Building a retail investment culture through law: The 2004 markets in financial instruments directive

European Business Organization Law Review

Volumn 6, Issue 3, 2005, Pages 341-421

  Moloney, Niamh ^a  

^a UNIVERSITY OF NOTTINGHAM   (United Kingdom)

Author keywords

conduct of business regulation; disclosure; Financial Services Action Plan; investment services; investor protection; Markets in Financial Instruments Directive; retail investor

Indexed keywords

EID: 79955071376     PISSN: 15667529     EISSN: 17416205     Source Type: Journal    
DOI: 10.1017/S1566752905003411     Document Type: Review

References (444)

1. Including the Securities, Banking, Insurance and Asset Management Expert Group Reports on the FSAP (May 2004), available at: http://europa.eu.int/comm/internal-market/finances/actionplan;
2. the Commission's June 2004 Conference on European Financial Integration: Progress and Prospects, speeches available at: http://europa.eu.int/comm/internal-market/speeches;
3. the Commission's Autumn 2004 Consultation on the Expert Group Reports, responses available at: http://forum.europa.eu.int/Public;
4. Inter-Institutional Monitoring Group, Third Report Monitoring the Lamfalussy Process (November 2004);
5. European Commission, Working Document on Application of the Lamfalussy Process to EU Securities Market Legislation (November 2004);
6. and K. Lannoo and J.-P. Casey, EU Financial Regulation and Supervision Beyond 2005, CEPS Task Force Report No. 54 (January 2005)
7. (hereinafter, CEPS 2005 FSAP Report).
8. Director General Schaub of the Internal Market Directorate General, 'Economic and Regulatory Background to the Commission Proposal for Revision of the ISD', speech to the Danish EU Presidency Conference on European Regulation of Investment Services (15 October 2002) p. 3, available at: http://www.europa.eu.int/comm/internal-market/speeches.
9. Directive 2004/39/EC, OJ 2004 L 145/1.
10. See Response by the Association of Private Client Investment Managers and Stockbrokers (APCIMS) to the Committee of European Securities Regulators' (CESR) Second Call for Evidence on the MIFID Level 2 Mandate (29 July 2004) p. 1
11. (hereinafter, CESR Second Call for Evidence on MIFID).
12. All the CESR documents noted in this essay are available at: http://www.cesr-eu.org.
13. See, in particular, R. La Porta, F. Lopez de Silanes, A. Shleifer and R. Vishny, 'Legal Determinants of External Finance', 52 J. of Finance (1997) p. 1131.
14. see S.J. Choi, 'Law, Finance, and Path Dependence: Developing Strong Securities Markets', 80 Texas Law Review (2002) p. 1657, available at: http://ssrn.com/abstractid=299366.
15. see E. Ferran, Building an EU Securities Market (Cambridge, Cambridge University Press 2004).
16. Internal Market Commissioner Bolkestein, 'Reviving European Growth', speech to the European Parliament (8 January 2004), available at: http://www.europa.eu.int/comm/internal-market/speeches.
17. P. Norman, 'A role for the Centre Right', Financial Times, Fund Management Supplement, 20 September 2004, p. 7.
18. See, e. g., C. Camerer, 'Regulation for Conservatives: Behavioural Economics and the Case for "Asymmetric Paternalism"', 151 U. Pa. L.R. (2003) p. 1211 at p. 1228;
19. and J. Fanto, 'Regulatory Implications of Individual Management of Pension Funds: Comparative Investor Education', 64 Brooklyn L.R. (1998) p. 1083.
20. FSA, Towards a National Strategy for Financial Capability (2003) p. 7
21. (hereinafter, 2003 FSA Education Report).
22. FSA, Financial Risk Outlook (2005) pp. 9-10, available at: http://www.fsa.gov.uk/pages/library.
23. FSA, Financial Risk Outlook (2004) p. 61, available at: http://www.fsa.gov.uk/pages/library;
24. and FSA, Financial Risk Outlook (2005) p. 45.
25. See, e. g., Callum McCarthy, 'Delivering more transparent and better informed financial markets', Reuters, 30 September 2004, available at: http://www.fsa.gov.uk/pages/library.
26. See also the new FSA website section on Identifying and Responding to Emerging Retail Risks on http://www.fsa.gov.uk.
27. Lex, 'Google IPO', Financial Times, 4 May 2004, p. 22
28. A. Jackson, 'The Aggregate Behaviour of Individual Investors' (2003), available at: http://ssrn.com/abstract=536942;
29. and J. Coval, D. Hirshleifer and T. Shumway, 'Can Individuals Investors Beat the Market', Harvard NOM Working Paper No. 02-45 (2002), available at http://ssrn.com/abstract-id=364000.
30. Coval, et al., loc. cit. n. 11, at p. 2.
31. L. Stout, 'The Investor Confidence Game', UCLA School of Law, Research Paper No. 02-18 (2002) p. 35, available at: http://ssrn.com/abstract=322301.
32. S. Choi, 'Regulating Issuers not Investors: A Market-Based Proposal', 88 Cal. L.R. (2000) p. 279.
33. see, e. g., Stout, loc. cit. n. 13
34. C. Hurt, 'Moral Hazard and the Initial Public Offering', 25 Cardozo L.R. (2004) p. 6, also available at: http://ssrn.com/abstract=555887
35. and Fanto, loc. cit. n. 7, at p. 1093
36. Directive 2003/71/EC, OJ 2003 L 345/64.
37. Ferran, op. cit. n. 5, at pp. 175-179.
38. Directive 2002/65/EC, OJ 2002 L 271/16.
39. European Commission, Explanatory Memorandum to the MIFID Proposal, COM (2002) 625, p. 26.
40. APCIMS, Private Client Investment in 2003, Summary of ComPeer's Survey of Stock-broking and Fund Management (2003) p. 5
41. (hereinafter, APCIMS 2003 Annual Report).
