05 April 2007

Daily Telegraph: FSA to probe governance of foreign listings

The Financial Services Authority is to examine the quality of London's markets after investor concern over the increasing amount of listing by foreign companies. The study will look at the effect weaker corporate governance standards practised by overseas entities have on the London Stock Exchange's main market.

It will also look at the role of the UK Listing Authority, a core part of the FSA itself, which vets all prospectuses of companies that go on to the LSE's main market and continues to regulate them post-admission.

The probe was announced yesterday by the FSA's managing director of wholesale and institutional markets, Hector Sants. It comes in the wake of a vocal debate over the knock-on effect of the quality of companies such as Rosneft and Sistema, both of which hail from the former Soviet Union, and which listed on the LSE in the last year.

The debate has been led by John Thain, the chief executive of NYSE Euronext, the pan-Atlantic exchange which made its debut yesterday. Earlier this week Mr Thain criticised exchanges such as the LSE that admit companies from the former Soviet Union, arguing such entities fail to adhere to corporate governance requirements.

His comments echoed those of F&C Asset Management's head of governance, Karina Litvack, who said late last year: 'We consider it vital for the continued standing of London as a world-class capital market that companies seeking capital in our markets be encouraged to meet the exacting standards of domestic companies.'

Mr Sants unveiled the investigation as part of a wider consultation on the changing nature of capital markets. He said there had been 'a wider, albeit more informal, debate about the structure and quality of the UK's listed markets, the rights of participants in them, and their relation to other markets both in the UK and overseas'.

Mr Sants said: 'We welcome that debate, and we believe it is important that it takes place against a full understanding of how markets are evolving, and the role and scope of the listing regime, including our governance requirements.'

Of particular focus will be the clarity of the labels given to different securities, to ensure investors are aware how a company is listed. For example, a company which is badged as having a secondary listing does not necessarily have a primary listing on another exchange. On this, an LSE spokesman said: 'We're pleased that the FSA has decided to review the current listing options more comprehensibly.'

© Graham Bishop