{"id":633815,"date":"2018-01-26T00:00:00","date_gmt":"2018-01-25T23:00:00","guid":{"rendered":"https:\/\/www.ie.edu\/insights\/latest-news\/articles\/towards-the-evolution-of-laws-regulating-international-aspects-of-ipos\/"},"modified":"2019-02-06T12:47:06","modified_gmt":"2019-02-06T11:47:06","slug":"towards-the-evolution-of-laws-regulating-international-aspects-of-ipos","status":"publish","type":"articles","link":"https:\/\/www.ie.edu\/insights\/articles\/towards-the-evolution-of-laws-regulating-international-aspects-of-ipos\/","title":{"rendered":"Towards the Evolution of Laws Regulating International Aspects of IPOs"},"featured_media":636354,"template":"","meta":{"_has_post_settings":[]},"schools":[34,35],"areas":[18,19],"subjects":[],"class_list":["post-633815","articles","type-articles","status-publish","has-post-thumbnail","hentry","schools-law","schools-university","areas-finance-control","areas-global-affairs-law"],"custom-fields":{"wpcf-article-leadin":["The past few years have seen considerable changes in the regulation of initial public offerings. However, legal uncertainty is generated by the lack of a specific rule to determine which legal system has jurisdiction in civil liability cases arising from a misleading prospectus."],"wpcf-article-body":["In today\u2019s globalized<\/a> market, it is not uncommon for large corporations\u2014which are now larger than ever\u2014to look abroad for sources of financing<\/a>. The laws<\/a> regulating certain securities transactions, including initial public offerings (IPOs), must evolve to keep up with changes in markets and technologies<\/a>. The European Economic Area (EEA) has seen the beginnings of such an evolution in recent years, at least with regard to certain aspects.\r\n\r\n \r\n\r\nThe fundamental IPO document: the prospectus<\/strong>\r\n\r\nEvery IPO begins with a prospectus. This fundamental document describes the characteristics of the securities on offer and establishes the rules of the IPO itself, including deadlines and participation requirements. More importantly, it includes economic and financial<\/a> information about the company seeking to raise capital. The prospectus must be approved by the appropriate regulatory authority\u2014the National Securities Market Commission, in the case of Spain\u2014and published ahead of the IPO.\r\n\r\nA prospectus is required if the offering is public\u2014that is, if it targets a minimum number of retail investors, who are entitled to certain protections. Information about the issuer of the securities is one such form of protection, as it allows investors to make an informed decision about whether to participate in the IPO. For similar reasons, a prospectus is also required if the securities are to be traded on a regulated market such as a stock exchange.\r\n
Under European regulations, jurisdiction is assigned to the country where the damage is incurred. Two main questions arise: What, precisely, is the damage? And where is it located?<\/blockquote>\r\nThe prospectus in a transnational IPO<\/strong>\r\n\r\nThe situation is more complicated in cases where the IPO affects markets in multiple states.\r\n\r\nIn the EEA, disclosure requirements have been simplified: a system of mutual recognition has eliminated the need to prepare a different prospectus for each market involved in an IPO and to file each one individually with the appropriate national regulatory authority. This system was made possible by the fact that all EEA member states have practically identical regulations.\r\n\r\n \r\n\r\nCivil liability arising from a misleading prospectus<\/strong>\r\n\r\nWhat happens if a company includes misleading information about its financial<\/a> situation in an IPO prospectus? Once the truth is revealed, the market value of the securities plummets, causing investors to lose money. Investors wronged in this manner are entitled to sue for damages. In a strictly domestic IPO\u2014for which there is only one prospectus, approved by a single regulatory authority\u2014the matter is straightforward: investors file lawsuits in that country, in accordance with local civil liability laws<\/a>.\r\n\r\nIn transnational IPOs, however, the situation is different. When an IPO targets markets in multiple states, which country\u2019s civil liability laws<\/a> are applicable? How should the investors go about seeking compensation for damages? In this regard, the evolution of the law has lagged behind the harmonization of the regulatory framework.\r\n\r\nUnder European regulations, jurisdiction is assigned to the country where the damage is incurred. Two main questions arise: What, precisely, is the damage? And where is it located?\r\n