42. S. Choi and A. Pritchard, 'Behavioural Economics and the SEC', Michigan Law Econ. Paper No. 03-002;
43. Georgetown Law Econ. Paper No. 389560;
44. UC Berkeley Public Law Paper No. 115;
45. CLEO Research Paper No. C03-6 (2003) p. 17, available at: http://ssrn.com/abstract=500203.
46. See FSA, Building Financial Capability in the UK: the role of advice (2004)
47. (hereinafter, 2004 FSA Education Report)
48. Explanatory Memorandum to the MIFID Proposal, loc. cit. n. 21, at p. 30.
49. Editorial, 'A message for Callum McCarthy', Financial Times, 22 September 2003, p. 22.
50. see A. Ilkson, et al., 'Could Brussels drive share trading out of Europe', 22(7) I.F.L.R. (2003) p. 17
51. APCIMS, The Good, the Bad, and the Unfinished. The Final State of the Financial Services Action Plan and the Lamfalussy Process (January 2004) p. 3.
52. Parliament Comments on Commission Green Paper on Financial Services: Meeting Consumers' Expectations, OJ 1997 C 65/75, para. 3.4.1.
53. OJ 1999 C 279/197.
54. Ilkson, et al., loc. cit. n. 26, at p. 20.
55. See, e. g., the view of the ELDR group that it was important to protect and maintain investors' freedom of choice. Report to COREPER/Council on the MIFID First Reading, para. I.
56. Report to the Committee on Economic and Monetary Affairs on the First Reading of the MIFID Proposal (A5-0287/2003) p. 92
57. (hereinafter, First ECON Report).
58. OJ 2003 C 220/1, para. 3.1.
59. FIN-USE Forum, Financial Services, Consumers and Small Businesses. A User Perspective (October 2004)
60. (hereinafter, FIN-USE Report).
61. European Commission, Green Paper on Financial Services Policy (2005-2010), COM (2005) 177, p. 18;
62. and European Parliament, Economic and Monetary Affairs Committee, Van den Burg Report on the Current State of Integration of EU Financial Markets, Doc. A6-0087/2005 (2005).
63. D. Langevoort, 'Managing the "Expectations Gap" in Investor Protection: The SEC and the Post-Enron Reform Agenda', Georgetown Law and Economics Research Paper No. 328080 (2002) available at: http://ssrn.com/abstract-id=328080
64. (and 48 Villanova L.R. (2003) p. 1139).
65. see L. Ribstein, 'Bubble Laws', 40 Houston L.R. (2003) p. 77 at p. 79.
66. Explanatory Memorandum to the MIFID Proposal, loc. cit. n. 21, at p. 5.
67. see Editorial, 'Work in Progress', Financial Times, 10 May 2004, p. 18.
68. Internal Market Commissioner Bolkestein, 'Learning the Lessons of the Financial Services Action Plan', speech to Finance and Investment Seminar, Edinburgh (January 2004) p. 2, available at: http://www.europe.eu.int/comm/internal-market/speeches.
69. Proposed in the Final Report of the Committee of Wise Men on the Regulation of European Securities Markets (February 2001)
70. (hereinafter, Lamfalussy Report).
71. C. Oldfield, 'Action, Time, Vision', Financial World (March 2004) p. 29 at p. 31.
72. See N. Moloney, EC Securities Regulation (Oxford, Oxford University Press 2002) pp. 510-606.
73. See further N. Moloney, 'Confidence and Competence: The Conundrum of EC Securities Regulation', 4 J. of Corporate Law Studies (2004) p. 1.
74. Directive 85/611/EEC, OJ 1985 L 375/3
75. Directive 2001/107/EC, OJ 2001 L 41/35
76. Directive 2001/108, OJ 2002 L 41/35
77. The investment limit rules are supplemented by Commission Recommendation 2004/383/EC on the use of financial derivatives by UCITS, OJ 2002 L 144/3
78. A 'highly regulated, supervised and transparent savings vehicle.' Response by FEFSI to the CESR's Second Call for Evidence on MIFID (29 July 2004) p. 5.
79. Commission Recommendation on the Directive 85/611/EEC Simplified Prospectus, OJ 2004 L 144/42
80. ESC, Summary Record of the 22nd Meeting (5 July 2004) (ESC 28/2004) para. 2.
81. ESC, Summary Record of the 18th Meeting (17 February 2004) (ESC 8/2004) p. 6.
82. 9th FSAP Report, The FSAP Enters the Home Straight (November 2003) p. 11.
83. See R. Karmel, 'Reconciling Federal and State Interests in Securities Regulation in the United States and Europe', 28 Brooklyn J. of Int. L. (2003) p. 495
84. See also the call by the Commission for greater participation by retail investors in the financial markets, 34 Single Market News (July 2004) p. 8.
85. 'Reviving EU Growth: The Need for Courageous Reforms', speech to ELDR Seminar, European Parliament, Brussels (8 January 2004), available at: http://www.eu.int/comm/internal-market/speeches.
86. 2nd FSAP Report (May 2000) p. 3.
87. See also Schaub, loc. cit. n. 2, at p. 5.
88. Commission Communication on Upgrading the Investment Services Directive, COM (2000) 729, pp. 5 and 6
89. See also 7th FSAP Report, Meeting the Barcelona Priorities & Looking Ahead: Implementation (December 2002) p. 9.
90. London Economics, Quantification of the Macro-Economic Impact of Integration of EU Financial Markets, Final Report to the European Commission (November 2002) p. 9
91. (hereinafter, London Economics Report).
92. ZEW/IEP, 'The Benefits of a Working European Retail Market for Financial Services', Report to the European Financial Services Round Table
93. (hereinafter, ZEW/IEP Report).
94. 10th FSAP Report, Financial Services. Turning the Corner (June 2004) p. 1.
95. Memorandum from the FSA, Treasury Committee Inquiry into Restoring Confidence in Long Term Savings, para. 3, available at: http://www.fsa.gov.uk
96. (hereinafter, FSA Treasury Memorandum).
97. See Asset Management Expert Group Report, loc. cit. n. 1, at p. 24.
98. See also Internal Market Commissioner Bolkestein, 'Reviving European Growth', speech to the European Parliament (8 January 2004), available at: http://www.eu.int/rapid/speeches.
99. Commission Communication on Modernising Company Law and Enhancing Corporate Governance in the European Union, COM (2003) 284, p. 8.
