CAMBRIDGE, MA, November 24, 2008 – The Committee on Capital Markets Regulation (Committee) said today that its latest quarterly update on the competitiveness of global capital markets found evidence of a continuing, significant decline in the attraction of the U.S. public equity market for foreign and American issuers alike.
The latest analysis of competitiveness measures by the Committee was complicated by chaotic market conditions that distorted some of those measures. Those factors included a steep decline in global IPO activity during this year’s first nine months – just 85 global IPOs (those done by foreign companies outside their home markets) valued at $20.4 billion compared with 335 worth $95.8 billion in all of 2007. That is the biggest drop since the 2001-2003 period following the dotcom crash, when the aggregate value of global IPOs averaged just $10.4 billion annually.
Hal S. Scott, the Harvard Law School professor who directs the work of the Committee, said: “Notwithstanding the extraordinary market conditions that skewed some usually reliable measures of competitiveness, significant further deterioration in U.S. public equity market competitiveness clearly stands out.”
He noted that U.S. IPO activity was even more anemic than global IPO activity during the first three quarters of this year, with only 33 IPOs, compared with 220 completed in all of 2007. The 85 global IPOs completed in 2008 through the third quarter represent 25% of the full year 2007 total, while the 33 U.S. IPOs were just 15% of the 2007 total.
In other key conclusions, the Committee, an independent and nonpartisan research organization dedicated to improving the regulation and enhancing the competitiveness of U.S. capital markets, found that:
• U.S. exchanges continue to lose their share of global IPOs. From 1996 to 2006, U.S. stock exchanges attracted 28.7% (by value) of the IPOs done by foreign companies outside their home markets. By 2007, that figure had fallen to 6.9%, and through Q3 of 2008, to 2.0%.
• None of the largest global IPOs are in the U.S. – for the second straight year. In the 11-year period from 1996 to 2006, before it fell to zero in full year 2007, the U.S. had a 25% share of this market, with an average of five of the 20 largest global IPOs listed on a U.S. exchange.
• The number of IPOs that U.S. issuers list only abroad – a category all but unheard of a decade ago – has exploded. In the seven-year period from 1996 to 2002, 0.3% of U.S. companies listed their IPOs only on foreign exchanges. By 2007, that figure had jumped to 8.6%, and through Q3 of 2008 it rose sharply to more than 20% of all U.S. IPOs, or 7 of the 33 U.S. IPOs.
The Committee also found some usually reliable measures have been so distorted by market chaos this year that they currently are misleading.
Distorted measures favoring the U.S. public equity market in the latest quarter include total global market capitalization (38.7% vs. 32.8% in 2007) and the value of global share trading (52% in 2008 vs. 45% in 2007). Both reflect the wave of sell-offs hitting smaller non-U.S. equity markets, leaving the U.S. public equity market still the world’s largest and most liquid even after the erosion in this decade. The Committee recognized that a big drop in the percentage of New York Stock Exchange-listed foreign issuers who were seeking to delist their shares through Sept. 30 of this year (down to 5% from 15% in 2007) reflected a comparison problem. (The year earlier delistings may have been stimulated by a then-recent liberalization of SEC delisting rules.)
Among distortions in the opposite direction, the Committee noted a rise in activity of foreign issuers doing Rule 144A IPOs in the U.S. during this year’s first nine months. This rise (to about 95% of the value of global IPOs listed in the U.S. during the period, from 88% in 2007) may well reflect the near impossibility of getting IPOs done in the U.S. through much of the year more than an increasing aversion to the U.S. public equity markets.
The Committee found that while its Q3 update data must be read in the context of the low IPO levels amid market turmoil, the competitive position of the U.S. does indeed continue to deteriorate from historical standards. Without major reforms in shareholder litigation, the regulatory process and shareholder rights, these adverse trends will continue.
The Committee began tracking 13 separate measures of the competitiveness of U.S. capital markets on a quarterly basis in December 2007 with its report: “The Competitive Position of the U.S. Public Equity Market.” The 13 measures fall into five categories: (1) equity raised in public markets; (2) the relative size of the private Rule 144A and public equity markets in the U.S.; (3) cross-listings and delistings by foreign companies; (4) trading on U.S. and non-U.S. stock exchanges; and (5) regional origin of U.S. investment banking revenue. Historical data through Q3 2008 is now available on the Committee’s website at www.capmktsreg.org.
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