The case for a European securities commission

The free movement of capital is one of the four freedoms set forth in the T reaty of Rome. Although good progress has been made;with respect to monetar y integration, culminating in the commencement of the European Monetary Uni on, the introduction of the euro in most of the European Union (EU) countri es in 1999 and the formation of a European Central Bank, integration of the equity markets is far from complete. Despite the adoption of various direc tives relevant to public investors and equity trading markets, there is not an integrated European market enabling issuers to float public offerings o r savers to invest and trade across national borders in a single market The persistence of national equity markets has several causes. One important f actor is the lack of a common equity culture across Europe. Nevertheless, t he time is ripe for a public securities market that will transcend national boundaries. All over Europe governments are attempting to foster an equity culture for both ideological and practical reasons. A European equity mark et is needed in order to finance the needs of the enterprises and peoples o f Europe. While laws and regulators cannot create a market, they can either impede or foster one. At the very least, regulation can eliminate anticomp etitive practices that inhibit market development. In addition, securities regulation designed to protect investors and instill confidence in the equi ty markets can change the conduct of issuers and traders that discourage sa vers from investing in equities, These objectives have not and probably can not be met through directives of the European Commission. Quicker and more flexible responses to developments in the capital markets are required. Thi s paper will argue that a European Securities and Exchange Commission (Euro pean SEC) is needed to foster an equity culture throughout Europe and to de velop and administer flexible regulations to govern ct European. equity mar ket. The paper will also discuss some of the programs a European SEC could undertake.