100. Green Paper on Financial Services Policy, loc. cit. n. 33, at p. 17.
101. APCIMS, The Gilded Cage - gold plating EU Legislation into UK law and regulation (May 2004).
102. The 2003 Commission Communication on the Application to Financial Services of Article 3(4)-(6) of the Electronic Commerce Directive, COM (2003) 259
103. see Internal Market Commission Bolkestein, 'Making the Most of the Internal Market after Enlargement,' speech to the Euro-Czech Forum Conference (13 May 2004), available at: http://www.europa.eu.int/comm/internal-market/speeches
104. C. Mayer and M. Becht, 'Introduction', in F. Barca and M. Becht, The Control of Corporate Europe (Oxford, Oxford University Press 2001) pp. 20 and 26.
105. Proshare Evidence to the European Parliament MIFID Hearings, Appendix 1, para. 1, available at: http://www.proshare.org/Press
106. (hereinafter, ProShare Parliament Evidence).
107. ProShare, Press Release on Publication of its 2002 Private Share Ownership in Britain Survey, available at: http://www.proshare.org/Press.
108. FSA, Financial Risk Outlook (2005) p. 43.
109. ProShare Parliament Evidence, loc. cit. n. 63, para. 2.
110. FSA, Financial Risk Outlook (2004) p. 62.
111. Hibernian Life & Pensions Survey, reported in L. Slattery, 'Guaranteed investment funds spring up to rival tracker bonds', Irish Times, Business Supplement, 16 July 2004, p. 9.
112. APCIMS 2003 Annual Report, op. cit. n. 22, at p. 2
113. C. Van der Elst, 'The Equity Markets, Ownership Structures and Control: Towards an Internal Harmonization', in K.J. Hopt and E. Wymeersch, eds., Capital Markets and Company Law (Oxford, Oxford University Press 2003) p. 3 at p. 25.
114. See T. Baums, 'Changing Patterns of Corporate Disclosure in Continental Europe: The Example of Germany', ECGI Law Working Paper No. 4/2002 (2002).
115. See generally W. Gerke, M. Bank and M. Steiger, 'The Changing Role of Institutional Investors - A German Perspective', in Hopt and Wymeersch, op. cit. n. 70, p. 357 at pp. 359-361.
116. European Commission, Green Paper on the Enhancement of the EU Framework for Investment Funds, COM (2005) 314, p. 12.
117. Asset Management Expert Group Report, loc. cit. n. 1, at pp. 1 and 8.
118. H. Davies (then FSA Chairman), 'The Long-Term Case for European Equity Investment', speech to the Smith Institute, Annual Edinburgh Lecture (25 June 2002).
119. See also the Initial Report of the Committee of Wise Men on the Regulation of European Securities Markets (November 2000), which pointed to a 20 per cent increase in equity investments by investment funds (p. 11).
120. Forum Group on Financial Analysts, Financial Analysts: Best practices in an integrated European financial market (2003) p. 13
121. (hereinafter, Forum Group Report).
122. P. Coggan, 'Disillusioned followers desert cult of equity', Financial Times, 21 February 2003, p. 10.
123. London Economics Report, op. cit. n. 53, at p. 1.
124. M. Waller, 'Private investors begin march back to markets', The Times, 21 July 2003, p. 23
125. D. Hargreaves, P. Jenkins and C. Brown-Humes, 'Day-traders resurface to bet on return of the good times', Financial Times, 11 March 2004, p. 22.
126. Proshare 2002 Press Release, loc. cit. n. 64.
127. APCIMS 2003 Annual Report, op. cit. n. 22.
128. A. Joliffe, 'Investors remain wary of equities amid rising prices', Financial Times, 22 February 2005, p. 3.
129. P. Davies, 'European equity-linked funds keep growth trend', Financial Times, Fund Management Supplement, 5 April 2004, p. 2.
130. S. Ross, 'Investors still wary of putting money into shares', Financial Times, 1 February 2005, p. 1.
131. See A. Kumar, 'Is the Local Bias of Individual Investors Induced by Familiarity or Information Asymmetry?', Working Paper Series (2004), available at: http://ssrn.com/abstract=572642;
132. J. Coval and T. Moskowitz, 'Home Bias at Home: Local Equity Preference in Domestic Portfolios', 54 J. of Finance (1999) p. 2045;
133. K. Lewis, 'Trying to Explain Home Bias in Equities and Consumption', 37 J Econ Lit (1999) p. 571.
134. CEPS 2005 FSAP Report, op. cit. n. 1, at p. 24.
135. (e. g., ZEW/IEP Report, op. cit. n. 54)
136. D. Gros and K. Lannoo, The Euro Capital Market (Chichester, Wiley 2000) p. 165.
137. Bank of England, HM Treasury and Financial Services Authority, After the EU Financial Services Action Plan: A New Strategic Approach (May 2004) p. 10
138. (hereinafter, New Strategic Approach Report).
139. ProShare Parliament Evidence, loc. cit. n. 63.
140. K. Burgess, 'Sales surge suggests renewed confidence', Financial Times, 27 August 2003, p. 3.
141. Internal Market Director General A. Schaub, speech to FEFSI Fund Forum, Brussels (19 September 2003), available at: http://www.europa.eu.int/comm/internal-market/speeches.
142. Ferran, op. cit. n. 5, at p. 20.
143. Investment Management Association, Response to Commission's Autumn 2004 Consultation on the Expert Groups, loc. cit. n. 1, at pp. 3-4.
144. Forum Group Report, op. cit. n. 75, at p. 5.
145. See Asset Management Expert Group Report, loc. cit. n. 1, at pp. 2 and 9.
146. Hector Sants (of the FSA), 'The FSA's Outlook on asset management risks, priorities and challenges', speech (26 September 2004), available at: http://www.fsa.gov.uk/pubs/speeches.
147. European Commission, Financial Integration Monitor (May 2004)
148. See Securities Expert Group Report, loc. cit. n. 1, at p. 10.
149. CESR, Preliminary Progress Report: 'Which Supervisory Tools for the EU Securities Market?', CESR-333 (October 2004) p. 7.
