Capital Markets

SEC: No “Backdoor” Regulation for Europe

The SEC reassures European firms that mergers between U.S. and foreign exchanges will not automatically export Sarbanes-Oxley and other American se...
Stephen TaubJune 16, 2006

Against the increasingly contentious backdrop of the New York Stock Exchange’s attempt to acquire Euronext, the Securities and Exchange Commission stated Friday that cross-border mergers of exchanges would not automatically subject foreign exchanges or their listed companies to U.S. regulation.

The statement was apparently prompted by fear among European companies that the requirements of the Sarbanes-Oxley Act might be foisted upon them by a NYSE/Euronext merger. That deal has also grown increasingly uncertain as the NYSE’s stock price has fallen.

“In light of recent developments, SEC staff wants to ensure that all affected parties — particularly investors — clearly understand the regulatory issues created by such mergers,” the regulator noted in a statement published on its Website.

According to the SEC’s statement, deals similar to the one proposed for the NYSE and Euronext “would not result in the mandatory registration of a non-U.S. exchange’s listed companies with the SEC or the mandatory compliance with the provisions of the federal securities laws, including the Sarbanes-Oxley Act, that would derive from that registration.”

Likewise, the SEC stated that foreign exchanges themselves would not have to comply with U.S. securities laws simply because they were owned by U.S. exchanges. “Joint ownership of a U.S. exchange and a non-U.S. exchange would not result in automatic application of U.S. securities regulation to the listing or trading activities of the non-U.S. exchange,” the statement read.

“The non-U.S. exchange would only become subject to U.S. securities laws if that exchange is operating within the U.S., not merely because it is affiliated with a U.S. exchange,” the SEC added.

SEC commissioner Annette Nazareth put it more bluntly on Wednesday, telling The New York Times that “the notion that this is a back door means of exporting Sarbanes-Oxley requirements internationally is completely misguided.”

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