Tuesday, January 30, 2007

Is Wall Street Really Losing Its Edge?

The people who are warning that New York is losing its dominance as a global financial center because of overregulation make up “a chorus of Cassandras,” James Surowiecki writes in the latest issue of The New Yorker. The article’s skeptical stance echoes Jenny Anderson’s “Insider” column in last week’s New York Times, in which she suggested there was some “undue panic” over the flight of companies to overseas markets.
What rekindled this debate? A study released this month by New York Mayor Michael R. Bloomberg and Senator Charles E. Schumer, which concluded that “the most dramatic illustration” of New York’s decline is the fact that foreign companies are increasingly choosing to go public in exchanges other than those in New York.
That, Mr. Surowiecki writes, is a “radically oversimplified explanation of what’s happening.” For starters, he writes, many of the biggest I.P.O’s in recent years have been privatizations of state-owned companies — most often, those are going to happen in their home countries. Also, since stocks trading on foreign exchanges are lately doing better than those trading on New York’s exchanges, companies are more apt to choose them in hopes of getting a good price for their shares. Fees and commissions are generally lower overseas, too.
And, he writes:
More broadly, globalization — a force that Wall Streeters applaud when it comes to textile plants and call centers — has increased competition. Many foreign exchanges, like Hong Kong’s, are now far more liquid and open, and they also have much tougher regulations (often modelled, ironically enough, on those of the U.S.) than they once did. All this has made investors more willing to invest in them.
The Sarbanes-Oxley Act of 2002, which is most often cited as the cause of Wall Street’s supposed decline, “is an imperfect piece of legislation,” he writes, “but it is not a harbinger of doom for America’s capital markets, and we should be skeptical of any analysis that says it is.”

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