150. Green Paper on Financial Services Policy, loc. cit. n. 33, at p. 16;
151. and Green Paper on Investment Funds, loc. cit. n. 72, at p. 12
152. New Strategic Approach Report, op. cit. n. 91, at p. 10.
153. Asset Management Expert Group Report, loc. cit. n. 1, at p. 8.
154. Green Paper on Investment Funds, loc. cit. n. 72, at p. 12.
155. Jackson, loc. cit. n. 11, at pp. 3, 7 and 41.
156. Fanto, loc. cit. n. 7, at p. 1099.
157. See, e. g., the SEC's reaction to the mutual fund scandal in the United States: A. Michaels, E. Kelleher and D. Wells, 'The mutual fund industry knows its fate is based on public confidence. It will do anything to restore that', Financial Times, 31 October 2003, p. 17.
158. L. Cunningham, 'The Sarbanes-Oxley Yawn: Heavy Rhetoric, Light Reform (And it Just Might Work)', 35 Conn. L.R. (2003) p. 915 at p. 922, noting that is has been attempted only once in the United States in the 1930s.
159. Explanatory Memorandum to the MIFID Proposal, loc. cit. n. 21, at p. 4.
160. First ECON Report, op. cit. n. 30, at p. 92.
161. (hereinafter, Second ECON Report)
162. M. Kahan, 'Securities Laws and the Social Costs of "Inaccurate" Stock Prices', 41 Duke L.J. (1991) p. 977.
163. See further Moloney, loc. cit. n. 41.
164. Moloney, loc. cit. n. 41, at pp. 44-49.
165. First ECON Report, op. cit. n. 30, at p. 97.
166. Banking Expert Group Report, loc. cit. n. 1, referred to the bias for 'local and familiar institutions' in financial services delivery (at p. 10).
167. J. Tiner, FSA chief executive, 'The Future of EU Financial Services Regulation: A UK Perspective', speech to FSA Conference (19 May 2004), available at: http://www.fsa.gov.uk/pubs/speeches.
168. See also Baums, loc. cit. n. 71
169. see D. Langevoort, 'Re-reading Cady, Roberts: The Ideology and Practice of Insider Trading Regulation', 99 Col. L.R. (1999) p. 1319.
170. More recently, the rhetorical/marketing analysis has been applied to the Sarbanes-Oxley Act. Cunningham, loc. cit. n. 111, at p. 922.
171. Ribstein, loc. cit. n. 35, at p. 79.
172. See also D. Langevoort, 'Structuring Securities Regulation in the European Union: Lessons from the US Experience', Georgetown Public Law Research Paper No. 624582;
173. ECGI Law Working Paper No. 41/2005 (2004) p. 10, available at: http://ssrn.com/abstract=624582
174. FSA, Financial Risk Outlook (2005) p. 86.
175. Langevoort, loc. cit. n. 34, at p. 6.
176. H. Jackson, 'To What Extent Should Individual Investors Rely on the Mechanisms of Market Efficiency: A Preliminary Investigation of Dispersion in Investor Returns', 28 J Corporation L. (2003) p. 671 at p. 674.
177. see T. Hu, 'Faith and Magic: Investor Beliefs and Government Neutrality', 78 Texas L.R. (2000) p. 777;
178. and L. Stout, 'Are Stock Markets Costly Casinos: Disagreement, Market Failure, and Securities Regulation', 81 Virginia L.R. (1995) p. 611.
179. Explanatory Memorandum to the MIFID Proposal, loc. cit. n. 21, at pp. 24 and 33.
180. Banking Expert Group Report, loc. cit. n. 1, at pp. 3 and 21.
181. See also the Asset Management Expert Group Report, loc. cit. n. 1, at p. 15
182. Explanatory Memorandum to the MIFID Proposal, loc. cit. n. 21, at p. 30.
183. Schaub, loc. cit. n. 2, at pp. 8 and 10.
184. Explanatory Memorandum to the MIFID Proposal, loc. cit. n. 21, at pp. 8 and 29.
185. See also the Communication from the Commission to the European Parliament concerning the MIFID Common Position, COM (2004) 15, p. 2.
186. Common Position, Statement of the Council's Reasons (8 December 2003) p. 2.
187. European Commission, Formal Request for Technical Advice on Possible Implementing Measures on Directive 2004/39/EC (June 2004) p. 5
188. (hereinafter, CESR Final MIFID Mandate).
189. K.J. Hopt, 'Modern Company and Capital Market Problems. Improving European Corporate Governance After Enron', ECGI Law Working Paper No. 5/2002 (2002).
190. See J. Franks and C. Mayer, Risk Regulation and Investor Protection. The Case of Investment Management (Oxford, OUP 1999) p. 152;
191. see FIN-USE Report, op. cit. n. 32, at p. 10.
192. See, e. g., the 1998 Odean study on investor trading which is based on trades through discount (execution-only) brokers in order to separate investor decisions from broker decisions and motivations. T. Odean, 'Are Investors Reluctant to Realise Their Losses', 53 J. of Finance (1998) p. 1775.
193. See R. Kraakman, 'Disclosure and Corporate Governance: An Overview Essay', in G. Ferrarini, K.J. Hopt, J. Winter and E. Wymeersch, Reforming Company and Takeover Law in Europe (Oxford, Oxford University Press 2004) p. 95.
194. P. Mahoney, 'Is There a Cure for Excessive Trading', 81 Virginia L.R. (1995) p. 713 at pp. 715-717.
195. see R. Prentice, 'Whither Securities Regulation? Some Behavioural Observations Regarding Proposals for Its Future', 51 Duke L.J. (2002) p. 1397 at pp. 1472-1480;
196. and D. Langevoort, 'Towards More Effective Risk Disclosure for Technology Enhanced Investing', 75 Washington U. L.Q. (1997) p. 753 at p. 759.
197. see Langevoort, loc. cit. n. 122, at pp. 1329-1330.
198. R. Clark, 'The Soundness of Financial Intermediaries', 86 Y.L.J. (1976) p. 126.
199. Stout, loc. cit. n. 13, at p. 11
200. Stout, loc. cit. n. 13.
201. Langevoort, loc. cit. n. 122, at pp. 1326-1328.
202. see Stout, loc. cit. n. 13;
203. Langevoort, loc. cit. n. 34;
204. and Prentice, loc. cit. n. 136.
205. L. Stout, 'The Mechanisms of Market Inefficiency: An Introduction to the New Finance', 28 J. Corp. L. (2003) p. 635 at p. 639.
