Supervision of securities markets in the Member States of the European Economic Community

Directorate-General For Translation European Commission

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Individual country studies
Approximation of legislation
Competition policy
Financial integration - free movement of capital

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• Publié par: EUROPEAN-COMMISSION
• Nombre de lectures: 1 283
• Langue: English
• Poids de l'ouvrage: 4 Mo

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COMMISSION OF THE EUROPEAN COMMUNITIES
studi es
Supervision
of the securities markets
in the Member States
of the European Community
REPORTS
ON THE NATIONAL SYSTEMS OF CONTROL
PART II : United Kingdom
Italy
Luxembourg
Netherlands
Annex: USA
COMPETITION - APPROXIMATION OF LEGISLATION SERIES 33 Commission of the European Communities
Supervision
of the securities markets
in the Member States
of the European Community
Reports
on the national systems of control
Part II : United Kingdom
Italy
Luxembourg
Netherlands
Annex: USA
Report on a comparative law study submitted by
Prof. E. Wymeersch
Universitaire Instelling Antwerpen
STUDIES COLLECTION
Competition - Approximation of legislation series No 33
Brussels. 1980 NOTICE TO THE READER
The first volume of this study 'Supervision of the securities markets in the Member
States of the European Community - Reports on the national systems of control :
Belgium, Federal Republic of Germany, Denmark, Ireland, France' was published in
the Competition - Approximation of legislation series (No 32, catalogue number :
CB-NP-79-032-EN-C).
This publication is also available in the following languages :
FR ISBN 92-825-2288-1
NLN 92-825-2289-X
Cataloguing data can be found at the end of this publication
The foil Dwing currency abbrev ations are used in this report:
= BFR Belgische frank / franc beige
DKR Dansk krone =
DM Deutsche Mark =
FF Franc français =
IRL Irish pound =
LIT Lira italiana =
LFR Franc luxembourgeols =
HFL Nederlandse gulden (Hollandse florijn) =
UKL Pound sterling =
USD United States dollar —
Luxembourg : Office for Official Publications of the European Communities, 1981
ISBN 92-825-2290-3
Catalogue number : CB-NP-79-033-EN-C
© ECSC - EEC - EAEC, Brussels · Luxembourg, 1 979
Printed in Luxembourg Chapter VI
Supervision of the securities markets in the United Kingdom
Parti
The primary market
§1. Forms of intervention
167. Interventions relating to the primary securities market can be classified according to
whether they are concerned with legislative or regulatory measures or with rules of a
corporative or self-disciplining nature. The objectives of these interventions are on the
one hand of a socio-economic nature (mainly foreign currency control) and on the
other for the structuring of issues. A characteristic feature of the regulatory system
under examination is that the rules applying to the primary and secondary securities
markets are very much interwoven. Although they market is governed by its
own rules, it is in fact subject to norms prepared by the Council of the Stock Exchange
from the point of view of the secondary market.
The public authorities intervene on the primary market to promote the smooth running
of the capital market and to protect monetary interests. These powers are embodied in
the law and are vested in the Treasury, although for day-to-day purposes they are
transferred to the Bank of England. The latter is not empowered to issue regulations but
in individual cases or in general terms can grant exemptions and permits. Directives
explaining the policy on permits have developed into quasi-statutory instruments.
The economic and monetary measures are contained in the following laws:
1. Borrowing (Control and Guarantees) Act, 1946, which empowers the Treasury to
take regulatory action over all borrowings, in whatever form.
2. The Exchange Control Act, 1947, which makes financial transactions with foreign
countries subject to permit.
3. The Banking and Financial Dealings Act, 1971, which gives the Treasury emergency
powers.
The structure of the primary securities market is determined mainly by the following laws:
4. The Prevention of Fraud (Investments) Act, 1958, which embodies two measures for
the prevention of fraudulent or sharp practice in the investment world, in particular limiting stockbroking — as distinct from independent securities operations -- to
'recognized' stockbrokers who are subject to one or other form of regulation
involving public or corporative supervision, as well as the institution of a monopoly
for the distribution of circulars for securities operations for the benefit of these
brokers. This legislation applies both to the primary and the secondary market.
5. The Companies Acts of 1948. 1967 and 1976. which create the basic pattern for the
