THE COMPETENT AUTHORITY (Hansard, 5 June 2000)

§ Mr. Timms
I beg to move, That this House agrees with the Lords in the said amendment.

§ Mr. Deputy Speaker
With this we may discuss Lords amendments Nos. 80, 81, 83, 90 to 96, 99, 104, 105, 107 to 109, 111, 112, 436, 559, 626 to 631 and 633 to 636.

§ Mr. Timms
This group of amendments relates to the provisions of part VI, which deals with the listing of securities. They are consequential upon the decision to transfer the competent authority for listing function from the London stock exchange to the FSA.
The House will recall that when the Bill was originally drafted, the assumption was that the stock exchange would continue as the UK's competent authority. However, in the light of the stock exchange's decision to demutualise and become a for-profit company, which was announced in July 1999, it was inappropriate for it to continue to exercise the public function of competent authority. The FSA has now taken on that role under the Official Listing of Securities (Change of Competent Authority) Regulations 2000, which came into force on 1 May 2000.
Although the transfer of functions to the FSA has already taken place and is working well, it is clearly necessary that the Bill should also take account of the new arrangements. My hon. Friend the Economic Secretary therefore announced in Committee that we would be bringing forward amendments to that effect in due course. The amendments were made in another place.
The amendments fall into two categories. Some, such as amendment No. 79, which will replace the words "Stock Exchange" with the word "Authority", are simply drafting changes. However, there is a category of amendments which is intended to provide for how the FSA is to carry out its responsibilities as the competent authority. The key amendment in this respect is amendment No. 626, which will introduce a new schedule 62 after schedule 6. That new schedule applies the provisions of the rest of the Bill to the authority, with modifications, when it is exercising the competent authority function. It does not simply apply the entire Bill en bloc to the competent authority because there are differences between the regulatory and listing functions, which it is helpful to allow for in the arrangements that we make.
So the schedule disapplies clause 7, which places a duty on the FSA to make arrangements for consulting practitioners and consumers. That is not necessary in the context of the competent authority because it already has a listing committee which fulfils that function, and which will continue in existence when the Bill comes into force.
The remainder of the amendments are very much along the lines that I have described, and I think that they will be broadly welcomed.

§ Mr. Flight
The change from the stock exchange to the FSA as the listing authority was debated at considerable length both in Committee and at the time of the relevant order. Many questions were raised. The central issue was how matters would go forward in future. Since then, the proposed merger of the London and Frankfurt stock exchanges has been announced. How are the Government expecting the listing role to work in that context?
In particular, under the new arrangements, it is envisaged that a continuing, traditional exchange in London will deal with established blue chip companies, and that growth and new economy stocks will be listed in Frankfurt. Do the Government intend the FSA to be the listing authority for such stocks, even if traded in Frankfurt, or do they intend to limit the FSA's role as the listing authority to stocks traded only on the continuing blue chip London stock exchange?
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I understand that the intention is that stocks could be listed by the FSA but traded in Frankfurt. That would give rise to major international problems because pension funds, collective investment schemes and other such vehicles frequently have requirements that securities should be listed and traded at the same recognised stock exchange. Therefore, many United Kingdom stocks could be listed not on the exchange but by the FSA as the listing authority, and traded on a different stock exchange—Frankfurt. That could happen quickly. The fact that Frankfurt is involved in a merger does not cease to make it separate from the London stock exchange. If that were the case, large numbers of stocks would be held illegally in various portfolios around the world.
Few of us expected the stock exchange proposals to come forth in their current form. The reaction of the members of the stock exchange suggests that the deal may not go ahead in that form, but the possibility that the London and Frankfurt stock exchanges might merge was contemplated when the FSA became the listing authority, and the Government have become involved in the process. It is fine to say that the stock exchanges can do what they want, but the Government clearly have a responsibility because the listing authority—the FSA—is part of the public sector.
In essence, the mechanism for transferring the team of people and the listing responsibility to the FSA has been provided for under the Bill, the amendments and the exemption order. That mechanism is operating, but a very 63 different stock exchange scene could come into play, against which it must interact. Therefore the Government should tell the House how they expect those issues to be addressed so that they do not damage the ability of investors throughout the world to invest in British securities.

