NYSE-Deutsche Borse and jurisdictional competition

Larry Ribstein —  11 February 2011

The WSJ opines on the impending sale of the NYSE to Deutsche Börse of Frankfurt.  It describes the merger as “a story of inevitable capitalist change and how no country or institution can take its dominance for granted” and a “lesson in how easily capital, both financial and human, can relocate.” It describes the 171 IPOs in the US last year as “dwarfed” by the 1,295 IPOs overseas.

Why did this happen?  As I noted last month:  overregulation of public companies.  As the WSJ says:

The Securities and Exchange Commission’s own exhaustive 2009 survey of U.S. and foreign firms showed that the burden of complying with Sarbox remains a major deterrent to going public in the United States. Yet the agency still hasn’t made a serious effort to pare these burdens. * * *

The Dodd-Frank law requires mountains of new rules that will further burden U.S. financial players, not least in the new derivatives regime emerging from the Commodity Futures Trading Commission. We would not be surprised if the NYSE Euronext managers view the Deutsche Börse merger as a potential refuge for its derivatives business if CFTC Chairman Gary Gensler realizes all of his regulatory ambitions.

See also Butler & Ribstein for a detailed examination of the effect of the burdens under SOX, and my article on the effect of regulation on the cross-listing market.

The WSJ concludes:

If we want the U.S. to be home to the next great financial institution, or even to keep the ones we have, our politicians need to make America a more inviting place to trade and do business.

Larry Ribstein

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Professor of Law, University of Illinois College of Law