116
quality of the instruments; while trading is more “specific and tailored to the needs of each financial market326.
117
Firstly, Mahoney has deeply argued on the theme in favor of the idea that exchanges should retain their role as regulators, on the ground of several reasons. He believes that
“exchanges should be the primary writers and enforcers of rules relating to disclosure by listed companies, standards of conduct for member broker-dealers, and market structure”329. Keeping investors vested with benefits represents the major incentives for exchanges, which, as it has already been underlined, “are typically owned by their members, who are stockbrokers or other professional intermediaries and their incomes rise as the volume of transactions rises”330. Therefore, market managers should be pushed forward by the urgency to attract investors, by established rules and listing standards able to generate value for them “until the value investors attach to further benefits is outweighed by the cost of providing them”331. The author underlines also the fact that, public regulators place themselves in a position of substantial disadvantage in terms of “information, experience, and incentives compared to an exchange”332. Therefore, with the aim to associate their operational and rules system to a premium brand, exchanges may increase standards and enhance market supervision. In addition, their knowledge and expertise flanked with developed infrastructures and skill-based supervision are able to grant a direct access to market information and participants which could not be reached by public authorities and regulators333. Mergers and alliances bringing together exchanges from all across Europe should result in a corresponding transactional supervisory and regulatory role, enhancing international responsibilities334. One of the most positive outcomes, considering the level of harmonization reached by the MiFID II directive and the obligation of cooperation between different national authorities, which derives form the concentration of different exchanges in one single economic entity is represented by the facilitated dialogue between different countries regulators and authorities.
On the other side, there are also counter arguments to the provision to make stock exchanges as regulators and supervisors. As analysed above, the main concern regards
329 MAHONEY,P.G.(1997), p. 1455.
330 Ibid., p. 1457. The concept according to which, exchanges cannot be defined as proper listed companies, as their shareholders are typically also their clients is supported by other scholars. Among all, see DI NOIA,C.(2002), p. 57.
331 Ibid., p. 1459.
332 Ibid., p. 1462.
333 FERRAN, E. (2004), p. 255.
334 LICHT, A. N. (2001).
118
a possible dropping of standards, as profit-taking companies may be discouraged to rigorously apply regulatory requirements. They may be tempted to be driven by self- interested purposes in the attempt to reach the maximization of shareholders’ profits.
This approach could lead to socially detrimental effects and market fragmentation.
For example, there may be negative aftermaths of exchanges as assuming a regulatory and supervisory role. Three main issues could come into existence: major exchanges usually face insufficient competition from other markets to deter them from acting like cartels (Euronext, for example, is a position not comparable to any other exchange in Europe); restrictive rules are inefficient; and that governmental regulators can identify and eliminate inefficient rules while keeping those that create wealth335.
Other authoritative scholars, Di Noia, has investigated the potential aftermaths related to regulatory exchanges. believes that the entry of new potential investors other than issuers and intermediaries (i.e., shareholders particularly focused on profit maximization) may cause a dropping of human, technological and financial resources dedicated to regulatory and supervisory activities. In particular, the scholar makes reference to the possible issues coming from the aforementioned listing fees amounts336. The scholar also raises concerns and issues related to the potential conflicts of interest regarding regulatory and supervisory set of rules established by
“self-listed” exchanges. In particular, the author underlines that, especially with reference to on-going disclosure, which several times may involve also temporary suspension and removal of traded instruments, the authority and independence of the supervision could be weakened by a “fictitious” contraposition between two entities (the “supervisor”, i.e. the exchange and the “supervised”, i.e. the exchange management)337.
However, it should be noted that since MiFID I and even more with MiFID II the trend has shifted towards a strong regulation of capital markets with the aim to reach a stronger harmonization.
335 For a comprehensive and deeper analysis, see MAHONEY,P.G.(1997), p. 1476-1496.
336 For further details see DI NOIA,C. (2002), p. 60: “...il tipico esempio è quello del listing nel quale gli incentivi ad avere il maggior numero di emittenti quotati (paganti listing fees) e il costo di avere strutture adeguate per le istruttorie e sufficientemente indipendenti per rigettare i lemons, potrebbero portare ad ammettere a quotazione titoli di emittenti senza adeguate garanzie.”.