In today\u2019s globalized environment, multinational IPOs within the EEA are commonplace. The unification of regulatory regimes has played a key role in allowing the mutual recognition of IPO authorizations through the so-called \u201cprospectus passport\u201d system.<\/blockquote>\r\nThe market as a legally protected good<\/strong>\r\n\r\nThe relevant damage can be interpreted as either the individual financial<\/a> damage suffered by the investors or the supraindividual damage to the market caused by the publication of misleading information.\r\n\r\nAccording to the latter interpretation, the direct damage\u2014and indeed, the only relevant damage\u2014is that done to the market\u2019s pricing mechanism as a result of the publication of false information. In short, the damage is suffered by the market, and the market is located in the country where the misleading information was published. Consequently, the applicable laws<\/a>, for civil liability purposes, are the national laws of the affected market.\r\n\r\nThus, in multinational IPOs\u2014those which target multiple markets\u2014multiple legal systems are applicable: one per affected market. This is a foreseeable outcome for both the issuer and the investors.\r\n

\"Regulacion<\/p>\r\nRegulatory proposal <\/strong>\r\n\r\nThe aforementioned solution, though reasonable, is not without controversy. Many authors have argued that the relevant damage is the financial<\/a> damage suffered by individual investors. Moreover, the Court of Justice of the European Union, in its Kolassa<\/em> ruling, reached conclusions that can be extrapolated to the question of jurisdiction. Kolassa<\/em> refers, albeit confusingly, to individual damage. This line of reasoning leads to a frankly unsatisfactory conclusion: that the financial damage occurs in the investor\u2019s place of residence, provided that the investor\u2019s bank has an establishment in the same state. Thus, any country in the world could theoretically have jurisdiction, and the issuer of the securities cannot predict which one it will be.\r\n\r\nIn today\u2019s globalized<\/a> environment, multinational IPOs within the EEA are commonplace. The unification of regulatory regimes has played a key role in allowing the mutual recognition of IPO authorizations through the so-called \u201cprospectus passport\u201d system. Nevertheless, to put an end to the current situation of legal uncertainty, it is also necessary to clarify which country\u2019s laws<\/a> will apply in the event of a civil liability case involving damages arising from a misleading prospectus.\r\n\r\n \r\n\r\n\u00a9 IE Insights.\r\n\r\n "],"wpcf-article-extract-enable":["1"],"wpcf-article-extract":["By Sara S\u00e1nchez Fern\u00e1ndez<\/strong>. The past few years have seen considerable changes in the regulation of initial public offerings."],"wpcf-article-summary-enable":["1"],"wpcf-article-summary":["In today\u2019s globalized market, multinational initial public offerings (IPOs) are becoming increasingly common. Before an IPO can take place, a prospectus must be approved by the regulatory authorities. The purpose of this fundamental document is to protect investors by providing economic and financial information about the company seeking to raise capital. What happens if a company includes misleading information in the prospectus during a transnational IPO? It is not clear which country\u2019s civil liability laws should be applied to compensate investors for damages. One of the main questions is whether the relevant damage is the individual financial damage suffered by the investors or the supraindividual damage to the market. The legal uncertainty caused by this situation must be resolved."]},"_links":{"self":[{"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/articles\/633815","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/articles"}],"about":[{"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/types\/articles"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/media\/636354"}],"wp:attachment":[{"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/media?parent=633815"}],"wp:term":[{"taxonomy":"schools","embeddable":true,"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/schools?post=633815"},{"taxonomy":"areas","embeddable":true,"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/areas?post=633815"},{"taxonomy":"subjects","embeddable":true,"href":"https:\/\/www.ie.edu\/insights\/wp-json\/wp\/v2\/subjects?post=633815"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}