It seems like every few years there’s an initiative by New York or London to “reclaim” its standing as a top financial center. So we greeted today’s news of such a campaign by the UK government as, well, something quite familiar.
There’s more than national pride at stake in these efforts. Financial services accounts for a large share of private employment and tax collections, and the sector fuels a host of related industries, from legal and accounting services to lodging, transportation and entertainment.
It wasn’t so long ago that US officials were openly worrying about Wall Street’s lagging status among global financial capitals. A 2015 report from the Partnership for New York City warned that New York’s position in global finance was threatened by high US corporate tax rates and “a new level of oversight, regulation, enforcement and prosecution” imposed on the financial sector following the 2008 market crisis.
Even before the financial crisis, US officials were warning of threats to New York. A landmark 2006 report from Mayor Michael Bloomberg and Sen Charles Schumer ominously said: “Unless we improve our corporate climate, we risk allowing New York to lose its preeminence in the global financial services sector.”
Europe and Asia were in the ascendancy, the Bloomberg-Schumer report argued, because of their favorable regulatory climate. At the time, the newly enacted Sarbanes-Oxley law was seen as a deterrent to listing in the US because it required companies to attest to the adequacy of their internal financial controls. Memories of the Enron and WorldCom scandals were still fresh, after all. Here’s how the report described it:
The world’s corporations no longer turn primarily to stock exchanges in the United States, such as the NYSE or NASDAQ, to raise capital internationally. Over the first ten months of 2006, US exchanges attracted barely one-third of the share of IPOs measured by market value that they captured back in 2001, while European exchanges increased market share by 30 percent and Asian exchanges doubled their share. In part, this is because more European and Asian markets are now deep enough to meet large companies’ capital needs locally. However, New York’s decline in international capital raising is also due to non-US issuers’ concerns about compliance with Sarbanes-Oxley Section 404 and operating in what they see as a complex and unpredictable legal and regulatory environment.
Nearly 20 years later, New York’s position seems solid, and London is now working to reverse its decline. London’s IPO volume tumbled by 88 percent in 2023 compared to a year earlier, with just 10 firms raising $443 million, compared to 16 IPOs in the US that raised a total of $9.5 billion.
London’s current push is focused on attracting newly formed technology companies to list their shares on the London Stock Exchange (LSE) by loosening requirements around dual-class share structures and traded market capitalization.
Those changes might help, but the poor performance record of London’s Alternative Investment Market (AIM) could be an added barrier. AIM, which permits companies to list under less-stringent requirements than the main LSE, saw 70 companies delisted over the past year, and its total listings are down by more than half since 2007.
Surprisingly, reforming UK executive pay – one issue that could be a real barrier to London’s desire for more share listings – goes unmentioned in the British government’s current campaign. UK-listed companies must get shareholder approval for their executive-pay policies at least once every three years and cannot make awards to executives without it. US-listed companies face no such requirement. The CEO of the London Stock Exchange, has pointed to this disparity and has called for a broad-based rethink of executive pay practices in the UK.
Besides its edge in executive pay, New York benefits from the healthy competition between its two major exchanges, NASDAQ and NYSE. The exchanges have also struck a good balance between corporate and investor interests when it comes to their listing rules on such things as market capitalization, disclosure, director independence, and dual-class share structures.
Yet much of the debate on who has the dominant finance center comes down to perceptions, rather than fine points of regulatory difference. London is bruised because of its exit from the European Union, and its economy is stuck in a slow-growth rut. Buzzworthy tech companies – and their private-equity backers – have their sights set on other markets. A strong US economy and a roaring stock market give New York the edge.