8 - Capital market regulation

Summary

Introduction

The use and limits of negative integration to further freedom of establishment were discussed extensively in chapter 5. Its application to national measures which restrict free movement of capital is examined in this chapter. This potentially opens the legal aspects of the Member States' corporate governance systems to challenge, albeit that to date the cases considered by the European Court of Justice (ECJ) have been confined to Member State laws granting golden shares to governments. Those decisions have been complemented by a number of directives which harmonise national information disclosure relating to corporate governance, and can be viewed as reflexive regulation of the interaction between capital markets and individual companies. As we saw in chapter 6, procedural regulation of this type allows EC law to avoid making a choice between different models of corporate governance, whilst increasing the level of market integration.

Negative integration: challenging national measures restricting free movement of capital

The Golden Shares cases

In a series of cases, the ECJ examined the compatibility with the EC Treaty of national ‘golden shares’ laws, which give the Member States residual control rights over privatised but formerly state-owned industries. It declared that, in the absence of justification, they are contrary to Article 56 of the Treaty, which guarantees free movement of capital. The judgments certainly have the effect of making the control of a number of privatised companies contestable, and therefore opening them up to the threat of hostile takeover within the framework of the Takeover Directive and national implementing measures.