International -- Editorials
BEEF UP LONDON'S EXCHANGE POLICE (int'l edition)
After New York and Tokyo, the London Stock Exchange is the world's largest, and it trades more foreign than domestic stocks. Yet London seems plagued by rampant insider trading--at a time when the French, German, and other bourses are clamping down on such wheeling and dealing. In today's global capital markets, exchanges know it's necessary to make stock markets fair and transparent, if they are to attract overseas mutual-fund investors and foreign-company listings. London's preeminent place in the world financial system is at risk (page 44).
Those in the know can rake in huge profits. Stock prices routinely spike in the week or so before a major announcement, such as a merger or stock buyback. The exchange, upset by the apparent rise in insider dealing and worried about the harm it does its reputation, has taken steps to arrest such practices--with little success. It needs more help from government regulators. But Britain's Department of Trade & Industry (DTI), which investigates and prosecutes insider abuses, has brought just 34 insider-trading cases in 15 years, vs. more than 450 such cases by America's Securities & Exchange Commission.
Experts may disagree on the details, but they're starting to coalesce around a set of remedies to clamp down on insider trading. Possible reform measures: Take away from the DTI responsibility for curbing financial market abuses. Cut down on Britain's confusing array of existing self-regulatory bodies. Create a single agency with expanded powers to pursue and prosecute insider traders. What is clear is that the status quo is unacceptable.
Only sweeping regulatory reform will give international investors and managements the assurance they need: that London's insider traders will no longer get off scot-free. Without reform, they'll go elsewhere in the global capital markets.