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Is the US a financial backwater?

It’s not just Sarbanes-Oxley; changing global capital flows also threaten the US’s pre-eminent status as a financial centre.

There was a time, not so long ago, when a New York Stock Exchange listing and full SEC registration were badges of honour for any emerging market company, indeed even for the largest developed world corporations seeking to re-rate their stock and distribute it broadly into the world’s largest capital market.

In the early 1990s, leading German companies unofficially clubbed together in an effort to face down the SEC over the onerous accounting standards and disclosure requirements that were a precondition for listing in the US. The SEC refused to compromise and the German companies blinked first. The prize of access to US capital was worth the pain and the ignominy of submitting to these higher regulatory standards.

Being passed fit by US financial market regulators allowed larger emerging market companies to slough off any home-country taint, step beyond country credit limits and present themselves as legitimate global companies that happened to be headquartered in emerging countries.

No longer. The World Bank, in its Global Development Finance Report 2006, notes a significant move away from American depositary receipts and back to local listings by large emerging market companies. Rapid domestic economic growth, greater corporate earnings as well as local stock market regulatory reform and policy efforts to boost domestic markets, local trading and capital formation, have coincided with a growing hostility to the extraterritorial claims of the US authorities.

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