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Well, finally Nasdaq has done the smart thing, at least get a foot in with LSE. It has just acquired a strategic 15% stake in LSE. Though not a controlling stake, it is a very smart move as it places Nasdaq at the front of the queue should anyone else wants to sell. This also securitised ties with LSE and would stave off any potential bids from NYSE or Euronext. Nasdaq has had to acquire aggressively because its spate of new listings have been drying up. Much of the blame can be attributed to the introduction of Sarbanes-Oxley law (SOX). SOX was introduced after the Enron and WorldCom scandals in 2002. However, the SOX were more onerous and burdensome and many new listings opted to go via London instead of the US.

SOX itself is more qualitative as an "accounting standard". The actual compliance is not that big, but new wordy introductions and requirements tend to have the effect of scaring companies off. The most troublesome part would have to be the company's regulatory structure and the governance with regards to any changes. Provisions in SOX that forces companies to have their internal controls certified by auditors borders on the excessive. The London Stock Exchange has managed to lure more Asian listings over the last 3 years as the US tied itself in knots with reglations.

SOX in itself is good, and would point to better governance, however, the regulators have to be aware that better governance makes more sense with US companies that are already listed. For foreign companies contemplating a listing, the SOX adds unecessary cost and paperwork. If SOX really is effective and important, companies raising funds WITHOUT SOX rules should be paying higher interest rates, and those complying with SOX should be paying lower rates for funding. Presently, there is no such distinction. If the lenders are not making the distinction and pricing nuances, it means SOX as a whole is more hot air than substance.


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