12 June 2006

FSA: Implications of ownership of a UK Recognised Investment Exchange by a US entity

Callum McCarthy, FSA chairman of the FSA, made a statement to encourage discussion of the potential longer term implications of any change of ownership of a UK Recognised Investment Exchange. The possibility of ownership of the LSE by a US entity has raised questions about whether, and to what extent, US law and regulation might impinge on the operation of the exchange and its markets and the companies listed on them.

'In respect of the LSE, neither the FSA nor the SEC consider that US ownership of the LSE, in and of itself, would result in US regulations, including Sarbanes-Oxley, applying to companies listed or quoted on its markets or member firms of the LSE.

'Over time, a combined group, although continuing to operate separate subsidiary exchanges, may seek to harmonise aspects of both markets in respect of its trading platform, rules, membership arrangements and listings of companies.

'Harmonisation of trading rules would need to be consistent with US and UK standards, including those required by the Markets in Financial Instruments Directive - to be effective by November 2007.

'However, we believe that there could be circumstances where a more complex regulatory position might arise. Theoretically, in the longer term, a new entity might seek to achieve further benefits from rationalisation of its regulatory structure. This could at the extreme involve the LSE no longer being subject to UK regulation as an RIE. Its services might be provided from outside the UK, either from the US, another EU member state or an alternative location, through the provision of trading screens in the UK and with securities admitted to trading on the market operated from elsewhere. Such a move, were it to occur, would potentially have significant implications for various aspects of the wider regulatory regime as indicated in our February 2005 statement. If such a market were to be operated from the US it would require member firms and issuers to be registered with the SEC and subject to its oversight.

Full statement

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