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Capital’s market

A FTSE-250 financial services company with a unique technology platform is in
danger of being taken over by a US rival. This news would merit a few
column-inches in the City press but, subject to the right price being offered,
another plc would probably fall to a foreign bidder.

The company, in this case, is the
Stock Exchange
– its suitor is Nasdaq. FDs are worried: our readers have
consistently said they oppose the Stock Exchange’s loss of independence, whether
to the Franco-Dutch-Belgian Euronext, Deutsche Börse, or Nasdaq.

We’ve argued on this page that London wouldn’t really be affected by such a
takeover. The fact that the LSE seems little more than “a glorified eBay
interface between shareholder registers” had to be set against the unique
advantages in London – the people, the money, even the time zone – none of which
would be diminished as a result of a change of ownership.

I would like now to engage not so much in a U-turn as a screaming,
rubber-burning, full-throttle handbrake turn. As the LSE issues its defence
document, we’d like to join in the chorus calling for the rejection of the bid –
and for a reference to the Competition Commission.

Many FDs’ concerns about ‘regulation creep’ that might ensue following a
takeover by a Sarbox-obsessed Nasdaq were assuaged when the government took
action late last year, passing the Investment Exchanges and Clearing Houses Act.
This quick-fire piece of legislation gives the Financial Services Authority the
power to prevent an investment exchange (elbows pointed firmly at a Nasdaq-owned
LSE) from imposing any “excessive” or “disproportionate” regulation. You can
hear the American lawyers queuing up to earn their fees arguing what that means.

But even if the argument about regulation is adequately dealt with, there is
soon going to be a critical issue regarding competition. Today’s papers carry
the news that Euronext has agreed to be taken over by the New York Stock
Exchange, Nasdaq’s domestic rival, but with which it has agreed to merge
regulatory oversight bodies. Put Nasdaq and the LSE together and at a stroke
four international equity markets are in effect reduced to two. Think how
quickly the Big Six accountancy firms became the Big Four – and the angst that
now ensues over fears of a Big Three. The London Stock Exchange’s vision to be
“the world’s capital market” is a realistic goal as more and more companies from
emerging markets turn to London in search of a share listing. Ownership by
Nasdaq would surely begin a slow sapping of London’s unique position to the
detriment of companies everywhere.

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