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London is one of the largest cities in the world; it also boasts of having the highest city Gross Domestic Product (GDP) in Europe. All this and more are what help to make the idea of investing in UK stock markets very appealing to investors the world over; hence the high rate of international investments on the London Stock Exchange (LSE). And moreover, international companies with listing on the exchange abound as well.
For a while now, London has been foremost among the major financial centers in Europe and the world at large. More than 500 overseas companies have stocks and securities in both debt and equity forms listed on the London Stock Exchange. As a matter of fact, foreign securities take up as much as 20% of the total amount of stock and securities circulating on the trading floors of the exchange. According to the UK’s Companies Act of 1985, an “oversea company” can rightly be defined as one incorporated outside Great Britain, but which has a place of business in Great Britain. And a place of business in the UK is deemed to have effectively been established once a company has set up a share transfer or share registration office in the UK.
With respect to applicable disclosure and accounting requirements, foreign companies listed on the London Stock Exchange are generally required to comply with the exchange’s stipulated financial reporting rules, as well as relevant provisions outlined in the Companies Act. Most importantly, foreign listed companies are required to:
- Make available annual consolidated accounts that are transparent and portray true and fair views of their state of affairs.
- Have their accounts routinely audited.
- Ensure to include auditor’s reports in disclosed financial statements.
- Comply with applicable International Accounting Standards (IASs), and provide reasonable justifications in isolated cases of non-compliance.
- Incorporate relevant geographical analyses of both turnover and contribution to trading results, arising outside respective bases of operations, in their financial reports.
- Provide adequate explanations for any discrepancies that exist between published forecasts and actual results.
Some noteworthy international company securities listed on the London Stock Exchange include American Depository Receipts such as shares in Barclays Plc. (LSE:BCS) and BP Plc. (LSE:BP), as well as companies from other countries such as PetroKazakhstan Inc. (LSE:PKZ)- Canada, and Evras Plc. (LSE:EVR)- Russia.
But do the diverse nature of listings and relatively high level of investment security the London Stock Exchange affords traders and investors mean LSE investors have nothing to worry about? Likely not, as there are still a number of risks investors need to watch out for and take into account. And many of these risks result from the UK being predominantly a service and consumer based economy.
