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.

This essay argues that the 2004 Markets in Financial Instruments Directive, the investment services cornerstone of the Financial Services Action Plan, represents a bold attempt to build a pan-EU retail investor culture, relying on the transformative effects of law. While the institutional markets have attracted most attention under the FSAP, this strategy represents a sharp change in EU policy, is ambitious given the state of the retail markets and provokes important questions as to the role of law in generating retail activity and the role of the retail investor in developing effective and strong EU capital markets. This essay examines how MIFID attempts to build a retail investment culture through law, the market reality behind this policy shift, what the role of law is in this process and what the emerging retail regime suggests as to the characteristics of the emerging ‘EU retail investor’ as a target of regulatory policy and engine of retail market integration. The newly adopted MIFID conduct of business regime lies at the heart of this ambitious retail agenda and is used as a case study in this analysis. The risks and costs of this approach are, however, high given the unproven relationship between law and investor activity, whether domestic or pan-EU. The essay therefore considers whether this new regulatory and policy strategy on the retail investor is sufficiently nuanced and, in particular, whether, given the risks of imposing inappropriate rules on an immature marketplace, it is matched by appropriate retail investor governance.

Within the European Union, firms are now free under Articles 43 and 48 EC to choose a corporate form of their liking, regardless of the actual head office (real seat) of the company. However, they are not free to choose the applicable bankruptcy regime. Under Article 3(1), first sentence, of the European Insolvency Regulation (EIR), jurisdiction for main insolvency proceedings lies with the courts of the Member State in which the debtor has the centre of its main interests (COMI). The COMI standard is fuzzy and allows last-minute forum shopping by the management/shareholders of a distressed debtor, to the detriment, especially, of creditors who cannot (easily) adapt. Given the poor performance of the COMI standard, it seems worthwhile to explore the merits of an alternative approach that gives more room to freedom of choice in international company insolvency law in Europe. Various models of free choice are discussed: free choice of the applicable insolvency law, free choice of the applicable insolvency law insofar as it contains substantive – as opposed to procedural – provisions, free choice of the bankruptcy forum (‘unconstrained forum choice’) and free choice of the bank–ruptcy forum in combination with the company law applicable to a company (‘constrained forum choice’). This article shows that, on efficiency grounds, the last model is to be preferred. It would improve matters compared to the status quo, and it would also be easy to implement in practice by changing the wording of Article 3 EIR. Even though this solution is preferable as a policy option, it is not mandated by Articles 43 and 48 EC. However, these treaty provisions do not mandate the COMI standard either. European legislation is thus free to effect the desirable changes to the EIR.

A number of ongoing reforms of corporate law are motivated by the need to stimulate entrepreneurship and business creation. Building on the observations that entry is characterised by sunk costs and that the markets for small business finance are imperfectly competitive, we identify a previously overlooked trade-off that such reforms ought to recognise. The appropriate design of the corporate law depends on whether it is the midstream moral hazard and the ensuing lack of finance or the entrepreneurs' inability to recover sunk entry costs that hamper business creation. In circumstances where the former dominates, well-designed mandatory law ought to be efficiency enhancing. In contrast, if the incentives to enter are weak due to the prospect of facing powerful external financiers in the market for post-entry expansion finance, business creation can be boosted by making the law more enabling. Enabling law increases the effective bargaining power of the entrepreneurs in market conditions where their bargaining position would otherwise be weak. It does so by giving the entrepreneurs a credible threat to expropriate the financiers. To the best of our knowledge, neither this trade-off nor the associated effects of corporate law on entry and entrepreneurship have been considered elsewhere in the literature on mandatory v. enabling rules.

In its ruling in IMS Health, the European Court of Justice formulates four cumulative conditions to test whether there has been abuse of a dominant position within the meaning of Article 82 EC in the case of a refusal to license an intellectual property right (IPR). The Community courts only find an abuse of dominance in cases of non-licensing of an IPR in ‘exceptional circumstances’. The four conditions are an elaboration of this main criterion, and they revolve around the elements of ‘indispensability’, ‘new product’, ‘exclusion of all competition’ and ‘objective grounds for a licence refusal’.

However, the judgment leaves several questions unanswered, such as on the requirement of the introduction of a new product and on the issue whether the conditions stipulated are (equally) applicable in all competition cases in which IPRs play a central role. In the Microsoft case, currently pending before the Court of First Instance, the Community judicature will have to deal with these questions once more.

One of the situations in which a different interpretation might pertain to the main criterion of ‘exceptional circumstances’, an interpretation that tends more towards a general ‘essential facilities’ approach combined with elements of the ‘leverage theory’, concerns the field of information technology and software development. This scenario involves cases in which a software producer is asked to release certain information to enable other software products to connect with its operating system. The question is whether a small part of an innovation protected by intellectual property law should be disclosed to a competitor. With such information, it would be possible for that competitor to market his own software product. It is important, of course, that the information provided should not represent an essential part of the core activity or functionality of the licensee's product.