The would-be reformers who propose restructuring the U.S securities regulation regime cite the loss of U.S. IPO market share to overseas markets, particularly London’s Alternative Investment Market (AIM), as justification for regulatory reform. But as The D & O Diary has previously noted (most recently here and here), these overseas markets, especially the AIM, face precisely the opposite pressure – that it, to validate their regulatory integrity in order to maintain investor confidence.
Along those lines, on February 20, 2007, the London Stock Exchange (LSE) announced a variety of new rules for AIM companies, providing further disclosure obligations and clarifying guidance regarding the rules for "Nominated Advisors" (or Nomads, as they are more popularly known). In its press release (here) announcing the rules changes, the LSE said that the "changes are intended to ensure the AIM maintains the right regulatory balance as the market continues to grow and thrive internationally." The AIM Director of Markets is quoted as saying that "as the market grows and becomes increasingly international, the Exchange will take incremental steps to build on the quality and integrity of the market."
The key changes in the new Rules for Companies include new requirements for disclosure of critical information on each AIM Company’s website; enhanced disclosure requirements for pre-admission announcements; and guidance regarding reverse takeovers. The changes also include revisions to the AIM disciplinary guidelines, including the provision for the LSE to be able to issue warnings for AIM rules violatins, and an increase in the maximum disciplinary fine (from 25,000 pounds to 50,000 pounds). A good summary of the new rules by the Pillsbury Winthrop Shaw Pittman law firm can be found here.
The AIM summary of the changes (here) notes that a number of commentators on the proposed rules during the notice-and-comment period had suggested that that the LSE "should mandate particular corporate governance requirements for AIM companies." The LSE declined to implement uniform corporate governance standards, observing that "given the wide range of companies that admit to AIM, the Exchange believes that the corporate governance measures to be adopted remain a matter for the nomad to provide advice about, on a company-by-company basis, both on admission and also on an ongoing basis as the company develops."
Even though the LSE declined to require uniform governance measures, the LSE’s increased emphasis on disclosure, and tightened requirements for Nomads, as well as the increased disciplinary provisions, bespeak an appreciation for the need to encourage regulatory integrity to maintain investor confidence. As The D & O Diary has noted in the past, companies attracted to the AIM out of a perception of a lighter regulatory touch there will find that they still face regulatory scrutiny. Moreover, the changes suggest that the comparative landscape among the various global exchanges is evolving. For that reason, the U.S. should hesitate to alter its regulatory structure to address what may be transient differences in the global financial marketplace.
Special thanks to Werner Kranenburg of the With Vigor and Zeal blog and to alert reader Doug Edinburgh for links regarding the AIM rules changes.
A Baker’s Dozen of Canadian Securities Regulators: In the meantime, Canada is wrestling with a different issue – whether to unite its current system of 13 provincial securities regulators into a single, national regulator. According to news reports (here), a panel convened last year concluded that a single regulator could "consistently enforce investor rights across Canada." Canada is the "only major developed country without unified securities regulation, " as a result of which bad actors who have been fined or barred from activity can simply move from province to province.
The push for a single unified regulator has recently gained momentum because of several high profile insider trading cases, and the movement got a further boost when Alberta’s finance minister came out in favor of a unified regulatory approach (here). But the boost proved shortlived, as the head of the Alberta securities commission publicly opposed both the single regulator proposal and the finance minister (here). The Ontario government has been pushing for a single regulator, but other provinces, notably Quebec, have been pushing back.
Epic Poet: Homer — first the Illiad and the Odyssey, then the Simpson. Read Homer’s most eternal statements, here. (Better not to have any food in your mouth when you read these.)