Press releases 2006

29 June 2006

LONDON COMES FIRST FOR LOW COST CAPITAL

A newly published report, commissioned by the City of London and The London Stock Exchange, has demonstrated that the cost of capital at both IPO stage and beyond is lower in London than in other major European and US financial centres.

The report, by Oxera, an independent economic and finance consultancy, compares the cost of capital for equity transactions on Deutsche Börse, Euronext, the London Stock Exchange’s Main Market and AIM, Nasdaq and NYSE. In so doing, it highlights London’s unique mix of highly competitive underwriting, low compliance costs and the highest standards of corporate governance.

The report finds that the London markets are cheaper than NYSE and Nasdaq with respect to both underwriting fees and other direct IPO costs. Underwriting fees in London are typically 3-4 per cent of IPO receipts, compared with 6.5 -7 per cent in the US. The higher fees in the US do not appear to be offset by lower IPO discounting than in London.

Other direct IPO costs, such as legal and auditing costs, are also reported to be lower in London than in the US, largely due to the costs of complying with Sarbanes-Oxley. Despite the additional costs associated with a US listing, the report finds no evidence that Sarbanes-Oxley has delivered any significant regulatory benefits not already available under the UK corporate governance regime, enabling London to maintain its lead in this area.

Secondary market trading costs (e.g. brokerage commissions and fees) are also analysed in the report. Stamp Duty is identified as the principal factor affecting the overall cost of trading in the UK. Except for Stamp Duty, London enjoys the lowest direct trading costs of all the exchanges in the sample.

Chairman of Policy and Resources of the City of London, Michael Snyder, welcomed the Report:

"On an array of measures - from IPO costs, trading costs and perceived corporate governance standards - London offers a highly competitive environment in which to conduct business relative to its major challengers, but, of course, we cannot be at all complacent."

Chris Gibson-Smith, Chairman of the London Stock Exchange, said:

“The findings in this report highlight some of the reasons why London is the most attractive venue in the world for IPOs. The low cost of raising equity capital, when combined with the highest standards of corporate governance, underpins the unrivalled strength of the London markets.

“Maintaining London’s advantage will be especially important as financial markets globalise and barriers to international investment reduce. Stamp Duty still remains the grit in the wheels of the UK market and the Government should take steps to abolish it.”

The sample of exchanges analysed in the report represents approximately 58 per cent of the total world market capitalisation.