WASHINGTON (Reuters) - The New York Stock Exchange on Wednesday joined a chorus of business interests sounding the alarm over U.S. markets' exclusion from most of 2005's largest initial public stock offerings.
NYSE Group Inc. Chairman Marshall Carter told a congressional panel that many new global stock listings are going to non-U.S. exchanges due in part to U.S. litigiousness, costly regulations and accounting complexity.
"Despite a welcome resurgence in global equity financing, the United States is losing the competition for these new listings," Carter told the House Capital Markets Subcommittee.
But some lawmakers responded that careful analysis suggests last year's IPO trends reflect changes in foreign markets at least as much as domestic issues in the United States.
"After closer examination, many of last year's largest IPOs were the result of emerging capital markets, the listing of state-owned enterprises, geographic barriers and increased global competition," said Rep. Darlene Hooley at the hearing.
"It is somewhat disingenuous to argue that many of these companies would have listed in the U.S. if only litigation or regulation were lessened. Many simply listed on their more natural markets ... In short, the sky is not falling, but we can do better," said Hooley, an Oregon Democrat.
The NYSE chairman's remarks came at a time of growing pressure from business interests for a roll-back of portions of the post-Enron governance and accounting reforms put in place by Congress recently after a wave of business scandals.
Capital Markets Subcommittee Chairman Richard Baker said he is concerned about the same topics highlighted by Carter.
"These domestic issues, combined with increasingly efficient and liquid foreign markets, pose a significant challenge to the supremacy of U.S. capital markets," said Baker, a Louisiana Republican.
NYSE's Carter called for changes to part of 2002's Sarbanes-Oxley reforms. Section 404 requires companies to disclose more about their internal financial controls and their outside auditors' opinions on the adequacy of the controls.
The rule, so far being applied only to the largest U.S.-listed companies, is enforced by the Securities and Exchange Commission and the Public Company Accounting Oversight Board. The PCAOB was also established by Sarbanes-Oxley, which has become a lightning rod for business gripes.
The SEC is considering a report from an advisory committee that has recommended completely exempting many small and mid-sized companies from Section 404.
Carter said complete Section 404 audits should be triennial, not annual, and that a "risk-based" approach should be taken to evaluating the controls in the off-years.
"We advocate that the SEC and PCAOB establish specific risk-based materiality criteria," Carter told the panel.
Former House Speaker Newt Gingrich also testified at the hearing and called for making Section 404 compliance voluntary. He also warned of a Sarbanes-Oxley litigation "time bomb," referring to "the onslaught of lawsuits that can be expected in any future market or industry downturn."
Only one of the largest 24 initial public stock offerings globally in 2005 was registered in the United States, according to a study by accounting firm Ernst & Young .
Business leaders and lawmakers have been citing such figures in recent weeks with a sense of alarm.
But the E&Y study also showed the United States in 2005 remained the world's top country in capital raised in IPOs, as well as world leader in the number of IPOs.
Two of the world's biggest IPOs last year included China Construction Bank Corp. and China Shenhua Energy Co. Ltd. . Both listed on the nearby Hong Kong exchange.
Two others were Electricite de France and Gaz de France , both French companies that listed on the multinational Euronext exchange, which operates out of Paris.