Q: So you are saying that the Act did not begin to be implemented or the way you all design the act it was not meant to be implemented as stringently as it perhaps was in the first few years and it was meant to be more principal based implementation as opposed to rules based implementation?

Oxley: I think the PCOAB-they were under enormous pressure again; literally we created the PCOAB. So they had enormous task in for them and were under a timeline to come up with these. Given the pressure that they were under and the fact that they wanted to be extra careful - for example AS2 is 230 pages is long. The AS5 is like 60 pages. So I think it does reflect the change in the party politics, the change in the public about these things and so a few years later, we had a chance to see how things work and that as Paul Serbanes indicated, the process is the way we conceived it and the flexibility is there with the SEC and PCAOB to make those kind of changes to make the act work better; to reduce the cost and get them better into line with the obvious advantage that you have with the Act as well.

Q: You have killed half of my debate by saying that the Act itself was meant to be more principle based and less rules based because finally I think it is being implemented in the right spirit and so that sort of takes away the bite from the whole argument that it was too strict to begin with. Desperate times call for desperate measures - do you think the Act is still relevant today? We have the Enrons, we have the WorldComs the act in a sense brought all of corporate America and companies across the world back to reality when it came to accurate reporting of financials but is it still relevant today?

Serbanes: I think it is relevant but other issues emerged as we move along, it does not answer all questions for all times. One of the things that is interesting is many provisions of the Act are being adopted across the world in other countries as part of their regulatory regime. I think generally speaking, there is a worldwide movement towards higher standards of corporate accountability. I think that is greatly to be desired because what it really means is better assurance and protection for investors. As your investor class grows and Michael Oxley referred to in the US; but it is growing worldwide-more and more people now with economic growth are able to prosper and they start putting money into the markets. You need to make sure that they have appropriate protections and are not going to be misled were taken advantage of.

Q: There is also the argument that this is in some sense rendered the American markets uncompetitive, the jury is still out on that and I do not think there is any one defining piece of research but there is dozens of pieces of academic research - for example, there is one study that says that foreign listings in America have fallen by over 60% and a large part of that can be attributed to the stringent requirements - that is Serbanes-Oxley’s puts in place. There are enough studies to prove that company is going private in the US have increased. The Committee on capital markets regulations has 5% of the value of global initial public offerings was raised in the US in ’06-’07 compared to 50% of the IPOs across the world. There is debate that has Serbanes-Oxley while helding a new era in corporate governance rendered the American markets uncompetitive, would you like to respond to that?

Serbanes: First of all, what has happened is you are developing liquidity around the world and you are developing capital markets around the world. For decades, the US has been urging countries to develop their capital markets as part of developing their economic system that is now taking place. Secondly, countries that experience significant economic growth, which provide them the capital liquidity with which they handle the financing of many of the IPOs in their particular area. And countries tend to go or the companies tend to go to the market in their own country. So I think what you have is you have a globalization of financial services - just like you have had a globalization of manufacturing with this impact; you are saying the same thing in the financial services markets. So I think most of what has happened relates to the economic growth worldwide and market maturation that’s been taking place.

Q: The academic point of view is not exactly that. I think if you go through what many of academia has put out, it mostly tends to be that the maturing of international markets has something to do with this. But the larger reason for why America seems not to be the hottest capital market in the world right now, is because of Serbanes-Oxley.

Oxley: Why is the rest of the world then adopting Serbanes-Oxley-like legislation and a rule that is exactly what is done. So one of my big fears was you will have to rush to the bottom to try to attract capital by rushing to bottom. In fact, it has been a quite the opposite. So in this country there is movement towards higher standards. Japan has adopted what they call J-SOX, European Union, the ESOX - so this has been a constant increase in standards inversely every industrialized countries talk about academic studies. I refer you to an academic study done by University of Toronto, higher state University, who conducted this study and indicated that foreign companies, that list in the United States enjoy the 30% premium on a stock value as result of listing in United States, where we have the deepest pool of capital perceived as the fairest and the safest for where they put their risk capital. So that tends to put to bed some of these other arguments that somehow the US markets are suffering. I am Vice -Chairman of NASDAQ now, we had a record number of IPOs last year on top of the record in ’06. So we have not seen a diminution; as a matter of fact rather strong increase in the number of companies interested in listing on the NASDAQ and accessing the pool of capital that the US represents.

