Document Type



Presented at the 2nd annual LL.M. Conference at Cornell Law School on April 16, 2005.


The occurrence of more than a dozen accounting scandals in the United States over the past few years have deeply shaken the capital market and have led some to believe that “corporate and legal culture has lost all sense of right and wrong.” Scandals at companies such as Enron and Worldcom have cost thousands of employees their jobs and caused thousands of investors to lose their investments completely. Similar scandals have happened in Europe as well, such as at Parmalat and Lernout & Hauspie, which has caused an increasing reluctance among investors to trust companies with their dollars.

These circumstances have sparked a major debate over corporate governance. Investors, having lost hundreds of billions of dollars pleaded for more protection to ensure that such frauds would not happen again. The US Congress had only a short time period in which to respond to these events and try to prevent the situation from deteriorating further. Congress’s work resulted in the implementation of the Sarbanes-Oxley Act, which was “the most sweeping and important US federal securities legislation affecting public companies and other market participants since the SEC was created in 1934”. The European response to the Sarbanes-Oxley Act is manifested in several directives in the field of the law on capital markets. Both the United States and the European Union have had to deal with the issue of restoring investors’ lost confidence, and both have tried to solve the problem by enacting more detailed provisions. This paper examines the present trend in the field of law on capital markets more closely with a particular focus on the European Union. So far, scholars have concentrated only – if at all – on summarizing the content of the several Directives, while leaving aside the question whether the legislative activity of the European Union is a good or bad policy.

I first conduct a closer examination of European capital markets law. In particular my focus is on the most recent and important issues the Member States had, and partly still have to deal with: the Directive on Market Abuse 2003/6/EC, the Prospectus Directive 2003/71/EC and the Transparency Directive 2004/109/EC. I then argue that: (i.) The available data indicates that law on capital markets is moving toward greater regulation on a European level as well as toward a uniformity; and (ii.) although attempting to achieve harmonization on an EU-wide basis is preferable to a “state by state” approach, the European Union should pursue a lower degree of legislative activity.

Date of Authorship for this Version

April 2005


Capital markets, Europe