Stocks for All

Front matter

DE GRUYTER

Petri Mäntysaari

STOCKS FOR ALL: PEOPLE’S CAPITALISM IN THE TWENTY-FIRST CENTURY

Contents

Preface — XIII

1.1 1.2 1.3 1.4 1.5

The Concentration of Wealth — 11

PART I: The Evolution Of Design 2.1 2.2 2.3 2.3.1 2.3.2

2.3.3 2.3.4 2.4

2.4.1 2.4.2

2.4.3 2.4.4

The Contractarian Theory — 43

The Matrix Theory of Pistor - Keinan - Kleinheisterkamp - West — 47

The Matrix Theory of Mäntysaari — 49

The Emergence of Policy Preferences, Legal Practices and Design Principles — 58

The Limited Liability of Shareholders — 71

The Nature of the Legal Person and the Self-Governance of the Firm — 78

The Separation of Functions — 88

Auditing — 104

Disclosures to the Public — 111

Accounting Standards — 120

Different Limited-Liability Company Forms —— 127

Boards —— 140

Addressing Self-Interested Decision-Making, Dead-Lock Situations, Standards, and Sanctions — 156

VI —— Contents

2.5

3:51 3:5:2 3.5.3

Economic Forces —— 173

The Interests of the Company —— 186

Group Interest —— 230

Fostering Innovation and Organisational Flexibility — 235 Choice of Societal Objectives and the Key Design

Principle — 237

Early History — 276

Technology and the Move Towards Competition — 280 Market Liberalisation — 282

Demutualisation, IPOs and Concentration — 284 Fragmentation and Diversification — 290

The Function of Alternative Venues — 299

The Regulation of Alternative Venues in the EU — 303

The Regulation of Alternative Venues in the US — 311 Broker-Dealer Order Internalisation and Dark Pools in EU and US Law —— 316

The Business of Dark Pools —— 317

The Regulation of Dark Pools: General Remarks —— 322

The Regulation of Dark Pools in the US — 324

The Regulation of Broker-Dealer Internalisation in the US — 327 The Regulation of Dark Pools in EU Law — 328

The Regulation of Systematic Internalisers in EU Law — 337 The Regulation of High-Frequency Trading — 339 Conclusions — 341

The Emerging Regulation of SME Exchanges in the US —— 346 The Emerging Regulation of SME Exchanges in the EU — 347

3.6

4 4.1 4.2 4.2.1 4.2.2

4.4

5.3.5 5.4

5.4.1 5.4.2

Contents — VII

Conclusions — 350 References — 352

Trends in Securities Law — 358 General Remarks — 358 The Stated and Normative Objectives of Securities Law — 360 General Remarks — 360 The Development of Stock Exchange and Securities Law in Germany — 361 The US Securities Acts of 1933 and 1934 — 364 The US Securities Acts Amendments of 1975 — 368 Securities Law in the EU — 371 Conclusions — 386 Company Law or Securities Law, Disclosure or Merit Review, Private or Public Enforcement — 386 The Capital Markets Union — 392 General Remarks — 392 Creating Opportunities for Intermediaries — 394 Deeper Financial Integration — 397 The Interests of Retail Investors — 398 The Interests of Non-Financial Firms —— 399 Conclusions — 404 US Reforms — 404 Conclusions — 411 References — 414

Recent Market Practices — 419 General Remarks — 419 Lack of Companies with Publicly-Traded Shares — 419 Practices of Angel Investors, Venture Capital Firms and Investment Funds —— 428 General Remarks — 428 Separation of Capital Investment and Control — 429 Different Investors for Different Stages of Development —— 431 The Preferences of Venture Capital Firms and Angel Investors — 434 Conclusions —— 448 SME Market Design Practices — 449 General Remarks — 449 Feeder Principle v the Nasdaq Model — 451

