Edward S Knight, executive vice-president and general counsel for Nasdaq, the US stock exchange, elaborates on what the much-feared implementation of the Sarbanes Oxley Act means to India.
Nandini Lakshman & Nikhil Lohade
Edward S Knight, executive vice-president and general counsel for Nasdaq, the US stock exchange, elaborates on what the much-feared implementation of the Sarbanes Oxley Act means to India.
The India trip: We have come here to communicate and address the concern on the part of both Indian companies and Nasdaq, on the impact of Section 404 of the Sarbanes Oxley Act (SOX) on non-US companies.
They are looking at ways to deal with it and soften the blow. Just yesterday, the accounting authority in the US released a report saying that many accounting firms were being too tough on 404, and urging them to take a more risk-based top down approach to the law.
Those sorts of developments, I believe, will get us to a place which will not present major obstacles to the markets.
On India Inc's concerns: It's the same concerns that US companies had. The cost associated will not produce the risk mitigation that was intended to be generated.
The cost-benefits of SOX: The increased confidence that investors have in the markets, the knowledge that the disclosures that they are reading is accurate. We cannot emphasise enough that accurate information is the life-blood of the markets.
If you do not believe that the company information you have in front of you is accurate, then you will not invest in the company. So one way or the other, much about SOX is about ensuring that the final disclosures made by public companies on a quarterly and annual basis are accurate.
And they fully disclose issues that are important to investors. Consequently, investors can continue to risk much of their savings in equity markets.
About non-US companies going to other exchanges: I think the problems associated with SOX are exaggerated. Out of the 3,200 companies listed on the Nasdaq since SOX took effect, just half a dozen dropped out of the market. It has not frightened companies from listing on the Nasdaq or doing their initial public offerings (IPO).
The number of IPOs in the last two years were very high. So people are still accessing the capital markets in the US.
On Indian companies looking at other options: I would say that on the Nasdaq, you are accessing $17 trillion of liquidity, and the market is very efficient and issue costs are very low to raise capital.
On the London Stock Exchange's offer (allowing Indian companies to use Indian accounting standards instead of the US GAAP): We have to look behind that, in the sense that can all these companies list on the major stock markets like the Nasdaq. No. They don't meet our listing standards.
The SEC (Securities Exchange Commission) is still looking at what kind of rules should apply to non-US companies. I think they are looking at creating some exceptions and clarifications how the standard applies.
On Nasdaq wooing Indian companies: It is not only the IT sector, but automobile, pharma, industrial and banks are some of the sectors which have evinced interest.
On the SOX's Section 404 confusion: There are few instances of smaller companies, they have crossed the social limit and they they don't generate the benefits we expected, so there are changes propsed. Nasdaq has complied with 404, but non-US companies need not comply with 404.
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