Scope of chapter

This chapter serves as an introduction to the remaining chapters, which examine the emerging new EU framework for the regulation and institutional oversight of issuer disclosure. This chapter explains why issuer disclosure merits particular attention and establishes the scope of the inquiry.

Disclosure as the first-choice regulatory strategy generally, and for issuers in particular

Disclosure philosophy has been described variously as the ‘bedrock’ and as ‘a – if not the – defining characteristic’ of US securities law. The EU has adopted a similar philosophical stance with disclosure being a fundamental tenet of its approach to the regulation of securities markets. Disclosure occupies a central position in the EU's efforts to build the regulatory framework for an integrated pan-European securities market, and issuer disclosure is an important component of this overall strategy.

Functions that issuer disclosure regimes can perform

In principle issuer disclosure requirements can perform two key functions: to improve the accuracy of securities prices; and to address corporate governance agency problems. These functions can overlap but they are also distinguishable.

Securities markets are driven by information and, according to the predominant theory explaining the efficiency of their operation, market prices rationally reflect publicly-available information. Where information is not properly reflected in prices, prices can be inaccurate in the sense that they are misaligned to the fundamental value of securities.