§ Mr. Tim Loughton (East Worthing and Shoreham)
I shall add some questions to those asked by my hon. Friend the Member for Arundel and South Downs (Mr. Flight). The story of the competent authority has been changing fast ever since it was first considered in Committee just after the summer recess. Indeed, we faced a wholly different scenario in Committee when we returned from the summer recess to be told suddenly that the stock exchange would lose its role as the competent listing authority, in favour of the FSA. That news was not heralded before the summer and it was certainly not envisaged by the head of the FSA earlier last year.
Now—just six or seven months later, as my hon. Friend said—the entire scenario is about to change again because of the proposed tie-up between London and Frankfurt, which, depending on the members of the London stock exchange, may or may not happen, although it has been agreed in Germany. Therefore, we must ask some questions. If that takeover goes ahead, what are the listings standards for the German equivalent of the FSA—the name of which I shall not attempt to pronounce, as some did in Committee.
Exactly what will be the link between the London and Frankfurt listing authorities? Where will the division of spoils lie, and for which stocks will which body be the competent authority? Are there any implications for alternative investment market stocks remaining with the stock exchange as the competent authority? I have raised those issues many times. If the new technology stocks, of which the AIM has many examples, go to Frankfurt—which seems likely—surely the AIM may go as well, in which case the stock exchange will be left with no listing responsibilities.
We have asked questions, which were never properly resolved, about the apparent conflict of interest between the FSA acting as the competent listing authority—raking in about £29 million, as the stock exchange did last year—and its power to regulate companies that have obtained a listing, for which they pay a fee to the FSA. The implication is that regulatory standards may be lowered to bring more companies to the market for listing, which will provide more listing revenue. Such conflicts of interests still exist, and are muddied even further by the division of responsibilities between London and Frankfurt.
I am not entirely clear about what will happen if the merger between London and Frankfurt takes place before NASDAQ comes on the scene. That third suitor waiting at one end of the aisle may change the entire scenario. Given the many changes that have taken place, we deserve a more detailed explanation of exactly what will happen. Companies that want to list need clarity. The regulatory authorities in London and Frankfurt may have different approaches, and we have heard only about the supposed commercial advantages of the merger, not about the effect 64 on the companies to be listed, or to which regulatory authority they will be beholden. Will the Minister elaborate further?

§ Mr. Timms
The hon. Member for East Worthing and Shoreham (Mr. Loughton) is right about the speed at which the developments have unfolded, but we have no doubt that the provisions relating to the recognition of exchanges can cope with structures such as the proposed international exchanges. We are confident that the recognition requirements for exchanges will be robust enough to cope with issues that may arise because of the operations outside the UK of UK-based exchanges.
The hon. Members for Arundel and South Downs (Mr. Flight) and for East Worthing and Shoreham asked some detailed questions about the listing regime, but its details are not settled as yet. It would appear that companies will not be forced to give up their current listing, so both markets will be able to trade in the shares of companies operating under different listing regimes. That happens already; overseas companies listed on the London stock exchange do not have to comply with all the listing rules. The differences between UK and German listing regimes may be dealt with under the trading rules set by international exchanges. Those additional requirements may bring the two regimes more into line.
A misunderstanding may have arisen. The directives require each member state to appoint a competent authority for listing, but there is no requirement that securities have to be listed to be admitted to trade on an exchange. Listing is a seal of approval, ensuring that investors know that the issuers of a security will provide certain information to the markets at prescribed times. It is also an EU-wide concept; an enterprise admitted to listing in one member state can be admitted to trading as a listed security on any stock exchange in any member state. The announced merger would not therefore raise any problems for listing.