Vill —— Contents

5.4.3 Relaxed v Strict Listing Requirements and Disclosure Requirements —— 453

5.4.4 Dealing with Illiquidity — 457

5.4.5 Corporate Governance Model —— 460

5.4.6 Investment Research — 463

5.4.7 Excursion: Neuer Markt and Scale — 464

5.5.2 Direct Listings in the US — 472

5.6 Retail Investor Empowerment through Social Media and Broker- Dealer Competition — 489

5.6.2 The GameStop Case — 490

5.6.3 Social Media Platforms — 492

541.2 Choice Between the One-Tier or Two-Tier Board — 494

5.7.3 Board Composition — 499

5.7.4 Guidelines on Corporate Governance Principles for Banks — 503

5.8 General Conclusions Based on Current Market Practices — 506

PART Il: Future Design

6.1 General Remarks About Financial Innovation and Design Principles — 523

6.2.2 Financial Equality — 534

6.2.3 Competition — 535

6.2.4 Interests of Firms and Growth Firms — 537

6.2.5 Risk-Taking Culture — 540

6.2.6 Back-Up System — 541

6.2.7 Competing Policy Principles — 541

6.3 6.3.1 6.3.2

6.3.3

6.3.4 6.3.5

6.3.6 6.3.7

6.3.12 6.3.13

6.3.14

6.3.15 6.3.16

6.3.17

6.4

6.4.1

6.4.2

6.4.3

6.4.4

6.4.5

6.4.6

6.4.7 6.4.8

Contents — IX

Interpret the Interests of the Company as the Interests of the Firm — 545

Focus on the Function of Controlling Shareholders, Minority Shareholders and Retail Investors — 547

Foster Long-Termism —— 548

Facilitate Mutual Trust and Provide a Sufficient Enforcement Mechanism — 553

Increase the Number of Firms with Publicly-Traded Shares — 562 Reduce Costs for Issuers, Controlling Shareholders and Retail Investors — 563

Increase Diversity — 571

Provide an Alternative to Financial Intermediation —— 572 Provide an Alternative to Venture Capital — 573

Facilitate Retail Investors’ Direct Investments in Growth

Firms — 576

Use Regulatory Dualism —— 577

Use Angel Funding and Venture Capital Practices as a Model for Regulation — 580

Use Best Practices from SME Market Design as a Model for Regulation — 581

Ensure Sufficient Liquidity — 582

Complement Retail Investors’ Direct Investment Regime with Access to Low-Cost Funds — 588

Complement Retail Investors’ Direct Investment Regime with a Mandatory Occupational Pension System and Social

Security — 590

Simplify the Process of Listings and the Issuing of Shares to the Public — 593

Simplify Periodical Reporting and Ongoing Disclosure Obligations — 603

Simplify Prospectus and Disclosure Rules for SMEs — 605 Limit the National Scope of Securities Law — 608

Limit the International Scope of Securities Law and Use Mutual Recognition — 618

Facilitate Retail Investors’ Cross-Border Direct Investments — 631 Increase Cross-Listings — 646

X — Contents

6.4.9 6.4.10

6.4.15

6.4.16

8.7.1 8.7.2 8.7.3

Facilitate the Use of Depositary Receipts — 650

Make it Easier for Retail Investors to Take Rational Investment Decisions — 663

Focus on the Incentives of Controlling Shareholders and Retail Investors — 679

Develop SME Exchanges — 682

Create Microexchanges — 683

Create a New Company Form: A Small Public Limited-liability Company —— 697

Facilitate the Pooling of Retail Investors’ Private

Placements —— 706

Use Financial Technology — 714

The Regulation of Securities-Based Crowdfunding in the

The Regulation of Securities-Based Crowdfunding in the

Some Design Principles for the Regulation of Equity Crowdfunding Marketplaces — 763

The Nature and Core Functions of a Stock Exchange for the Firm —— 790

Design Principles and the Nature of Regulation: General Remarks — 795

The Operator and the Central Counterparty — 802 Eligibility — 803

Excursion: Market Design and Liquidity — 804 Sufficient Liquidity — 807

Call Auctions —— 810

Designated Market Makers — 815

8.7.4 8.7.5 8.8

8.9

8.9.6 8.10 8.11 8.12

9.11 9.12 9.13 9.14

Contents

Excursion: Market Makers in Some Countries — 819 Block Trading — 823

Allocation of Costs — 825

Rule-Making — 829

Choice of Operator and Legal Entity — 831

Central Counterparty and Clearing — 832 Settlement, Depositories and the Holding of Investor Funds — 836

Exemptions — 840

Enforcement — 845

Mandatory Provisions — 859

Duty to Act in the Interests of the Firm — 861

A Two-Tier System — 862

No Mandatory Co-Determination — 864

Electronic Voting — 866

Facilitating the Use of a Microexchange — 867 Minimum Share Capital — 868

One or Two Classes of Shares — 869

Pre-Emptive Rights, New Funding Rounds and Equal Treatment — 870

Exits and the Market for Corporate Control — 871 Use of Capital — 874

Monitoring and Enforcement — 875

Change of Company Form and Conclusions — 878 References — 878

Xl