Issuer Choice in Europe

Abstract:     
Unlike the US, the European Union has a tradition of national securities laws significantly differ-ing from each other. Regulatory idiosyncrasies largely remain today despite recent efforts aiming at more comprehensive harmonization. In addition, in important respects, the current conflict of laws rules contained in European Community securities laws bundle the choice of applicable securities laws with the issuer's registered office, while leaving some regulatory aspects to the law of the market where the issuer's securities are admitted to trading. Hence, to the extent that EU companies can choose their state of incorporation and trading location, they can also choose the applicable securities law among those in place in the 27 EU countries.

This article scrutinizes the policy implications of the conflict of laws rules EC securities regula-tion has chosen in two scenarios: the present one, in which obstacles to companies mobility across the EU still make regulatory arbitrage in practice unavailable, and a prospective one in which these obsta-cles are removed.

We consider the bundling of securities laws with the issuer's law of incorporation for conflict of laws purposes overall detrimental if corporate law arbitrage is unavailable. On the other hand, we argue that the impact of such rules is beneficial if companies can easily engange in company law arbi-trage. Yet, we qualify our optimistic assessment by showing that bundling securities regulation and corporate law for conflict of laws purposes may have a negative impact on the dynamics of the market for corporate charters.

For the regulatory aspects that are governed by the law of the affected market (and specifically for securities law aspects of takeover regulation), we argue that already today issuer choice offers a broad variety of options and a separating equilibrium represents the likely outcome.

Number of Pages in PDF File: 73

Keywords: securities laws, securities regulation, harmonization, conflict of laws, corporate law, corporate governance, regulatory competition, legal arbitrage, issuer choice, Financial Services Action Plan

JEL Classification: G18, G34, G38, K22

working papers series