Q: In hindsight do you think that there are any provisions of the Act that you would have likely to be milder or stronger or you have mentioned how you thought the implementation has improved over the years and made it more effective and more easy or efficient for people or companies to follow it but any provisions of the Act that you think in hindsight should have been different?

Serbanes: We tried to be very careful and to leave the adjustment process by providing the appropriate discretion for the regulators. Now Chairman Cox made a major speech in the US Chamber Commerce in which he was very emphatic and saying that we do not need to change the Act. We need to change the implementation of the Act and by working on the implementation of the Act, we can address the concerns that have been raised but we do not need to go back and open up the Act itself to be changed.

I think that makes sense that a statutory framework can be adjusted within the context of the statutory framework and that is the way you have to proceed.

Oxley: I agree with that. The effect of this dynamic process is, I do not think necessarily recognized by a lot of folks. If you ask me what was the biggest mistake or the biggest thing that affected this I think that was the death penalty for Arthur Andersen. In my estimation, when I came to Congress, it was the Big Eight and then it became the Big Five and now we are down to Big Four. And that decision in my estimation was not a penalty that fit the crime. As a result, we have less competition in a very important field-we certainly have four auditors firms worldwide. As a matter of supply and demand, I think that is part of the reason that the cost has gone up and that is unfortunate because I think that Arthur Andersen could have always been penalized and all of that. But to have the entire partnership disappeared seems to me was a bit over the top.

Q: What is the prescription for that, is there anything that the PCOAB can do in order to faster more competition within the auditing phase?

Oxley: I think there are some firms obviously that are kind of that are middle tier, that they have an opportunity to move up and be an international force. It will take some time to do that and I think that the SEC and PCAOB are cognizant of that. Sill that factored, we just do not have very much competition. You mentioned the credit rating agencies - that is one of the problems because the credit rating agencies essentially had a duopoly until we passed legislation. After Serbanes-Oxley that opened up the process and now we have four new entrants including a Japanese company and part of that solution to the real problem of the credit rating agencies; which was criticized during the Serbanes-Oxley Act, criticized now during the credit crunch and the subprime -the comment spread was that the credit rating agencies were missing the boat and part of the reason was that it was out of the competition and there were only two essentially that were providing those ratings and that just simply was not enough to be a competitive market.

Serbanes: One of the things that happened was of course the demand jumps significantly. The supply takes time to catch up with that. Now the enrolment in accounting and order to programme in the universities and so far has gone up very substantially because young people see this as a promising career but you are not going to have them in the market immediately so there is a mismatch.

Q: In fact if you talk to any auditors and while I was doing research for this interview I spoke with a few and they said that this is a bonanza for the audit business across the world because suddenly you had companies that could not do their internal reviews entirely by themselves and that therefore would hire yet another auditor to help them consult on the entire process. So I think one auditor referred to it as the Auditor Full Employment Act and I think that is what is they publicly joke about Sarbanes-Oxley but I draw the conclusion that both of you are happy with the implementation and as the implementation eases and makes it easier for companies to be able to comply you have no objection to that.

Oxley: I won’t call it easier; I just think that it makes it more efficient and at the same time, reduces the cost but still maintains the benefit. That really is the goal I think that all of us share.

Q: The current sub-prime mess that we seem to be across the world, different people have laid the blame for this sub-prime situation and different doors, credit breaking agencies, auditors themselves, the management of these companies, where do you lay the blame?

