Investor Protection in Europe Regulatory

This collection of essays examines investor protection in Europe. It offers a broad and coherent examination of the effects of regulatory competition versus harmonization, and covers both capital market and company law perspectives. Including coverage of both the EU and the US, this volume analyses the recent Markets in Financial Instruments European Directive, and explores clearing, settlement, prospectuses, and transparency regulation.

Guido Ferrarini is Professor of Law at the University of Genoa and Director of the Centre for Law and Finance. Eddy Wymeersch is Professor at the University of Ghent and Chairman of the Banking, Finance, and Insurance Commission in Brussels. They have been involved with several successful volumes including Corporate Governance in Context: Corporations, States, and Markets in Europe, Japan, and the U.S. (Hopt, Wymeersch, Kanda, and Baum eds. OUP forthcoming 2006), Reforming Company and Takeover Law in Europe (Ferrarini, Hopt, Winter, and Wymeersch eds., OUP 2004), and Capital Markets and Company Law (Hopt and Wymeersch eds., OUP 2003).

Abbreviations

xiii

The Contributors

xix

Part 1: Institutional Structure, Regulatory Competition and Regulatory Strategies

1

Chapter 1: The Economics and Politics of Corporate Governance in the European Union

by Dennis C. Mueller

3

A. Introduction

3

B. Corporate Governance and Economic Performance

4

C. Institutional Explanations for Differences in Performance

15

D. Is There a Best Corporate Governance System?

20

E. Are Corporate Governance Systems Converging?

21

F. Will Corporate Governance Systems Achieve a Full Convergence?

22

Chapter 2: Political Yardstick Competition and Corporate Governance in the European Union

by Pierre Salmon

31

A. Introduction

32

B. Selected Features of Yardstick Competition Among Governments

33

C. The Peculiar Path Borrowed by European Integration

37

D. Corporate Law and Yardstick Competition Among EU Member Countries

41

E. Is Yardstick Competition at a Higher Level Likely to Start a Centralizing Dynamic Akin to that of the Single Market?

50

F. Conclusion

55

Chapter 3: Using Corporate Law to Compete for Investments

by Ehud Kamar

59

A. Introduction

59

B. Competition for Investments

64

C. The Incentives to Compete

80

D. Normative Implications

99

E. Toward a General Theory of Regulatory Competition

113

F. Conclusion

117

Chapter 4: A Legal Options Approach to EC Company Law

by Gerard Hertig and Joseph A. McCahery

119

A. Introduction

120

B. Toward a Flexible Approach to EU Company Law

123

C. Impact on Regulatory Arbitrage and Competition

126

D. The Benefits of a Pro-Choice Approach

128

E. Step-by-Step Reform Recommendations

131

F. Conclusion: The Future of the Pro-Choice Approach

138

Chapters 5: How Can Corporate Governance Codes Be Implemented?

by Eddy Wymeersch

143

A. Regulating Corporate Governance

144

B. Enforcing Corporate Governance Codes

149

C. Conclusion

158

Part 2: The New European Regulation of Trading Venues

161

Chapter 6: The MiFID: Competition in a New European Equity Market Regulatory Structure

by Ryan Davies, Alfonso Dufour and Brian Scott-Quinn

163

A. Introduction

163

B. Internalisation and Fragmentation

166

C. U.S. Regulatory Experience

174

D. European Landscape

179

E. The MiFID

187

F. Conclusion

191

Chapter 7: The European Securities Industry Further Evidence on the Roadmap to Integration

by Barbara Alemanni, Giuseppe Lusignani and Marco Onado

199

A. Foreword

199

B. The Roadmap: the European Approach

200

C. The Roadmap: Main Issues and Findings

211

D. The Present Landscape

216

E. The Trading Costs in European Exchanges: A Comparative Analysis

218

F. Costs of Post-Trading in Europe: A Comparative Analysis

226

G. Conclusions and Policy Implications

229

Chapter 8: The MiFID and Internalisation

by Guido Ferrarini and Fabio Recine

235

A. General

236

B. The ISD Review

241

C. The MiFID and Internalisation

256

D. Conclusions

267

Chapter 9: Internalisation under the MiFID: Regulatory Overreaching or Landmark in Investor Protection?