206. see D. Langevoort 'Taming the Animal Spirits of the Stock Markets: A Behavioural Approach to Securities Regulation', 57 N.W.U. L.R. (2002) p. 135;
207. and R. Gilson and R. Kraakman, 'The Mechanisms of Market Efficiency Twenty Years Later: The Hindsight Bias', 28 J. Corp. L. (2003) p. 715 at pp. 717-731.
208. see L. Cunningham, 'Behavioural Finance and Investor Governance', 59 Washington & Lee L.R. (2002) p. 767 at pp. 769-786.
209. A. Shleifer, Inefficient Markets. An Introduction to Behavioural Finance (Oxford, Oxford University Press 2000) pp. 28-111.
210. see Choi, loc. cit. n. 14;
211. and, in the public offer and disclosure context, R. Romano, 'Empowering Investors: A Market Approach to Securities Regulation', 107 Y.L.J. (1998) p. 2359.
212. See, e. g., C. Sunstein, 'Behavioural Analysis of Law', 64 U. Chi. L.R. (1997) p. 1175;
213. and Camerer, loc. cit. n. 7.
214. See, e. g., G. Mitchell, 'Why Law and Economics' Perfect Rationality should not be traded for Behavioural Law and Economics' Equal Incompetence', 91 Georgetown L.J. (2002) p. 1;
215. J. Arlen, E. Talley and M Spitzer, 'Endowment Effects Within Corporate Agency Relationship', 31 J. of Legal Studies (2002) p. 1;
216. J. Rachlinski, 'The "New" Law and Psychology: A Reply to Critics, Skeptics, and Cautious Supporters', 85 Cornell L.R. (2000) p. 739.
217. Choi and Pritchard, loc. cit. n. 23, at pp. 9 and 15-17.
218. Commission Communication to the Council and European Parliament on E-Commerce and Financial Services, COM (2001) 66, p. 9
219. Lamfalussy Report, op. cit. n. 38, at p. 22.
220. Proposal for a Directive of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading, COM (2001) 280, p. 1.
221. Explanatory Memorandum to the MIFID Proposal, loc. cit. n. 21, at pp. 8 and 29.
222. First ECON Report, op. cit. n. 30, at p. 92.
223. Banking Expert Group Report, loc. cit. n. 1, at p. 3.
224. See, e. g., the London Stock Exchange's Response to the CESR's First Call for Evidence on MIFID (19 February 2004).
225. Choi and Pritchard, loc. cit. n. 23, at p. 35.
226. 10th FSAP Report, op. cit. n. 55, at p. 15.
227. see Financial Services Consumer Panel, Response to the Commission's Autumn 2004 Consultation on the Expert Group Reports, loc. cit. n. 1, at p. 2
228. Stout, loc. cit. n. 13, at p. 3.
229. See, e. g., R. Breeden, 'Restoring Trust', Report to Hon J. Rakoff, US District Court for the Southern District of New York on Corporate Governance for the Future of MCI Inc. [ex WorldCom] (August 2003);
230. and, in the United Kingdom, HM Treasury, Restoring Confidence in Long Term Savings (July 2004):
231. T. Frankel, 'Regulation and Investors' Trust in the Securities Markets', 68 Brooklyn L.R. (2002) p. 439 at p. 441.
232. See also Langevoort, loc. cit. n. 123, at p. 10
233. Stout, loc. cit. n. 13, at pp. 29 and 32.
234. Frankel, loc. cit. n. 160, at p. 449.
235. Editorial, Financial Times, loc. cit. n. 25
236. Banking Expert Group Report, loc. cit. n. 1, at p. 18
237. See, for instance, 2001 E-Commerce Communication, loc. cit. n. 150, at pp. 7 and 10;
238. and FESCO Standards and Rules for Harmonizing Core Conduct of Business Rules for Investor Protection, FESCO/00-124b (2001) p. 6.
239. See, for instance, Commission Communication on the Application of Conduct of Business Rules under Article 11 of the Investment Services Directive (93/22/EEC), COM (2000) 722, pp. 9 and 11
240. See Kumar, loc. cit. n. 88.
241. See E. Welle, 'Freedom of Contract and the Securities Laws: Opting out of Securities Regulation by Private Agreement', 56 Wash & Lee L.R. (1999) p. 519.
242. Cunningham, loc. cit. n. 111, at p. 987.
243. J. Tiner, FSA chief executive, speech to FSA Annual Public Meeting (July 2004) p. 2, available at: http://www.fsa.org.uk/pubs.
244. In its 2004 Education Report, op. cit. n. 24
245. P. Davis, 'Industry defends soaring fees', Financial Times, Fund Management Supplement, 20 September 2004, p. 1.
246. See the Asset Management Expert Group Report, loc. cit. n. 1, at p. 12
247. and Cunningham, loc. cit. n. 144, at p. 789
248. see FSA 2003 Education Report, op. cit. n. 7.
249. See Asset Management Expert Group Report, loc. cit. n. 1, at pp. 2 and 25-27.
250. See 2001 E-Commerce Communication, loc. cit. n. 150, at p. 4.
251. Bolkestein, loc. cit. n. 37, at p. 3:
252. OJ 2003 C 220/1, para. 4.10.
253. See First ECON Report, loc. cit. n. 30, at p. 92.
254. Council Common Position, 2002/0269 (COD), Statement of Reasons, p. 3.
255. FIN-USE Report, op. cit. n. 32, at p. I and, more generally, at p. 4.
256. See FSA Treasury Memorandum, loc. cit. n. 56, paras. 8 and 9;
257. and C. McCarthy, FSA Chairman, Speech to FSA Annual Public Meeting (July 2004), available at: http://www.fsa.org.uk/pubs.
258. FSA, Financial Risk Outlook (2004) p. 68.
259. See also Camerer, loc. cit. n. 7, at pp. 1232-1234
260. See J. Markham, 'Protecting the Institutional Investor - Jungle Predator or Shorn Lamb', 12 Yale J. of Regulation (1995) p. 345.
