Efficient and Properly Functioning Capital Markets

Abstract

Abstract Allocation efficiency is the fundamental objective of capital market regulation. This chapter explains that efficient allocation of capital requires efficient and properly functioning markets. EU law does not define these regulatory objectives in more concrete terms. The ECJ has not yet shed light on the regulatory objectives, either. However, we do not recommend that a European Capital Markets Code (ECMC) specifies both regulatory goals. Nevertheless, it is important to include both objectives in the recitals of an ECMC because they shape the courts’ interpretation of standards and norms and supervisory measures of the NCAs or ESMA. To that end, the ECMC should provide for elements indicating market efficiency and the proper functioning of markets and a procedural mechanism requiring an exchange of views between NCAs and ESMA with a coordinating role by ESMA.