337 Ibid., p. 62.
119
3.8.1. Euronext regulatory and supervisory framework
In order to fully understand the issue and conclude the discussion on the topic, a practical example may be useful. With reference to Euronext, the company provides information on how each of the controlled market is regulated and supervised, according to MiFID II. In particular, as it has been underlined above, all the regulated market are connected via a single trading platform and a unique single order book, separated from the one dedicated to MTFs. In addition, as specified on the holding website338, each national regulators of Euronext’s markets are parties to a Memorandum of Understanding. From a legal point of view, a memorandum of understanding, even if not legally binding, is a formal agreement between two or more parties outlined in a document, which defines the scope and purpose of the relationship and entailing each party’s roles and responsibilities.
The agreement creates the “Euronext College of Regulators” (CoR) and provides a framework to coordinate supervision and regulatory authorities of the financial markets controlled by Euronext. The bodies involved are the Portuguese CMVM and the Belgian (FSMA), British (FCA), Dutch (AFM), French (AMF) and Norwegian (FSA) financial authorities. These authorities have identified certain areas of common interest and have adopted a coordinated approach to the exercise of their respective national rules, concerning listing and prospectus disclosure requirements, on-going obligations of listed companies, takeover bid rules and disclosure of large shareholdings. Everything without prejudice to each other’s domestic competencies and responsibilities and subject to any laws or regulatory requirements in force in, or applying to, their respective jurisdictions. For the purposes set out above a Committee of experts has been appointed, whose chairman changes on a regularly basis.
As regards specifically the Regulated Markets operated by Euronext (7 securities markets and 6 derivatives markets), the holding has disposed single Euronext Rule Book which governs trading. It contains both harmonised and non-harmonised (i.e., local) rules. Therefore, it is divided between “Book I” which disposes the rules collectively and “Book II”, which entails the rules related to each, approved by the regulators in Belgium, France, Ireland, the Netherlands, Norway, and Portugal339. In
338 See https://www.euronext.com/en/regulation.
339 See https://www.euronext.com/en/regulation/euronext-regulated-markets.
120
particular, the harmonised rules disposed in Rule Book I contains rules of conduct and of enforcement, designed to protect the markets, as well as rules on listing, trading, and membership; while the non harmonised rules provided by Rule Book II are divided with reference to each of the Euronext segments in each of the member countries.
3.8.2. CMU on regulation and supervision
On the back of the considerations made with reference to the centralization of scrutiny and approval of the admission to listing and prospectuses, it is rather interesting to understand whether a CMU fully fledged regulatory may exist. The feasibility of centralized regulation and supervisory single authority similar to the American Securities Exchange Commission (SEC) has been investigated340.
The main improvement would be based on the elimination of the home country bias and the possibility of regulatory forbearance for the bigger firms. It would be granted a more efficient information flow with an enhanced supervisory enforcement trough out the entire Europe.
However, it poses several challenges in terms of viability and constitutionality of the reforms, as it would drastically change the current supervisory panorama with a complete substitution of the ESMA’s position. The renewed EU-SEC should be able to impose sanctions and control the market abuses. In particular, this would mean that the new authority will be involved in areas concerning not only legal, but also natural persons. Therefore, it would be moved to a more litigious field and not only to fines and sanctions in general.
In conclusion, as suggested by the authors, the constitutionality of the project will be certainly evaluated341, meaning that cross-border and multiple conflict of jurisdiction may arise. The ruling of courts assuring ESMA (and, as a consequence, a similar authority potentially created) with the chance to irrigate cross-border sanctions in emergency cases (i.e., short sales conduct342) cannot be said to be a sufficient legal basis.
340 AVGOULEAS,E.,FERRARINI,G. (2018), p. 69-72.
341 Ibid, p. 72-76.
342 See Case C-270/12 Judgment of the Court (Grand Chamber) United Kingdom of Great Britain and Northern Ireland v European Parliament and Council of the European Union (Regulation (EU) No 236/2012 [2012] OJ L86/1 (14 March 2012)—Short selling and certain aspects of credit default swaps—
121