issue of shares and bonds, and establish obligations of disclosure, among other
things, by way of a prospectus, when there is a public issue of shares or bonds.
168. Apart from these statutory interventions, mention must be made of the disciplines and
rules of conduct imposed and enforced by the Council of the Stock Exchange and the
standards of conduct accepted in the City of London generally or in certain circles.
These last mentioned standards will be referred to hereafter as 'self-discipline'. These
corporative or self-disciplinary rules are in fact of greater importance than the statutory
ones which essentially create the general framework within which corporative bodies
can take action.
As a corporative body the Stock Exchange authorities exercise control over its
members. Although its activities relate mainly to the secondary market, it makes
admission to the stock market contingent upon the observance of certain standards
relating to the primary market. In this way the Stock Exchange in fact regulates a large
section of they. This regulatory position is recognized by the legislature
itself, which acts only in a supplementary capacity: e.g. with respect to sanctions
(liabilities, penalties), governed by the general rules of law or int of areas outside
the scope of the Stock Exchange (off-the-floor markets). The interventions of the Stock
Exchange relate not only to disclosure, but also impose certain rules of conduct with
respect to disclosure. The Stock Exchange requires the publication of a prospectus
which is more closely adapted to the needs of the investors, more flexibly imposed but
nonetheless not less exacting than the Companies Act prospectus. The Stock Exchange
also imposes periodic disclosure rules on all companies listed on the exchange. With
respect to rules of conduct, the very strict respect of preemptive rights on subsequent
share issues can be mentioned. All these interventions are based on self-regulation
imposed by the Stock Exchange on members, brokers and companies seeking admission.
It is difficult to evaluate the importance which should be ascribed to the above-
mentioned self-discipline. In the United Kingdom it is usual for securities to be issued
by, or at least with the assistance of, an 'issuing house", a merchant banker having
sufficient financial or commercial resources to make a success of the public issue.
Issuing houses are very actively involved with preparations for an issue, not least in
reaching the decision to issue securities, in determining the price, the method and the
cost of raising new capital and in preparing all the formalities and files, including those
for the Stock Exchange. Over the years these institutions have acquired a wealth of
financial, commercial and technical experience of public issues, before the First World
War for foreign governments, now on the Eurobond market. The activities of the
issuing houses in regard to public issues of securities are self-disciplinary: anxious for
their good name and for the success of the issue operations for which they are
responsible, they maintain strict standards as to the quality of the security offered and
as to the information to investors. Each works on its own and the Issuing Houses
Association, by virtue of an informal rule, does not exercise any supervision over its
members; the Association is denied any intervention which might hinder its members or
impose rules of conduct. In the case of take-over bids alone the members have accepted
the code of conduct and the jurisdiction of the Take-over Panel. Mention must be made of the financial press in this context. Perhaps more than in any
other European country, the British press shows a great interest in financial matters
which are examined, discussed and assessed. Shortcomings are publicly censured and,
depending on how serious they are, this may give rise to inquiries by the Stock
Exchange (e.g. in cases of insider trading) or by the Department of Trade. Issue
prospectuses are studied, discussed and, above all, critically assessed by the journalists
of the specialized press.
In recent years this self-regulatory approach in the City of London has been criticized.
The basis of this criticism was not so much the inadequacy of the supervision as the
absence of guiding forces in the financial system other than the market process itself.
Proposals for reform are being studied in two committees.1
In Table 1 an attempt is made to give statistics for issuing activities in the United
Kingdom. It will be noticed that central government is the biggest issuer and gross local
government borrowings are also substantial. The issue of shares is considerable, except
in the crisis years 1973 and 1974, and in any case much greater than issu