by Johannes Köndgen and Erik Theissen

271

A. Breaking New Ground in European Securities Regulation

271

B. The Case for Regulation: Some Economic Fundamentals

274

C. The German Version of Internalisation: A View on Current (Pre-MiFID) Market Practice and Regulation

277

D. A Critical Assessment of the Directive

283

E. Xetra Best – A Blueprint for Other European Exchanges?

290

F. Conclusions

294

Part 3: Further Issues in Regulatory Harmonization

297

Chapter 10: The Eclipse of Contract Law in the Investment Firm-Client Relationship: The Impact of the MiFID on the Law of Contract from a German Perspective

by Peter O. Mülbert

299

A. Introduction

299

B. The Present Contractual Approach to Regulating the Firm-Client Relationship: The German Example

300

C. The Contents of the Conduct of Business Obligations: Selected Issues

303

D. Implications for the (German) Law of Contract Relating to Securities Transactions

316

E. Concluding Remarks

320

Chapter 11: Conflicts of Interest in Investment Services: The Price and Uncertain Impact of MiFID's Regulatory Framework

by Luca Enriques

321

A. Introduction

322

B. Why Specific Rules on Conflicts of Interest?

324

C. The MiFID and Prospective Level 2 Rules on Conflicts of Interest

325

D. Too Much Scope for 'Honesty and Fair Dealing' to Achieve Uniformity?

331

E. Same Rules for Different Investor Protection Needs: A Wise Choice?

334

F. Conclusions

338

Chapter 12: The 'Public Offering of Securities' Concept in the New Prospectus Directive

by Alain Pietrancosta

339

A. An Innovative but Evasive Definition of the 'Offer of Securities to the Public'

345

B. The Clarifications Brought on by an A Contrario Interpretation of the Exemptions

351

Chapter 13: Nonfinancial Disclosure between 'Shareholder Value' and `Socially Responsible Investing'

by Francesco Denozza

365

A. Financial and Nonfinancial Disclosure

365

B. The Notion of Nonfinancial Information

367

C. The Interpretation of the Transparency Directive and its Relationship with the Market Abuse Directive

368

D. The Notion of 'Inside Information'

369

E. From the Interpretation of Law to the Analysis of Conflicts Amongst the Different Interests of the Individuals Involved: The 'Shareholder Value' Model

372

F. Disclosure Duties: Not a Matter of Increasing Overall Welfare, but of Favouring One Out of Different, Conflicting, Interests

375

Part 4: After the Financial Services Action Plan

379

Chapter 14: Effective Policy Design for the Retail Investment Services Market: Challenges and Choices Post FSAP

by Niamh Moloney

381

A. The EU Investment Services Market and Retail Investor Policy

381

B. The Delivery of Retail Policy Through a Regulatory Strategy

386

C. The Regulatory Strategy as Expressed Through the MiFID Conduct of Business Regime

391

D. The Risks of a Regulatory Strategy

407

E. A Multi-Stranded Strategy for the Retail Markets

422

F. Conclusion

440

Chapter 15: Financial Market Integration in the Post FSAP Era. In Search of Overall Conceptual Consistency in the Regulatory Framework

by Michel Tison

443

A. Introduction

443

B. The Underlying Regulatory Concepts: From Minimum to Maximum Harmonisation or Something in Between?

445

C. Division of Regulatory Powers Between Home and Host State

452

D. Conclusions

463

Chapter 16: Securities Clearing and Settlement: Regulatory Developments in Europe

by Eddy Wymeersch

465

A. A Short Introduction to Securities Clearing and Settlement

465

B. The Legal and Regulatory Environment of Securities Clearing and Settlement

469

C. Conclusion

483

D. Later Developments

483

Chapter 17: Structuring Securities Regulation in the European Union: Lessons from the U.S. Experience

by Donald C. Langevoort

485

A. The Primacy of Enforcement

488

B. The Influences on SEC Enforcement Discretion

491

C. The Potential for Home Bias in SEC Enforcement

496

D. Lessons for the EU

501

E. Conclusion

506

Index

507

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Investor Protection in Europe Regulatory Competition and Harmonization

Summary

Author Biography

Table of Contents

Supplemental Materials