regulatory or other costs, the U.S. securities industry will suffer
a loss of output and jobs. That industry is concentrated heavily in the greater New
York area and, to a lesser extent, Chicago. The cost to the U.S. economy of such a
shift, however, would be partially offset by lower trading and underwriting costs,
which would mean higher returns for public investors and more efficient business
investment spending. To the investors and businesses who use the market, the
ranking of the U.S. securities industry in the world market is of secondary
importance. If U.S. markets remain competitive, both the industry and its customers
can continue to thrive. The United States has been (and continues to be) the world
leader in the adoption of new, cost-saving technology and in the elimination of anti-
competitive market structures and practices. International market trends over the past
several years do not provide strong evidence that a serious loss of competitiveness
has occurred, or that such a loss is inevitable unless regulatory costs are reduced