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Investment Exchanges and Clearing Houses Bill

I am grateful to the right hon. Gentleman for his intervention; hopefully, he will make a more substantive contribution in due course. I expect that there will be plenty of time in this debate for various points to be made by Members in all parts of the House. I very much look forward to the right hon. Gentleman’s contribution; I hope that it will be as revealing and interesting as yesterday’s was. My statement of 13 September was prompted by concerns about the potential implications of a possible takeover bid for the London stock exchange. At that time, a bid by NASDAQ, the US stock market, for the LSE was still only a possibility. As Members will know, NASDAQ has now announced an offer for the LSE, so with a bid on the table, it is important that we move swiftly. Our aim, with the co-operation of both Houses, is for the Bill to gain Royal Assent as soon as possible, consistent with proper parliamentary scrutiny. With support from all parts of the House, it should be possible to achieve that before the NASDAQ bid reaches its important point. Before I turn to the Bill’s detail, I want to set out the wider context. London today is widely seen as one of only two truly global financial centres in the world. It is the location for 70 per cent. of the global secondary bond market, for more than 40 per cent. of global derivatives, and for more than 40 per cent. of cross-border equities trading. London today has more foreign banks than any other financial centre, and it is the location for the headquarters of six of the world’s 10 largest international law firms. Based on its global reach and its reputation for free, fair and open global markets, London has in recent years been attracting business and listings from around the world. We are determined to keep it that way. I believe that international businesses have located in the City because of four great strengths: our commitment to the rule of law and the highest professional standards; the skills and flexibility of the work force and our ability to attract talent from around the world; our long-standing tradition of openness and internationalism—a global approach to competition and ownership that has allowed the City to innovate and to respond to new challenges; and the FSA’s highly respected principles-based and risk-based approach to regulation, which has been put in place over the last decade. I know that the whole House will join me today in paying tribute to the many men and women from across our country and abroad who work hard in the City and in our other UK financial services to build the City’s reputation and to contribute to its strengths. However, we are not complacent. Back in May, when I first became the Minister responsible for such matters, concerns were expressed to me about the effects of a possible takeover of the London stock exchange by a company based outside the UK, and the threat that that might pose to London’s attractiveness as a place for international listing and wider business. Some Members will know that the UK has for some years been open to overseas investment in UK exchanges. The London international financial futures and options exchange, ICE Futures and virt-x are all owned by overseas companies. Such overseas interest in UK exchanges in part reflects our principles-based approach to regulation, which has been flexible enough to accommodate the desire of exchanges to innovate in recent years, but rigorous enough to ensure the probity and integrity of our markets. However, following NASDAQ’s interest in acquiring the LSE, I have discussed the implications of such a change in ownership widely in recent months, including with all the interested parties themselves. I have made two points absolutely clear. First, the Government are neutral with respect to the nationality of the ownership of the LSE. It has been put to me that the right approach is Government intervention to protect the LSE from foreign ownership. I reject that argument. Such intervention would fly in the face of the traditions that have underpinned the City’s success over the past 20 years. A policy of protecting ““national champions”” would damage, not bolster, the interests of London and the UK. So the Government do not have and will not express any views about the commercial merits of the proposed NASDAQ takeover. It is for the current owners of the shares to decide whether to accept or reject the offer. But secondly, our interest in the ownership of the LSE is that it should not affect the existing regulatory regime under which the exchange and its members and issuers operate. We are determined to act to protect our domestic regulatory environment, founded in both UK law and EC directives, that has made the City a magnet for international business. If a company operates in London, it should be regulated in London. Following those discussions, in which a range of possible approaches were put to the Government, we concluded that the only way to provide the assurance to London and the UK was through primary legislation, by making changes to part 18 of the Financial Services and Markets Act 2000, which provides for the recognition of investment exchanges and clearing houses. Let me turn to the detail of the Bill. The provisions will confer a new and specific power on the Financial Services Authority to veto rule changes proposed by UK- recognised investment exchanges and clearing houses that would have an excessive regulatory impact. By excessive we mean that the proposed rules would impose a regulatory burden on a user of the exchange or clearing house, or the wider community, that could not be justified by any regulatory benefits, or whose effect on those users or the wider community would be disproportionate—and obviously that would not include anything already required by UK or EU law. The new powers will not put the existing provisions for regulation of the investment exchanges and clearing houses into question. They will apply only to future changes. But they will apply to all UK-recognised investment exchanges and clearing houses from the outset, not just after there has been a change of control. They will apply to all recognised exchanges and clearing houses, not just those that are in foreign hands. The Bill also provides for necessary processes and safeguards. The exchanges and clearing houses will be required to notify proposed changes to their rules and other regulatory provision—by which I mean any guidance, policy, practice or arrangement made by an exchange or clearing house—to the FSA. The FSA will have up to 30 days to decide whether to call in a proposal for further examination. If it calls in the proposal, the FSA will have to set a period in which it will consult publicly about the proposed rule change. The FSA will then have a further 30 days after that consultation period has ended to decide whether to veto the proposed rule change.