Those working in the institutions influencing capital markets, that’s to say governments,supervisors, financial institutions, financial advisers, accountants, lawyers, and last but not least, the functionaries such as investor relationship directors and compliance officers of listed companies, work continuously on the creation of trust. At the same time they all try to work on establishing cost effectiveness and efficiency. While it is true that a balance must be found between creation and maintenance of trust on the one hand, and efficiency on the other, in the end it is trust that is the most important because the point of capital markets is that the public is prepared to invest money in the activities of entrepreneurs, while having no idea what their success will be. We all know that trust must be built up carefully over many years, but its fragility is such that it can be shattered with one event, such as a major default or fraud by one influential company.
Such trust is to be found not only in business itself and the protection of investors through laws and regulations, but also the practice of the capital markets. Enron had a larger negative effect on the capital markets than 9/11 or the start of a war.
Since the first edition of Securities World in May 2005, there have been many new trendsand developments.
1. We had expected the introduction and implementation of various European directives (on prospectuses, transparency, MiFID and takeovers). Their main aim was liberalisation and harmonisation within Europe. The implementation dates have been different and the manner of implementation varies in areas where flexibility is allowed by the directives. However, in practice there has been quite a step forward, illustrated by the cross-border co-operation of supervisors in large mergers, such as Shell.
2. Mergers and proposed tie-ups between stock exchanges have come about because of – and have helped – harmonisation. Another reason for these mergers is the liberalisation created by MiFID in that banks can organise trading outside of the stock exchanges, which became possible due to advanced technology.
3. While listings are still the essential way to provide businesses with capital, private equity investment is growing exponentially. Some listed companies are even choosing ‘public to private’ to avoid the hassle of listing. Some companies are also leaving the New York stock exchange because the US rules are regarded as more time consuming and expensive than, eg, the English rules.
4. There has been a general move away from New York to London in the importance of the stock exchanges with regard to the number of listings and the amount of money invested through them. One of the reasons could be the stricter US rules, but it is unmistakable that increasingly wealthy Russian and Middle-Eastern companies find their way to the city of London rather than to New York because, among other things, they have traditionally done so since 1900.
5. Mrs Merkel, the chancellor of Germany and chair of the European Council of Ministers has announced that one of its main aims is to create harmony between the capital markets of Europe and the US. While previously the US has not been very enthusiastic about this prospect, its attitude of late seems to have changed. Such a move may later lead to increased harmonisation of rules with the Far East.
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