13 September 2006

Reuters: LSE to stay under UK regulation

Britain will introduce new legislation to ensure the London Stock Exchange will continue to benefit from the UK's 'light touch' approach to regulation if it is taken over, a minister said on Wednesday.

Treasury Minister Ed Balls said in a speech to business leaders in Hong Kong that the government was neutral on the nationality of exchange owners, but wanted to make sure any new owner of the LSE did not damage the openness to investment which has been a key part of London's success as a financial centre.

The LSE, Europe's biggest stock market, has spurned a succession of bid approaches over the past two years.

But its most recent suitor, U.S. stock exchange Nasdaq, has built up a 25 percent stake in the business, raising speculation it may eventually succeed in a takeover bid and be forced to export some of the United States' more onerous business regulations, such as Sarbanes-Oxley reporting requirements, to LSE-listed firms.

Balls said the new legislation would strengthen the hand of the UK's Financial Services Authority (FSA) to ensure that could not happen.

'The issue was that if you had a foreign owner and that owner's home regulator starts exporting its rules to London, then the FSA would be able to not let that happen,' he said.

Fox-Pitt, Kelton analyst Andrew Mitchell said the government's decision to clarify the regulatory position could make it marginally easier for a Nasdaq takeover to succeed. 'It does remove one potential area of doubt,' he said.

Nasdaq declined comment.

Under UK takeover rules, Nasdaq is free to bid for the LSE from September 30 -- six months after it abandoned its last attempt.

Mitchell expects Nasdaq eventually to make an offer, but sees no reason for it to move quickly given it already owns such a big stake, representing a potentially big barrier to any rival approach.

SPECIFIC POWERS
'This legislation will confer a new and specific power on the FSA to veto rule changes proposed by the exchanges that would be disproportionate in their impact on the pivotal economic role that exchanges play in the UK and EU,' Balls said.

'It will outlaw the imposition of any rules that might endanger the light touch, risk-based regulatory regime that underpins London's success.'

Balls, who is minister for the City of London financial sector, stressed the government remained blind to who owned the exchanges -- it was just concerned how they were regulated. 'Nothing in this legislation has any consequence for the nationality of the ownership of UK exchanges. It will neither make overseas ownership easier nor more difficult,' Balls said. 'We remain open to overseas investment that will continue to be able to benefit from our regulatory regime.'

Treasury sources said the law could come into effect in the Companies Bill. The FSA welcomed the government proposals, saying it was supportive of the proposed approach. 'The new provisions will provide confidence to UK markets and stakeholders that foreign ownership will not undermine the essence of the UK regulatory regime,' it said in a statement.

Balls is on a two-day trip to promote City of London interests in Hong Kong before he flies to Indonesia on Thursday.

The LSE's share price has soared as much as three times over the past two years, spurred on by takeover interest. Exchanges across the world are looking to consolidate as they battle to provide global services and cut fees for customers.

© Reuters