American Markets: Strongest in the World

The Truth about America’s Markets

In recent months, the U.S. Chamber of Commerce, the Financial Business Roundtable, and the Administration, among others, have launched an aggressive and well-orchestrated campaign to drastically roll-back investor protections in the name of making the U.S. financial markets more “competitive.”  The pretext in this campaign is that American markets are losing competitiveness because of excessive regulation and litigation.  The tale of America’s so-called declining competitiveness is a complete fabrication based on misleading half-truths aimed at eliminating legal accountability and weakening Enron-era regulatory measures.  By every important measure of competitiveness---attracting capital, providing investors with a safe and profitable place to invest and providing companies with access to low-cost capital---U.S. markets remain unrivaled. 

MYTH: American markets are losing competitiveness.

FACTS: The U.S. markets remain the strongest in the world because of an extraordinary ability to attract both listings and capital.

• Foreign investors held 1.9 trillion in U.S. equities in 2004, or 11.1% of all outstanding equities.[i]

• The U.S. markets enjoy the greatest participation of retail investors.  In 2005, 57 million U.S. households held stock either directly or through mutual funds.[ii]

• In 2005, the U.S. led the world with the highest percentage of all IPOs conducted (14%), as well as the highest total of IPO proceeds ($33.086 billion).

• U.S. IPO volume increased by 22% from 2005 to 2006.[iv]

• During the last quarter of 2006, there were 94 registered IPOs on the American exchanges--- the highest quarterly level since 2000.[v]

MYTH:  Investors are increasingly choosing to invest in foreign markets because of America’s over-zealous regulation.

FACTS:  Congress overwhelmingly passed the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) to remedy the devastation caused by a weak regulatory structure and restore investors’ confidence in America’s markets. 

• The percentage of foreign stock offerings conducted in the United States in 2004, after key provisions of SOX had been implemented, was higher than in any year since 2000, higher than in all but two years since 1990, and dramatically higher than in 2003.[vi]

• Sarbanes-Oxley ensures that only quality firms list on U.S. exchanges. IPOs that list on foreign markets rather than U.S. markets often times involve weak companies that lack the quality of companies listing on U.S. markets.  In fact, BDO Stay Hayward recently reported that London was “paying a steep price” for “a slew of new stock listings” during 2006 as “financial fraud in the United Kingdom rose 40 percent.”    The study expects fraud to rise continue to rise in 2007.[vii]

• America cannot afford another Enron. In 2002, SEC Commissioner Paul Atkins stated that Enron and other accounting scandals resulted in market losses of $5 trillion, or $60,000 per U.S. household.[viii]

MYTH: Excessive securities class-action lawsuits threaten the ability of U.S. markets to compete globally.

FACTS: Securities litigation is not in need of reform.  Since Congress enacted the Private Securities Litigation Reform Act of 1995 (PSLRA), securities class-actions continue to decline.  

• There were 176 securities class action lawsuits filed in 2005, which was a 17% decrease from 2004 and well below the 1996-2004 average of 195.[ix]

• Cornerstone Research recently reported that “[c]lass action securities fraud filings plunged to a record low in 2006” and the annual total of 110 filings was “the smallest number of filings in a calendar year” since the passage of the PSLRA.[x]