Revisiting Securities Regulation in the Aftermath of the Global Financial Crisis: Disclosure – Panacea or Pandora’s Box?

Abstract

The United States introduced federal securities regulation by adopting the Disclosure-Based Regulation (DBR) in 1933 resembling the doctrine of caveat venditor (DCV) as a substitute for the doctrine of caveat emptor (DCE) in the securities market. The overarching objective of the DBR was to protect investors by enabling them to make ‘informed decisions’. Although the change aimed to protect investors, the causes of the GFC suggest that the DCV exists only in theory, while issuers of securities are still enjoying the benefits of the DCE in practice. Financial innovations that intend to camouflage the risks inherent in the complex derivative products should be strictly regulated through a merit regulation which should be applied to only public offers, and the DBR should still remain in force for other securities. It concludes that the DBR has now emerged as more a ‘Pandora’s box’ than a panacea.