May 22, 2007

Trouble for Glass Lewis

Glass Lewis suffered a blow when it was announced over the weekend that two of its key staffers – Lynn Turner and Jonathan Weil – have resigned (Jonathan has already left; Lynn leaves in two weeks). This article indicates the flap is over a dispute involving Glass Lewis’ parent company, China-based Xinhua Finance Media Ltd. The dispute revolves around inadequate disclosures regarding the Chinese parent’s CFO in the parent’s IPO prospectus (which has led to a class action lawsuit). This WSJ article indicates the flap is generally over the parent’s conduct (and the article raises questions about ISS’ and Glass Lewis’ new ownership; Glass Lewis’ parent went public last year and ISS’ parent may go public soon).

Lynn was the Managing Director of Research and a former SEC Chief Accountant and Jonathan was Managing Director and Editor of Financial Research and a former WSJ reporter who broke the Enron scandal wide open. I believe Barron’s first reported on this development in this article.

Nasdaq Seeks to Reestablish PORTAL as a 144A Trading Market

Recently, Nasdaq has filed a proposal with the SEC seeking to reestablish PORTAL as a facility for broker-dealers to publish quotes for qualified Rule 144A securities and trade these securities, among themselves and with QIBs.

This is similar to how PORTAL was originally intended to operate when it was launched many years ago. PORTAL never thrived as a marketplace – and NASDAQ’s current role with PORTAL (which it assumed when it separated from the NASD and commenced operations as a national securities exchange) is limited to the review of whether an issue of privately placed securities meets the eligibility requirements of Rule 144A. This role would change if the proposal is adopted.

Don’t forget our upcoming June 5th webcast – “The Nasdaq Speaks: Latest Developments and Interpretations” – to hear key Nasdaq Staffers talk about all the latest…

UK’s Securities Regulator May Act on IPO Concerns

A month ago, the Financial Times published this article: Financial regulators yesterday gave the first official recognition of intensifying City concern about the impact some overseas listings are having on the standards and reputation of London.

The Financial Services Authority said it will canvass opinions in the City about how to clarify the regulations to make clear whether companies have chosen light-touch listing methods, which can offer investors less protection. It said it was calling for formal debate about the balance between attracting new flotations and maintaining quality.

The decision comes a day after John Thain, chief executive head of the newly merged NYSE Euronext exchange group, took a thinly veiled swipe at the London Stock Exchange, criticising corporate governance and inadequate protection for minority investors offered by some Russian companies. There has been a steady flow of Russian and Kazakh companies seeking to raise capital in London.

The FSA’s decision to formalise an already rumbling debate followed private pressure brought to bear by a group of large shareholders this year. There are widespread worries among institutional investors about the ability of companies with weak corporate governance standards to raise capital on the LSE. In February, a group of important investors, including Hermes, Fidelity, State Street, Royal London, Barclays Global Investors and M&G, warned the FSA the quality of the market was under threat. “In a less benign [economic] environment some decisions being taken now might come back to haunt the regulators,” a fund manager told the FSA.

Hector Sants, managing director for wholesale business at the FSA, said new issues from non-traditional markets and European regulations designed to open up competition made it important to consider the balance: “This is a very important debate because of the changing nature of capital markets.” Peter Montagnon, head of investment affairs at the Association of British Insurers, said investors were concerned about confusion between different types of London listings. These include primary, with traditional corporate governance standards; secondary, which need no primary listing elsewhere and have minimum regulation; and global depositary receipts, only available to professional investors.

The LSE also operates the Aim junior market with weaker regulation. “There’s a risk of confusion here, and there’s a risk that if we are not careful we could sacrifice some of London’s reputation for quality and with it one of the reasons it is an attractive market,” he said. Even some investment bankers – who make large fees from listings – are concerned. A senior industry figure said: “Has it gone too far? Not yet, but we’re close.”

The LSE has been successfully promoting itself in Russia but is keen to head off investor criticism, which surfaced last year when several big groups attacked the listing of Rosneft, Russian oil producer. The LSE welcomed the debate. “We are particularly keen to have clear labelling of the different forms of listing, giving investors the choice but making sure it is very clear exactly what they are being given,” it said.