TRADING FOREIGN STOCKS

AMERICAN INVESTORS eager to buy stock in many profitable foreign companies have a problem. Shares of about 2,000 such companies, with household names like Nestle, BASF and Siemens, can't be traded on U.S. stock exchanges because they don't meet technical rules set by the U.S. Securities and Exchange

Commission.

This forces U.S. investors - mainly large institutions - to trade those shares on foreign stock exchanges, which typically have higher brokering costs and take longer to clear transactions. With so many companies offering their shares worldwide, and U.S. investors increasingly interested in foreign stocks, the SEC rules are keeping domestic exchanges out of much of the action.The biggest stock-listing barrier for foreign companies is an SEC rule requiring them to reconcile their financial statements to U.S. accounting standards. Many of these companies already must meet tough tax and accounting standards in their home countries. Adapting their financial data to U.S. rules could be confusing, if not misleading.

Rather than fit a square peg into a round hole, these companies offer their shares in countries that recognize their accounting methods. As a result, stocks that might be traded in New York are exchanged instead in London, Frankfurt and Tokyo. The New York Stock Exchange estimates U.S. investors last year traded $300 billion in non-U.S. securities on foreign stock exchanges.

The SEC's regulations, which require stock issuers to disclose detailed

financial data using uniform accounting rules, are intended to protect investors against dishonest companies. While that's an important goal, the SEC can do its job without keeping so many legitimate foreign companies off U.S. exchanges.

The New York Stock Exchange is proposing the government recognize a special category of well-capitalized and stable companies that use different accounting standards. These so-called "world class" companies could offer shares directly on U.S. exchanges, provided they tell investors clearly and concisely how their financial reports differ from U.S. requirements.

To qualify for "world class" status, a company would have to meet strict

financial standards - for example, $5 billion in annual revenues, $2 billion in stock outstanding and $1 million in weekly trading volume outside the United States. The idea is to separate the world's top companies from fly-by- night operators.

Other Wall Streeters have proposed a sensible variant of this idea: agreements between the United States and selected foreign nations to recognize each other's securities regulations. A corporation meeting its home country's rules would, under such an agreement, be free to list its stocks on the other country's exchanges.

Both these proposals would require exchanges or companies to alert U.S. investors that the foreign corporations do not meet the same accounting and disclosure rules that apply to U.S. companies. This would avoid any implication that the United States endorses the foreign accounting methods. Investors then could decide if the information they receive from the foreign companies is adequate to risk their money.

The United States, presumably, would negotiate stock-listing agreements only with countries that have reasonably stringent standards. This would avoid putting U.S. companies at a disadvantage. A mutual recognition agreement between the United States and Canada provides a blueprint for accepting differences in reporting rules.

In the long term, a system of uniform international standards would be preferable to a series of bilateral agreements. Securities regulators are working on such a treaty, but will not conclude it any time soon. Until they do, the SEC should change the rules that limit investor choices and drain business from U.S. stock exchanges.

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