Government acts to protect LSE from US regulators

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The Independent Online

The Government unveiled plans yesterday to prevent draconian American Sarbanes-Oxley rules being foisted upon British companies should the London Stock Exchange fall into foreign hands.

A widespread expectation that Nasdaq, the US exchange, will make a second move for the LSE continues to fuel fears that US ownership eventually could bring with it SOX regulation.

However, Ed Balls, the Economic Secretary to the Treasury, said laws are to be introduced to give the Financial Services Authority powers to veto regulatory changes proposed by any new owner of the LSE. Mr Balls insisted the Government was not opposed to foreign ownership of the LSE and was concerned only to safeguard rules seen as key to Britain's economic success.

He said: "This legislation will confer a new and specific power on the FSA to veto rule changes proposed by exchanges that would be disproportionate in their impact on the pivotal economic role that exchanges play in the UK and EU economies. It will outlaw the imposition of any rule that might endanger the light-touch, risk-based regulatory regime that underpins London's success."

SOX rules were rushed though in 2002 after the collapse of the energy trader Enron to better protect US investors. In response, many companies have turned to London listings.

The FSA welcomed yesterday's announcement and reiterated its indifference to the nationality of the ownership of the entities it regulates. It said: "The new provisions will provide confidence to UK markets and stakeholders that foreign ownership will not undermine the essence of the UK regulatory regime." In June, the FSA chairman, Sir Callum McCarthy, warned US ownership of the LSE could see companies here fall outside UK regulation in the longer term.

Mr Balls' plan was also welcomed by John Thain, chairman of Nasdaq's rival, the New York Stock Exchange. The NYSE has agreed to buy the pan-European stock exchange, Euronext. Mr Thain told the Financial Times: "I certainly agree with the concept and that's actually the structure of our Euronext deal. The concept of maintaining the local regulation of the local marketplace is extremely important."

Even as the Government moved to ease regulatory concerns, speculation was intensifying about the likely outcome of the drive towards consolidation among global exchanges. Since its first £4bn offer was rebuffed almost six months ago, Nasdaq has built a 25.1 per cent stake. That in effect gave the Nasdaq chief executive, Bob Greifeld, a veto on any rival bid or strategic initiative by the LSE not to his liking.

Takeover Panel rules prohibited America's second-largest equity trading platform from making a second offer for the LSE before 3 October. Mr Greifeld may keep his powder dry until March when he would no longer be bound to offer a generous minimum of 1,243p per LSE share. They rose 11p to 1,213p yesterday.