SOX Is A Big Phantom

Name: Ronald Kent
Title: Executive Vice President and Head of International Listings for NYSE Euronext.
Work Experience: Managing Director with Goldman Sachs, Managing Director with Morgan Stanley, lawyer at New York law firm of Sullivan & Cromwell.
Education: Graduate Oxford University and University of Chicago.
Interest: Running & skiing


Are Indian companies scared of listing on US exchanges because of tighter disclosure norms?
I think it is one of those cases where it’s more a fear of the unknown, fear of the phantom. One of the things, and the US is not ashamed about it at all, and at NYSE we recognise as well, that there is merit and value in having high standards of investor protection and high standards of disclosures. For companies that need to raise substantial amounts of capital it is worthwhile to come to the US. One of the big phantoms is the Sarbanes—Oxley rule (SOX). But one CEO I met in June in the telecom sector told me, ‘we could not have done our most recent M&A transaction if it was not for Sarbanes-Oxley which has made us more nimble’.

Why are then not many top-class companies going to the NYSE and getting better?
They haven’t had to. The Indian market is either number one or two since the March lows. Indian companies have had a fantastic run for a number of years. I see that continuing. But my own view is as investors become more demanding which is what you typically see at the early stages of a recovery, they tend to be more disciplined and ask more questions and ask you to be more upfront with them. My expectation is that Indian companies will begin to find that leading exchanges in Europe or US will be attractive places to be because coming to these markets brings assurance to investors.

What do you make of Indian companies moving to IFRS accounting norms
I think moving to a common platform is going to be helpful. One example I hear from Indian companies is that under Indian GAAP, an Indian company can report simply on the basis of the top company rather than the group. It only has to provide a consolidated picture of the group once every year. That really is out of step with the rest of the world. I think it puts Indian companies at a disadvantage in the long term.

What is your response to high frequency trading and flash orders?
It is relatively new here in Asia but I know that Japan has just begun to look at it because we work quite closely with the Tokyo stock exchange. They recently looked at the possibility of putting in place a platform to attract this sort of market. I think it is a reality and one has to deal with it. On the good side it provides important liquidity.

Now, there is high frequency trading and then there is high-frequency trading. Normal high-frequency trading is equal or appropriate and what you have seen most recently covered in the press and most recently the subject of controversial hearings is flash orders. We certainly do not think that flash orders are appropriate and NYSE has not allowed it. Some of our competing exchanges had committed themselves for some time.