The front line in the battle for global IPOs runs through Rue Cambon in Paris, near Place de la Concorde. This is where Catherine Kinney, who oversees the listings business for NYSE, has her new office. As of July she has been based in the French capital, one of the changes arising from the Big Board's merger this year with Euronext, the French firm that groups the Paris, Amsterdam, Brussels, and Lisbon bourses. The combination is supposed to provide a range of options to companies looking to go public. One of the big selling points is the "SOX-less" listing: the opportunity to be on a market affiliated with NYSE but not policed by the SEC or subject to Sarbanes-Oxley corporate-governance rules. Nasdaq is trying to pull off a similar feat with a proposed merger with Stockholm's OMX, which groups seven Nordic exchanges.
Listings have become a huge focus of attention in the New York vs. London battle, unlike, say, derivatives, because it's easy to add up the numbers and see how New York is losing. One chart in the McKinsey report speaks volumes: It shows that the U.S. accounted for 57% of IPOs valued at more than $1 billion in 2001; in 2006 that share was just 16%.
Kinney flips through a presentation she has just given to the board. One slide highlights the value of stocks traded daily on NYSE and Euronext together. It is almost triple the volume of the London Stock Exchange. Another boasts that 79 of the world's 100 largest public companies have their home on NYSE Euronext. Then comes the slide marked "The Center for Global IPOs." It's rather less convincing: Measured by the total capital raised, NYSE narrowly beat London in 2006, but that's only by including Euro-next, which it didn't own. And the U.S. missed the three biggest offerings of the year - Rosneft in London and two Chinese bank IPOs that went to Hong Kong. "It's clear that the U.S. has lost some ground," Kinney says. "The regulatory environment in the U.S. has made it less competitive."
Across the English Channel, in London's Paternoster Square, Tracey Pierce turns the same argument to her advantage. Pierce is in charge of international listings at the London Stock Exchange. When she and her people are on the road pitching to prospective companies, she says, they always start by stressing the advantages of a London IPO. Only then do they stick the knife into New York. "We believe in the highest standards of corporate governance, but we have a principles-based model, which is more flexible than one that is rules-based," she says. What she means is that the London regulators, unlike the SEC, do not impose a one-size-fits-all regime on prospective listing companies. She's unmoved by the recent U.S. initiatives to tinker with Sarbanes-Oxley requirements. For New York to fight back, she says, "they would have to make large headway in repealing or diluting these rules and regulations, and I don't see much political will for that."
How big a deal is all this for listing companies themselves? That depends on what they're looking for. When Chinese solar-power company Suntech Power decided to go public in 2005, chairman Shi Zhengrong had no hesitation about picking New York, because he hopes the U.S. will become an important market for the firm's products. Yes, complying with U.S. regulations costs a bundle. But being able to meet the stringent standards makes Suntech shine. "It's good for companies to have strong internal controls," Shi says. "It helps them live longer, and we want to live to be 100."
For Kishore Lulla, by contrast, New York was never an option. "The general consensus is that a U.S. listing is more cumbersome than a London one," he says. An Indian, he runs Eros International, a Bollywood movie-distribution company that does a lot of business in the U.S. But he had no hesitation about listing on AIM last year. "London was the obvious choice," Lulla says. "It's the financial capital of the world."
AIM is a big selling point for London. It focuses on small and midsized growth companies that have difficulty raising capital in more established markets. Listing is a deliberately simple procedure, with no prospectus, no minimum float, and no financial history required. AIM firms aren't even subject to the Financial Services Authority, the London regulator, but instead are vouched for by an approved financial firm known as a "nomad," or nominated advisor. If something goes wrong, the nomad's reputation is at stake. Big Board CEO John Thain and others in the U.S. grumble that regulatory standards are too lax, but so far the number of failures is in line with more regulated markets.
Liquidity is a bigger issue, as Aqua Bounty, an aquaculture biotech firm in Waltham, Mass., that makes a feed additive for shrimp, has discovered. Aqua is one of 63 U.S. firms on AIM, and CEO Elliott Entis says he is "very pleased" with the listing, which raised $40 million. "When you try to work with Wall Street, you get 15 minutes to tell your story, and very few firms are interested in the size of the deal that interested us," he says. "You get a better opportunity to tell your story in London." But Aqua's stock is so thinly traded that when one big investor sold its stake, the price collapsed. "I would be upset if we were looking for a follow-on listing," Entis says, "but we think that over time the price will recover."
Nasdaq, which failed in its bid to acquire the London Stock Exchange last year, has taken the hardest beating from AIM but claims not to be fazed. "Those $5 million to $10 million companies - we don't do that in the U.S.," sniffs Charlotte Crosswell, who's in charge of global listings for Nasdaq. Instead, the exchange is going after the much larger 144A private placements by creating a new trading platform for them. NYSE is taking the competition from the small fry more seriously. Through its merger with Euronext it can now offer a European small-cap listing that directly rivals AIM, although the regulatory rules are slightly more stringent. London isn't sitting still either. Last month it agreed to acquire the Italian bourse and, working with authorities in the City, has been spreading the word about its advantages. In the past year big British delegations have visited China and India. Next up: Brazil. "We are targeting the cream," says Pierce.
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London hasn't always been so cocky. In the 1990s, in the aftermath of scandals that included the collapse of BCCI and Barings Bank, it worried about losing its preeminence in Europe to Frankfurt, the German financial center that became home to the European Central Bank. Canary Wharf, built as an alternative to the City in the East End Docklands, even filed for bankruptcy. Today it's bursting, with an occupancy rate of 96%.
Howard Davies says a key to London's changing fortunes was that it deliberately geared itself toward attracting international business. He's dean of the London School of Economics, and he played a major role in regulatory reforms in the late 1990s as head of the FSA, the single London regulator that emerged from that era for banking, insurance, and all other financial activity.
"The whole mindset here is that international business is an important part of the national economy," Davies says, "so we'd better make sure the regime is conducive to it, or it might go away." Until recently, he says, that attitude has been absent in New York and Washington. But it's changing. "I don't expect Goldman Sachs to close down in New York, and I don't think properties in the Hamptons will plunge in price," he says. "The two markets will coexist comfortably for some time to come."
That may be true, and there's no guarantee that the current self-confidence in London will last forever. But the City is sure of one thing: It has found the magic formula for today's increasingly global capital markets. It has opened up to the world, and the world has come flocking. The question is how long it will be before New York and a host of other cities follow suit.
Jenny Mero contributed to this article. 
