NYSE Euronext announced on Wednesday that it was in advanced talks for the NYSE to be acquired by Deutsche Börse, the operator of the Frankfurt Stock Exchange. Skeptics have already raised several concerns about the proposed transaction.
Besides the apprehension for business and security reasons, however, this deal—which is partially motivated by the NYSE’s desire to recapture IPO market share that has moved abroad—should serve as a wake-up call for the U.S. government about the negative impact that excessive regulations are having on the country’s economy.
While it was once considered imperative for every major global corporation to issue stock in U.S. markets to establish its credibility, that has now changed, with an increasing number of foreign and U.S. companies choosing to list abroad. This has led to a decline in America’s share of global IPOs by 75 percent since 1999, according to data compiled by Bloomberg. The downstream effect has also been felt on trading volume, which has fallen from 80 percent of global share a decade ago to 27 percent currently, according to Business Insider. The major reason for this declining interest in the U.S. markets was the Sarbanes-Oxley Act of 2002 (SOX), enacted in response to corporate and accounting fraud. While updated regulations were needed and complying with SOX has its benefits, the law imposes unduly heavy compliance burdens and regulatory and financial costs on companies listed in the United States, and has served as a deterrent to several corporations that would have previously raised capital here.
The government must recognize the urgent need to curtail the highly stringent and voluminous procedures that have made compliance with SOX as well as the new Dodd-Frank Act very expensive and burdensome. The alternative is a poorly functioning capital market where entrepreneurs have difficulty raising funds for their ventures, lower economic growth as investors allocate less money to fund venture capitalists, and higher unemployment when companies cannot raise the capital they need to acquire assets and human resources.
Image by Randy Le’Moine.