The London Stock Exchange might be willing to countenance merger discussions once again with Deutsche Börse, but it is not content to stand idly by while the Swiss Exchange (SWX) tries to poach its lucrative Eurobond business.
As of the beginning of this year, EU issuers have had to report under International Financial Reporting Standards. The EU prospectus directive, to be introduced in July, will mean that those issuing in the EU will have to produce annual reports and greatly enhance disclosure. The rule is designed to protect retail investors ? bonds with a face value of more than e50,000 are excluded from compliance to avoid adversely affecting the institutional market. But many market players say this is an artificial distinction. Some institutions issue bonds for less than e50,000 and no convertible bonds of any value at all are exempted under the prospectus directive.
SWX announced new listing rules last November that will make it possible to issue bonds under foreign law and list them outside the EU in Switzerland, as of the beginning of next month, to avoid these new restrictions. The aim was to help Switzerland take more business away from the two centres where most Eurobonds are listed, Luxembourg and London.
But the London Stock Exchange launched a counter-attack last month. It is working with the Financial Services Authority on the creation of a new regime under which companies will have a choice of listing on the current regulated market or a new exchange regulated market, where the EU prospectus directive won't apply. Issuers will not have to report under IFRS and there will be no e50,000 distinction applying to securities. Any amount of securities could qualify as wholesale on the exchange regulated market.
Offering issuers a choice
?The Swiss Exchange has been making noises about what they're offering but it shows that we're serious about providing choice in London and, when the prospectus directive is implemented, that you don't need to go outside the EU,? says Adam Kinsley, LSE's head of regulatory strategy.
He explains that AIM, LSE's exchange for small to medium-size companies, is already run as an exchange regulated market, but that Eurobond issuers would be offered a choice of which exchange to list on. He says this will be particularly attractive to non-EU issuers, which do not report under IFRS. ?If you're an EU issuer already reporting under IFRS, you can be listed on the regulated market, or if not, you can list on the exchange regulated market.?
The European Commission might decide that US GAAP is an acceptable alternative to IFRS, which means that some non-EU issuers could get away with not producing any separate documentation. This might have a big impact on US and Japanese issuers reporting under US GAAP but Kinsley says these will no longer have to wait to see how their listing choices will be affected by the new regulations. ?It means that Japanese and US issuers don't have to wait for a decision on which standards will be acceptable.?
Kinsley says the LSE is talking to the International Primary Markets Association and having a series of meetings with investment bankers to get their feedback on
these proposals. The consultation period between the LSE, the FSA and other interested parties draws to a close at the end of this month.