Issuer Choice in Europe
Unlike the US, the European Union has a tradition of national securities laws significantly differing 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 paper scrutinizes the policy implications of the conflict of laws rules EC securities regulation 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 obstacles are removed.
We consider the bundling of securities laws with the issuer's registered office for conflict of laws purposes overall detrimental when corporate law arbitrage is unavailable. On the other hand, we argue that the impact of such rules is beneficial if companies can transfer their registered office without facing severe obstacles. 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.