European Company Law Text, Cases and Materials

Official Stock Exchange Listing and Regulated Markets

Companies may also be regarded as issuers of shares, bonds and other securities, these being the ‘goods’ traded in capital markets. EU law extensively regulates capital markets with the purpose of ensuring the free movement of capital. Therefore, in this chapter and Chapter 18 we will deal with some of the EU capital market regulations that have special relevance for ECL, such as the Admission to Listing Directive, the Prospectus Directive, the Market Abuse Regulation, the Transparency Directive and the Takeover Bids Directive.

Brief introductory notes on capital markets may be useful to understand the wider picture.

As with used cars, securities may also be sold to third parties at arm's length. However, whilst a used car is generally sold to buy a new one, securities are sold in case the holders need money for their personal needs, or because it is the appropriate time to liquidate the investment. In finance, the practice of selling securities when these have risen in price is called profit taking.

The more the securities are widespread, the more likely it is that their holders will find someone willing to purchase them; moreover, the more the securities are widespread, the more likely it is that there is a current ‘market’ price for units of a certain security reflecting that of previous transactions on similar securities. The existence of a market price facilitates determining when it is time for taking profits.

Unlike used cars, widespread securities such as shares and bonds issued by public companies are traded in specialised markets, known as stock exchanges: e.g. the London Stock Exchange, the New York Stock Exchange (NYSE), the NASDAQ, the Deutsche Börse, and so on. These markets ensure continuous trading and an official market price for all listed securities.

A stock exchange is a place where investors can buy and sell shares, bonds, and other securities or financial instruments. Such a place can be either physical or virtual: usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets use electronic networks, which gives them advantages of increased speed and reduced cost of transactions. Stock exchanges often function as ‘continuous auction’ markets, with buyers and sellers consummating transactions at a central location, such as the floor of the exchange.