February 2008

BACK OFFICE VIEW: Exchange warfare

"The new market segment is a clear attempt to leverage the relationship between nyse and euronext and position the exchange as truly global" Alain de Foucaud (Taylor Wessing) 08_02_de-foucaud.jpgNYSE Euronext, supported by the French Regulatory body, the Autorité des Marchés Financier (AMF), is to launch a light regulation market segment. The first listings are expected to occur in January 2008. The intention behind this move is to encourage international companies to list in Paris. NYSE Euronext will seek to achieve this goal via the appeal of light-touch reporting and an expedited listing process within the new market segment. This move is designed to strengthen Paris’s standing as an international financial centre and is seen as a tactic to allow Paris to compete directly with London’s popular Alternative Investment Market (AIM), as well as other international exchanges. It is yet another example of how competitive the market for international capital flows has become. The idea of a light-touch market segment in Paris was first unveiled in October last year, by Christine Lagarde, the French economy minister. The AMF subsequently undertook a consultation period and the results of the consultation, along with the finalised legislation, were released late last year. Under the new rules, admission documents for companies listing within this new market segment will not be required to be translated into French. Statutory auditors will also be exempt from reading the entire admission prospectus. Both of these proposals will save issuers time and money. The new market segment is a clear attempt to leverage the relationship between NYSE and Euronext and position the exchange as truly global. Regulatory work done in the US will be recognised and so companies listed on the NYSE wishing to be listed in Paris may use their original inscription for listing, without having to obtain further regulatory approval. This in turn will encourage dual listings. Of course, encouraging such a flexible regime does open NYSE Euronext up to some of the criticism that has been levelled at other light-touch markets, most notably AIM. In 2007, a number of investors and regulators spoke out against AIM, claiming that the regulatory regime was inadequate, and created unacceptable levels of risk for investors. In order to head off similar criticism, shares in the new NYSE Euronext market segment will only be accessible to qualified investors.  This new market segment is good news for France and also for international companies seeking access to capital, while maintaining adequate safeguards for investors. Its launch should serve to drive down the international cost of capital and may prove a particular boon to US companies looking to gain a foothold in Europe. It will be very interesting to see how the implementation impacts on the ongoing battle for dominance between international financial centres. Other exchanges are also expected to respond to this development, perhaps by launching similar initiatives of their own. The launch of this market segment is only one element to Paris’s strategy to compete more effectively as an international financial centre. A committee (Haut Comité de Place) dedicated to identifying and eliminating obstacles to the growth of financial services in Paris has been formed by Christine Lagarde and is already beginning to make recommendations. The French government has also promised to stop embellishing or ‘gold-plating’ EU regulations and cut red tape. 2008 promises to be a testing year for financial markets, and the launch of this new market segment, along with the prospect of ongoing reforms in France, is a welcome development for investors, fund managers, regulators and advisors.

• Alain de Foucaud is a partner and head of capital markets at the Paris office of European law firm Taylor Wessing ©  fe February 2008

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