Stock Exchange Law

Stock Exchange Law

Stock Exchange Law

Stock exchange law is today a subdivision of capital markets or securities
law. Its main objective is to strengthen public confidence in the financial markets, and it covers two regulatory areas: the organization of exchanges and the process of trading at exchanges.

Main Objectives and Key Legislation

Whether and to what extent financial markets should be regulated has always
been a topic highly controversial among investors, issuers, regulators,
and scholars. Today there is a broad consensus that some sort of regulation is
indispensable; otherwise, investors would be less willing to provide business
corporations with the money that the latter need to finance their projects.
Stock exchanges fit into this general picture. Many scandals have occurred at
exchanges or in their environment, causing investors and—as a result of the
far-reaching implications of those scandals—the general public to call for
more exchange regulation.

Compared to other branches of commercial and business law, stock exchange
law is relatively young; within capital markets or securities law,
though, stock exchange law constitutes one of the first roots. As has already
been mentioned, the French Code de commerce included a few provisions on
commercial exchanges as early as the beginning of the 19th century (1807).

While the German Allgemeines Deutsches Handelsgesetzbuch (1861) abstained from
regulating exchanges, it nonetheless frequently referred to the Börsenpreis, the
exchange price. This is why some German states decided to provide for
some basic exchange rules in their introductory acts.26 It took another three
and a half decades, however, before Germany obtained a detailed regulatory
regime on the federal level, the Börsengesetz (1896).27 The next major steps
were the Securities Exchange Act (1934)28 in the United States and, more than
fifty years later and only two and a half decades ago, the Financial Services
Act (1986)29 in the United Kingdom. Today, all major jurisdictions have a
comprehensive regulatory regime for stock exchanges. In France, it is the
second title of book four of the monetary and financial code, the Code monétaire et financier (2000);30 in Germany the new version of the Federal Exchange Act, the Börsengesetz (2007); and in the United Kingdom part eighteen
of the Financial Services and Markets Act (2000).

Exchange Organization

Though they have different approaches and consequences, stock exchange
laws all over the world govern the organization of the exchanges or
their operators, respectively. Typical provisions concern the preconditions to
operate an exchange, the structure of the exchange, or the regulatory powers
vested with the exchange. In German, these rules are succinctly referred to as
Börsenorganisationsrecht, exchange organization law. Most of these provisions
belong to public law (in the traditional continental European meaning).

Statutory requirements for the organization of exchanges are more problematic
than many other provisions of securities law because they affect investor
confidence in the financial markets, if at all, only indirectly. This is why
policymakers with realistic self-assessment would probably rather let the exchanges
find a structure that fits their needs than prescribing certain organizational
features.33 Against this background, it is no surprise that in Germany, as
the most (in)famous example, the organizational requirements for stock exchanges
have long been met by sharp criticism.

Similar issues have been raised in many other countries, for instance, in the United States.

Exchange Trading

Stock exchange laws also regulate what happens at the exchanges, most
notably the process of trading as well as the admission of items and dealers to
trading, albeit in a vastly different way from jurisdiction to jurisdiction. In
German, this category of rules is known as Börsenhandelsrecht, exchange trading
law. Many of these provisions are those of public law, but there are also some
rules that are genuinely private law (again in the traditional meaning of continental
Europe), especially concerning the general terms and conditions that
become part of the contracts entered into at the exchange.

Authors: Andreas M. Fleckner, Klaus J. Hopt


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