261. Second ECON Report, op. cit. n. 114, at p. 41.
262. Similarly, the ban on selective disclosure in Art. 6(3) of the Market Abuse Directive (MAD), OJ 2003 L 96/16
263. See Hurt, loc. cit. n. 15, at p. 3.
264. Jackson, loc. cit. n. 125.
265. C. Bradley, 'Disorderly Conduct and the Ideology of "Fair and Orderly Markets"', 26 J. of Corp. L. (2000) 63;
266. E. Otness, 'Balancing the Interests of Retail and Institutional Investors: The Continuing Quest for Transparency in Today's Fragmented Equity Markets', 96 N.W.U. L.R. (2002) p. 1607.
267. The Provisional Mandate to CESR for Technical Advice on Possible Implementing Measures concerning the Future Directive in Financial Instruments Markets (22 January 2004)
268. (hereinafter, CESR Provisional Mandate).
269. CESR First Draft Level 2 Advice, loc. cit. n. 181.
270. CESR Final MIFID Mandate, loc. cit. n. 130.
271. CESR's Draft Technical Advice on Possible Implementing Measures of the Directive 2004/39/EC on Markets in Financial Instruments, Second Set of Mandates, Consultation Paper, October 2004, CESR/04-52
272. CESR's Draft Technical Advice on Possible Implementing Measures of Directive 2004/39/EC on Markets in Financial Instruments, Aspects of Article 19(1), Best Execution and Market Transparency, March 2005
273. CESR's Technical Advice on Possible Implementing Measures of Directive 2004/39/EC on Markets in Financial Instruments, First Set of Mandates, January 2005, CESR/05-024c
274. (hereinafter, CESR Final First Mandate Advice)
275. and CESR's Technical Advice on Possible Implementing Measures of Directive 2004/39/EC on Markets in Financial Instruments, First Set of Mandates (Best Execution) and Second Set of Mandates, April 2005, CESR/05-290b
276. (hereinafter, CESR Final Second Mandate Advice).
277. Explanatory Memorandum to the MIFID Proposal, loc. cit. n. 21, at p. 29.
278. S. Smith, 'Stopping short: why do so many consumers stop contributing to long-term savings policies?', FSA Occasional Paper Series No. 21 (January 2004) p. 6.
279. Jackson, loc. cit. n. 11, at p. 19.
280. First ECON Report, op. cit. n. 30, at p. 97.
281. CESR Final Second Mandate Advice, loc. cit n. 195, at pp. 7-11.
282. see the CESR Second Draft Level 2 Advice, loc. cit. n. 193, at pp. 8-16;
283. and the CESR Third Draft Level 2 Advice, loc. cit. n. 194, at pp. 9-12.
284. CESR Final Second Mandate Advice, loc. cit n. 195, at p. 7.
285. See the Article 11 Communication, loc. cit. n. 166, at p. 16.
286. see H. Jackson, 'Regulation in a Multisectored Financial Services Industry', 77 Washington U. L.Q. (1999) p. 319 at p. 333.
287. See Langevoort, loc. cit. n. 136, at p. 756
288. Results of Commission conference on financial integration, Brussels, 22 and 23 June 2004, MEMO/04/160, available at: http://www.europa.eu.int/rapid.
289. CESR Final First Mandate Advice, loc. cit. n. 195, at p. 45.
290. CESR Final Second Mandate Advice, loc. cit. n. 195, at p. 9.
291. CESR Final First Mandate Advice, loc. cit. n. 195, at p. 53.
292. see FSA, Financial Risk Outlook (2005) p. 46.
293. The 2004 UCITS Prospectus Recommendation, loc. cit. n. 45
294. K. James, 'Price of Retail Investing in the UK', FSA Occasional Paper Series No. 6 (2000).
295. see OECD, Report on Consumer Information about Financial Services (1992) p. 8.
296. See APCIMS, loc. cit. n. 181, at p. 8:
297. CESR Final First Mandate Advice, loc. cit. n. 195, at pp. 65-70.
298. CESR Third Draft Level 2 Advice, loc. cit. n. 194, at p. 31.
299. First ECON Report, op. cit. n. 30, at p. 93.
300. G. Ferrarini, 'Contract Standards and the MiFiD: An Assessment of the Lamfalussy Regulatory Architecture', Institute for Law and Finance, Working Paper Series No. 39 (Frankfurt 2005) pp. 24-25.
301. Proshare Parliament Evidence, loc. cit. n. 63, at para. 2 and Appendix.
302. London Stock Exchange, Response to CESR's First Call for Evidence (19 February 2004) p. 2.
303. See also C. Bates, 'European Regulatory Reform: The Pace Quickens', BJIBFL (2003) p. 121 at p. 124
304. See, e. g., Case C-470/93 Mars [1995] ECR I-1923;
305. Case C-210/96 Gut Springenheide GmbH [1998] ECR I-4657;
306. and Case C-220/98 Estee Lauder [2000] ECR I-117.
307. J. Plender, 'Soft-touch regulation confronts the hard sell', Financial Times, 23 September 2003, p. 18.
308. Joliffe, loc. cit. n. 85.
309. See generally FSA, 'What consumers know about financial regulation', FSA Consumer Research Paper No. 29 (2004), which highlights poor awareness of product risk, particularly with respect to packaged investment products (at pp. 16-18).
310. NOP/Invesco Survey, cited in J. Croft, 'FSA Chief Warns of Risks to "Financial Illiterates"', Financial Times, 16 October 2003, p. 5.
311. See, e. g., Cliff Dammers, IPMA Chairman, 'What the Market Needs', speech (7 June 2004), available at: http://www.ipma.org.uk
312. see, e. g., FSA, 'Better Informed Consumers', FSA Consumer Research Paper No. 1 (2000).
313. See, e. g., Prentice, loc. cit. n. 136, at p. 1449;
314. and R. Romano, 'A Comment on Information Overload, Cognitive Illusions, and Their Implications for Public Policy', 59 So. Cal. L.R. (1986) p. 313.