Oxley:  It goes across the board from the mortgage brokers, who in many cases were not regulated, who were not able to give loans out, mortgages out, there were no documents involved, no down payments, free money based on the fact that housing prices were going and some guessed they would continue to go up and obviously when the didn’t, and the bubble burst, everyone could point a lot of figures - credit-rating agencies as I mentioned, the lack of transparency in the secondary market which makes it very difficult to price risk and we are still struggling with that. So there are a number of corporate in this whole process that now the Congress is looking at and the regulators are looking at. Regulators, perhaps also need to take another look at how effective or ineffective they were in this process as well.

Sarbanes: There is plenty of blame to go around and everyone wants to take a piece of that blame but I want to underscore sort of a larger and broader point. That is, the sub prime market itself as a percent of your total capital market is a small percentage. But all of what’s happening now demonstrates the sensitivity of the capital markets, particularly when more people move into the capital markets. So if something goes wrong, even with a small segment of it, you get a spill over, or a rippling effect coming out from that; so that the impact then begins to grow, as we see its happening rights now. So the credit markets are seizing up, the central bankers are going to extreme measures in order to address the situation.  I think it only underscores the importance right from the beginning to have a rational, balanced regulatory framework that provides significant assurance against these kinds of developments so that once it starts unraveling, its hard to know where its going to stop.

Q: Do you think the existing un-regulatory framework with the kind of chinks in the armour the sub-prime situation has thrown up, or does this call for a new avatar for the Sarbanes Oxley type of legislation?

Sarbanes: They may not call for that but it probably does call of some statutory trends; remember the Congress is now looking at that. It calls for the regulators to be more vigilant than they were in this arena. I think that some of those practices should never have been permitted to begin with they embarks of predatory landing practices in effect drew people in and then trapped them as it were. But it’s a complex situation and what happens is you have people who are always developing new financial instruments, ahead of it and you have to try this to stay abreast to that and that’s one of the challenges.

Oxley: It’s amazing the way people were getting no document loans at zero down payments, while red flags didn’t start to go up.

Q: Would you also agree that there is need for more regulations in this case?

Oxley: I am not sure maybe more; but better or a different form of regulation.

Q: That’s what Wall St. seems to be worried about, the immediate reaction to this in America and the congress, let’s legislate more and finds a way to stop all these practices.

Oxley: Yes, they should be, there are a lot of bad decisions made at Wall St and a lot of people lost their jobs as a result making bad decisions by very smart people, maybe their jobs have been saved had the regulations have been there and they had been effective. But that’s how the system works and Congress is going through this whole process and we will see how it ends up.

Q: So you are in favor of more regulations?

Oxley: No I am not. I am just saying that I think they need to re-assess and frankly most of the regulations that they have been implemented, were at least corrected or modified situation. But I am not necessarily calling for more regulations; first of all, I am not in the office any more so I don’t have to do that, and secondly is the knee-jerk reaction that is not necessary and to congresses’ credit, they are carefully going through this and dealing with some very real issue that will represent constituent who has lost everything in some cases and they have an obligation to really do it right, and I give them all the credit for it, no matter what they do, they are going to get criticized,  the understand that they have to do the right thing, they are taking their time; I think they will do it right.

Sarbanes: There has to be honest rules by which the market works, and which people abide by. You can’t simply allow sharp operators to prepare to cut every corner, cheat, and disable in order to make a call.

Q: So you are saying that the rule is not enough, or the people who were playing by the rules were not playing by the rules?

Sarbanes:  Some people obviously were not playing by the rules.

Q: So are you looking for more regulation?

Sarbanes: It depends on what you mean by regulations - I’m calling for more effect on implementation, of the system that we have, it’s reasonable for the Congress to examine whether there are some gaps that need to be filled in. I don’t have the answer to that question because we haven’t been through the process. But for the people who participate in the markets anywhere in the world, they need a framework that does the maximum to it, assures that they are going to be honest activity in those markets. We have always had the content of this problem, some people would say we don’t want any of that; but then the sharp operators have a free day of it, and who bears the consequence? The ordinary ambassador bears the consequence. Then they get frightened, they pull out of the market; after Enron, the stock market dropped about 12,000 or 11,000 just like that.