Since 2008, academics and policymakers have frequently debated why bond rating agencies such as Moody's, S&P, and Fitch enjoy considerable power and influence. The 2008 financial crisis focused our attention on the bond rating agencies that had previously categorized mortgage-backed securities as investment grade. Scholars have attributed the power enjoyed by the rating agencies to regulations that confer a privileged status on those agencies that are designated as nationally recognized statistical rating organizations (NRSROs) by the U.S. Securities and Exchange Commission (SEC). While these authors mention in passing that the relevant regulation went into effect in 1975, none has conducted archival research to examine why this regulation was introduced at that time. This article is the first historical investigation of the creation of this crucial regulation, which entrenched the concept of the NRSRO in federal securities law. It shows that the SEC mandated the use of NRSRO-created ratings even though SEC officials vigorously debated whether it was wise for the commission to endorse ratings produced by agencies that operate on the basis of the controversial issuer-pay model. This article contributes to our understanding of the SEC's role in the development of the distinctive features of American capitalism.

The dualism between private and public enforcement of investor-related rights and its influence on the development of capital markets has been the subject of much recent commentary. While opinions differ as regards preference for private or public enforcement, scholarly analysis has so far been focused on the principal-agent relationship between investors and issuers, and has tried to depict the most effective enforcement system from a deterrence perspective. In this article we present some data about the Italian experience of enforcement. Rather than of lawsuits against issuers or gatekeepers, investor protection in Italy is mostly the result of proceedings brought by individuals against investment services providers. Does such a model promote the public goals of securities regulation? Is it efficient? By answering these questions, we aim to show how the Italian experience may contribute to the international debate on the enforcement of securities regulation.

This paper explores the relationship between disclosure in securities markets and the firm's need for confidentiality. Transparency plays a crucial role for both investor protection and the proper functioning of financial markets. Confidentiality protects the value of information which has been costly produced by the company and preserves private incentives for business and technological innovation. The requirement of too detailed or early disclosure in securities markets, even when aimed at greater investor protection and enhanced market efficiency, would be ultimately detrimental since it would hinder the firm's competitive capacity and weaken the system of private incentives for innovation. EU mandatory disclosure rules protect the firm's interest in confidentiality and allow public companies to refrain from – or delay – the release of the most sensitive data. The scope of these safe harbours, however, is narrow and always at risk of excessive restriction by the powers of regulatory agencies. Furthermore, when information with competitive value is concurrently significant for investors, refraining from disclosure – no matter if allowed or not by the law – hampers the firm's capacity to raise finance and makes the process of resource allocation less efficient. Selective disclosure reconciles investors' demand for information and the firm's need for confidentiality since it allows market prices to react to the information whilst also bypassing the need for public release of the relevant contents. Reconciling the tension, in turn, constitutes a desirable outcome: the securities market will be more efficient and raising finance will become less costly, especially for the most ‘secrecy sensitive’ projects. At the same time, the system of private incentives for innovation will be fully preserved.

The most important lesson to be learnt from the financial crisis perhaps is that nation states cannot deal with the challenges of global financial markets on their own. As markets become more and more connected, sovereignty becomes increasingly fictitious. Although there seems to be little dispute about this, the implications for legal scholarship are far from clear. How can legal scholars contribute to solving the issues of global financial markets? Do we need a shift of paradigm in how to think about securities regulation? Which theoretical backgrounds should we rely on?

An answer to these questions might be found in the growing body of literature on transnational law. Transnational law defines a fourth category of law beyond the triad of national, international and supranational law which evolves beyond the nation state due to private ordering, social convenience and non-legal convention. Transnational law scholarship embraces the idea that nation states are in decline and that, as a result, legal scholars should turn their attention to such phenomena as soft law and indirect regulation, private ordering and self-regulation, regulatory competition, legal convergence and legal transplants. All of these phenomena can be seen as consequences of the globalisation of markets and as signs of the decline of the nation state. Although they are part of virtually any advanced securities regulation worldwide, they seem to be little explored from a legal perspective.

From 3 to 5 March 2010, the German Association for Law and Society and the University of Bremen hosted a conference on transnationalism in law, state and society. Part of this conference was a panel on transnational financial markets regulation. The aim of this panel was to ask some renowned experts on national, European and international securities regulation to analyse their fields of research from the perspective of transnational law.

This paper serves as an introduction to the topic and to the presentations given at the conference. It seeks to define the term ‘transnational financial markets regulation’ and to show why the study of transnational financial markets law promises to be rewarding. It concludes with a short summary of the presentations given at the conference.

Regulators around the world, including the European Commission, are becoming increasingly interested in behavioural finance as a toolbox for better securities regulation. When securities laws are designed to prevent or minimise the effect of systematic investor bias, they may violate one of the most fundamental principles of traditional securities regulation, the ‘inalienable right of everyone to make a fool of him (and her)self’ (Louis Loss). The paper discusses the potential and boundaries of an alternative concept of investor protection, based on the assumption that investors systematically fall prey to certain fallacies. Unlike the philosophy underlying traditional securities regulation, this concept's impetus is not the danger of market failure caused by asymmetric information but by bounded rationality. Its objective is not the informed but the prudent investment decision. Its measures are rules of an ‘asymmetric’ or ‘libertarian’ paternalism which lead those who need help to better investment decisions without limiting the freedom of those who do not need or want any assistance. The paper exemplifies this concept by analysing how the Market in Financial Instruments Directive's conduct-of-business regulation could be re-shaped to protect overconfident investors who suffer from biased self-attribution and confirmation bias from the dangers of excessive trading.

We apply the paradigm of the firm as a nexus of contracts to the debate on regulatory competition vs. unification of law as an alternative way of regulating the business corporation. This approach views the business corporation as a set of coordinated contracts among different parties. Agency problems and related agency costs are the result of this interaction. The economic analysis of corporate law, securities regulation and bankruptcy law identifies law as a means to minimise such agency costs. In this paper, we develop a model where companies are heterogeneous in their preferences about the legal regulation of contractual relationships. We then compare a regime of regulatory competition with one of single supply of regulation and we analyse their relative costs and benefits.

European securities regulation and corporate governance are test cases for determining whether efficient rules will be obtained by dynamic competitive processes or centralised regulatory action. The 2004 Markets in Financial Instruments Directive (MIFID) belies the diagnosis that Europe may be experiencing ‘regulatory fatigue’. On the contrary, an important policy change has been ushered in, as MIFID is intended to shape a pan-European retail culture through law. In this issue, Niamh Moloney undertakes a comprehensive analysis of the Directive, emphasising that the relationship between law and investor activity is still unproven.