315. Jackson, loc. cit. n. 125.
316. FSA, 'Standardisation of Past Performance', FSA Consumer Research Paper No. 21 (2002).
317. CESR First Draft Level 2 Advice, loc. cit. n. 181, at p. 63.
318. In its response to the CESR First Draft Level 2 Advice, APCIMS, loc. cit. n. 181, at p. 14
319. Jackson, loc. cit. n. 125, at p. 687.
320. See FBE, Memorandum to Members of the ECON Committee of the European Parliament (19 February 2004).
321. See FIN-USE Report, op. cit. n. 32, at pp. III and 11.
322. 1985 UCITS Directive, Schedule C. The 2004 UCITS Prospectus Recommendation, loc. cit. n. 45, at para. 2.2
323. See FIN-USE Report, op. cit. n. 32, at p. 16.
324. Second ECON Report, op. cit. n. 114, at p. 42.
325. APCIMS 2003 Annual Report, op. cit. n. 22.
326. See Explanatory Memorandum to the MIFID Proposal, loc. cit. n. 21, at p. 26.
327. European Parliament, First Reading, loc. cit. n. 178, Amendment 53.
328. First ECON Report, op. cit. n. 30, at p. 92.
329. In the Second ECON Report, op. cit. n. 114
330. See generally ProShare Parliament Evidence, loc. cit. n. 63, at paras. 10-14.
331. Response by London Stock Exchange to the CESR's Second Call for Evidence (29 July 2004) p. 1.
332. see Bates, loc. cit. n. 221.
333. Second ECON Report, op. cit. n. 114, at p. 42.
334. See, e. g., APCIMS Response to the CESR's Second Call for Evidence (29 July 2004)
335. See CESR Final Second Mandate Advice, loc. cit. n. 195, at pp. 33-35.
336. Forum Group Report, op. cit. n. 75, at pp. 41-42.
337. Explanatory Memorandum to the MIFID Proposal, loc. cit. n. 21, at p. 6.
338. Explanatory Memorandum to the MIFID Proposal, loc. cit. n. 21, at p. 27.
339. Ilkson, et al., loc. cit. n. 26, at p. 22.
340. CESR Final Second Mandate Advice, loc. cit. n. 195, at pp. 36-37.
341. See also CESR Third Draft Level 2 Advice, loc. cit. n. 194, at pp. 18-19.
342. See the 2001 E-Commerce Communication, loc. cit. n. 150, at p. 13.
343. CESR Final First Mandate Advice, loc. cit. n. 195, at p. 63.
344. APCIMS Response to the CESR's Second Call for Evidence (29 July 2004) p. 2.
345. CESR Final First Mandate Advice, loc. cit. n. 195, at p. 60.
346. Markham, loc. cit. n. 184, at p. 369.
347. J. Cox, R. Hillman and D. Langevoort, Securities Regulation Cases and Materials, 2nd edn. (1997) pp. 1104-1110.
348. Cunningham, loc. cit. n. 144, at pp. 798-799.
349. Second ECON Report, op. cit. n. 114, Amendment 19.
350. CESR Third Draft Level 2 Advice, loc. cit. n. 194, at pp. 5-7.
351. See, in particular, La Porta, et al., loc. cit. n. 5;
352. and Choi, loc. cit. n. 5.
353. R. King and R. Levine, 'Finance and Growth: Schumpeter might be right', 108 Q.J. of Economics (1993) p. 681;
354. R. Rajan and L. Zingales, 'Financial Dependence and Growth', 88 Amer. Econ. R. (1998) p. 559;
355. and R. Levine, 'Law, Finance and Economic Growth', 8 J. of Financial Intermediation (1999) p. 8.
356. See, e. g., R. La Porta, F. Lopez de Silanes and A. Shleifer, 'What Works in Securities Laws?', Tuck School of Business Working Paper No. 03-22;
357. AFA 2005 Philadelphia Meetings (2003), available at: http://ssrn.com/abstractid=425880
358. F. Partnoy, 'Why Markets Crash and What Law Can Do about It', 61 U. of Pittsburgh L.R. (2001) p. 741;
359. J. Coffee 'The Rise of Dispersed Ownership: The Roles of Law and the State in the Separation of Ownership and Control', 111 Y.L.J. (2001) p. 1;
360. and J. Franks, C. Mayer and S. Rossi, 'The Origination and Evolution of Ownership and Control', ECGI Finance Working Paper No. 09/2003;
361. EFA 2004 Maastricht Meetings Paper No. 3205;
362. AFA 2003 Washington, DC Meetings (2003), available at: http://ssrn.com/abstractid=354381.
363. See, e. g., FSA, 'Reforming Polarisation: Making the market work for consumers', FSA Consultation Paper No. 121 (2002) p. 36
364. See J. Lawrence, 'The Economics of Market Confidence: (Ac)Costing Securities Market Regulation' (undated), available at: http://ssrn.com/abstract=204643
365. Asset Management Expert Group, loc. cit. n. 1, at p. 9.
366. See Banking Expert Group Report, loc. cit. n. 1, at p. 21.
367. see FSA, HM Treasury and Bank of England, The EU Financial Services Action Plan: A Guide (July 2003) p. 18.
368. J. Tiner, FSA chief executive, 'The Future Shape of EU Financial Services Regulation: A UK Perspective', speech to FSA Conference (19 May 2004), available at: http://www.fsa.gov.uk.pubs/speeches.
369. See Banking Expert Group Report, loc. cit. n. 1, at p. 18.
370. Internal Market Commissioner Bolkestein, 'Learning the Lessons of the Financial Services Action Plan', speech to Edinburgh Finance and Investment Seminar (29 January 2004).
371. See 10th FSAP Report, op. cit. n. 55, at p. 1.
372. 10th FSAP Report, op. cit. n. 55, at p. 14.
373. Green Paper on Financial Services Policy, loc. cit. n. 33, at pp. 11-13.
374. see Ferran, op. cit. n. 5, at pp. 58-126.
375. On the dangers of regulatory capture, see generally J. Macey, 'Corporate Law and Corporate Governance: A Contractual Perspective', 18 J. of Corp. L. (1998) p. 185.
376. See Choi and Pritchard, loc. cit. n. 23, at p. 36
377. See, e. g., K.-A. Heeren and O. Riekers, 'Legislative Responses in Times of Financial Crises-New Deal Securities Legislation, Sarbanes-Oxley Act and Their Impact on Future German and EU Regulation', EBLR (2003) p. 595:
378. see J. Coates, 'Private vs. Political Choice of Securities Regulation: A Political Cost/Benefit Analysis', 41 Virginia J. of Int. L. (2001) p. 531.
