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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
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.
Lords amendments Nos. 80 to 102 agreed to.
New clause
Lords amendment: No. 103, after clause 92, to insert the following new clause--Competition scrutiny--
("Competition
--(1) The Treasury may by order provide for--
(a) regulating provisions, and
(b) the practices of the competent authority in exercising its functions under this Part ("practices"),
to be kept under review.
(2) Provision made as a result of subsection (1) must require the person responsible for keeping regulating provisions and practices under review to consider--
(a) whether any regulating provision or practice has a significantly adverse effect on competition; or
(b) whether two or more regulating provisions or practices taken together have, or a particular combination of regulating provisions and practices has, such an effect.
(3) An order under this section may include provision corresponding to that made by any provision of Chapter III of Part X.
(4) Subsection (3) is not to be read as in any way restricting the power conferred by subsection (1).
(5) Subsections (6) to (8) apply for the purposes of provision made by or under this section.
(6) Regulating provisions or practices have a significantly adverse effect on competition if--
(a) they have, or are intended or likely to have, that effect; or
(b) the effect that they have, or are intended or likely to have, is to require or encourage behaviour which has, or is intended or likely to have, a significantly adverse effect on competition.
(7) If regulating provisions or practices have, or are intended or likely to have, the effect of requiring or encouraging exploitation of the strength of a market position they are to be taken to have, or be intended or be likely to have, an adverse effect on competition.
(8) In determining whether any of the regulating provisions or practices have, or are intended or likely to have, a particular effect, it may be assumed that the persons to whom the provisions concerned are addressed will act in accordance with them.
(9) "Regulating provisions" means--
(a) listing rules,
(b) general guidance given by the competent authority in connection with its functions under this Part.")
Miss Melanie Johnson: I beg to move, That this House agrees with the Lords in the said amendment.
Mr. Deputy Speaker (Mr. Michael J. Martin): With this we may discuss Lords amendments Nos. 181, 182 and 183 and the amendment thereto, 184 to 186, 192 to 210, 337, 338, 353 to 371, 376 to 390, 392, 442 and 660.
Miss Johnson: This group of amendments completes the changes that we made in the House on the competition scrutiny regime for the FSA in the light of the Cruickshank report. The changes made in another place apply to recognised bodies under part XVIII the same scrutiny arrangements as apply to the FSA, and give the Treasury a power under part VI to do likewise for the competent authority listing.
The headline change is that we have given the Competition Commission an important role in the competition scrutiny arrangements and reduced the scope for Ministers to take a different view from the competition authorities.
In another place, changes were made to three aspects of the FSA scrutiny arrangements. First, improvements were made to the definition of what the regime was intended to cover. The description of what is bad for competition was revised so as to take the wording away from that used in article 81 of the European treaty. Similar language is, of course, used in chapter I of part I of the Competition Act 1998.
However, the Competition Act and the treaty are concerned with the behaviour of commercial undertakings. Given that the provisions of part X are concerned with the application of competition controls to the effect of law and practices adopted in the exercise of statutory functions, that language is not appropriate here.
Amendment No. 183 therefore removes that provision and replaces it with one that refers to
- a significantly adverse effect on competition.
Amendments Nos. 184, 185, 186, 194, 195, 197, 200, 202 and 204 make consequential changes. Amendments Nos. 181 and 182 make further drafting changes clarifying what the authority's regulatory provisions cover and what, therefore, the competition authorities should consider.
Secondly, in another place, the exclusion from the Competition Act 1998 was narrowed from things "contemplated" by the FSA's regulatory provisions to those "encouraged" by them. We said that we would narrow the exclusion in response to the Cruickshank report. That is achieved by amendments Nos. 205, 207 and 209.
Amendments Nos. 206, 208 and 210 remove the exclusion from the Competition Act for things done as a result of the practices of the authority. That is because only the regulating provisions, including guidance, are relevant here.
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