379. See, e. g., Ilkson, loc. cit. n. 26, at p. 20.
380. FSA Treasury Memorandum, loc. cit. n. 56, para. 7.
381. see the BBA Response to the Commission's Autumn 2004 Consultation on the Expert Groups Reports, p. 4.
382. See, e. g., Davis, loc. cit. n. 172
383. CEPS 2005 FSAP Report, op. cit. n. 1, at p. 9.
384. see generally Ferran, op. cit. n. 5.
385. see further Moloney, loc. cit. n. 41, at pp. 33-36;
386. Choi and Pritchard, loc. cit. n. 23, at pp. 76-77;
387. and Fanto, loc. cit. n. 7, at p. 1083
388. see Cunningham, loc. cit. n. 111, at p. 922
389. See the 2003 FSA Education Report, op. cit. n. 7;
390. the 2004 FSA Education Report, op. cit. n. 24;
391. and FSA, Financial Risk Outlook (2005).
392. Fanto, loc. cit. n. 7, at p. 1086
393. FSA 2003 Education Report, op. cit. n. 7, at p. 6.
394. Green Paper on Financial Services Policy, loc. cit. n. 33, at p. 18.
395. See HM Treasury, Consultation on stakeholder savings and investment products (June 2004);
396. and FSA, A Basic Advice Regime for the Sale of Stakeholder Products (November 2004).
397. See, e. g., Jackson, loc. cit. n. 125;
398. and Langevoort, loc. cit. n. 122, noting the 'chronic optimism' of the public that it can compete with insiders and professionals when realists have long shifted to index tracker funds (at p. 1328).
399. Ribstein, loc. cit. n. 35, at p. 97.
400. Mahoney, loc. cit. n. 135, at p. 740.
401. Jackson, loc. cit. n. 125, at p. 674.
402. Choi, loc. cit. n. 14.
403. Choi and Pritchard, loc. cit. n. 23, at pp. 65-66.
404. Gilson and Kraakman, loc. cit. n. 144, at pp. 738-739.
405. Stout, loc. cit. n. 125, at p. 618.
406. Green Paper on Financial Services Policy, loc. cit. n. 33, at p. 16.
407. CESR, The Role of CESR at Level 3 under the Lamfalussy Process, CESR 04-527b (October 2004) p. 17.
408. APCIMS, Memorandum on FSA CP04/11 on a Basic Advice Regime for the Sale of Stakeholder Products (August 2004), available at: http://www.apcims.co.uk.
409. Jackson, loc. cit. n. 125, at pp. 670 and 688.
410. Joliffe, loc. cit. n. 85.
411. See, e. g., Jackson, loc. cit. n. 125, noting that surprisingly little good information is available on how investors perform and calling for the SEC to carry out more analysis of investor returns and, in particular, investor portfolios which would allow fuller analysis and support investor education policies (at pp. 679 and 687).
412. see Jackson, loc. cit. n. 11, at p. 25.
413. see Consumer Association, Response to the Commission's 2004 Autumn Consultation on the Expert Group Reports, op. cit. n. 1, at p. 10;
414. and J. Tiner, FSA chief executive, 'European Financial Integration: Progress and Prospects', speech to Commission Conference (22 June 2004), available at: http://www.fsa.gov.uk.pubs/speeches.
415. See Securities Expert Group Report, loc. cit. n. 1, at pp. 10-11.
416. New Strategic Approach Report, op. cit. n. 91, at p. 25.
417. CEPS 2005 FSAP Report, op. cit. n. 1, at p. 11.
418. See the Joint Initiative on Regulatory Reform. An Initiative by the Irish, Dutch, Luxembourg, and UK Presidencies of the EU (January 2004).
419. See UCITS Prospectus Recommendation, loc. cit. n. 45, recital 11.
420. J. Duggan, 'Regulation FD: SEC Tells Corporate Insiders to "Chill Out"', 7 Washington U. J. of Law and Policy (2001) p. 159 at pp. 162 and 170.
421. ProShare states on its website, at http://www.proshare.org
422. Art. 5 of Commission Decision 2001/527/EC establishing the CESR, OJ 2001 L 191/43.
423. See CESR First Draft Level 2 Advice, loc. cit. n. 181, at p. 2.
424. Response of the Danish Shareholders Association to the CESR's Draft Level 2 Advice (17 September 2004).
425. Inter-Institutional Monitoring Group, First Interim Report Monitoring the New Process for Regulating Securities Markets in Europe (The Lamfalussy Process) (May 2003) p. 6.
426. Inter-Institutional Monitoring Group, Second Interim Report Monitoring the Lamfalussy Process (December 2003) p. 29.
427. ESC Minutes, 5 July 2004, ESC 28/2004, para. 8.
428. CEPS 2005 FSAP Report, op. cit. n. 1, at p. 7.
429. Langevoort, loc. cit. n. 123.
430. See Consumer Association, loc. cit. n. 296.
431. CEPS 2005 FSAP Report, op. cit. n. 1, at p. 31.
432. See FIN-USE Report, op. cit. n. 32, at pp. 1 and 7.
433. Consumer Association, loc. cit. n. 296.
434. 9th FSAP Report, op. cit. n. 48, at p. 11.
435. Commission Press Release IP/03/1119 (25 July 2003).
436. See FIN-USE Report, op. cit. n. 32, at pp. I and 5.
437. 10th FSAP Report, op. cit. n. 55, at p. 10.
438. 2587th Meeting of the Council (Economic and Monetary Affairs), 2 June 2004, Press Release, Council Conclusions, p. 12.
439. Charlie McCreevy, Commissioner for Internal Market and Services, 'Assessment of the integration of the Single Market for financial services by the Commission', speech to CESR Conference (6 December 2004), available at: http://europa.eu.int/rapid.
440. MIFID Consumer Day - Summary of the Main Conclusions, CESR/05-350 (May 2005).
441. European Commission, Working Document on the Application of the Lamfalussy Process to EU Securities Market Legislation (November 2004)
442. and Green Paper on Financial Services Policy, loc. cit. n. 33, at p. 18.
443. See Consumer Association, loc. cit. n. 296, at p. 7.
444. See MIFID Consumer Day - Summary of the Main Conclusions, loc. cit. n. 324, at p. 1.