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The market for securities and its regulation through gatekeepers

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The financial scandals of the last decade have called into question the effectiveness of the system of securities regulation in many countries. Articles that have examined the origins of the regulatory crisis have concluded that the classical tools of corporate governance used for the supervision of management have lost their force in light of new incentive structures in the financial markets. They see as the solution to the regulatory lacunae the use of financial intermediaries and other market participants as gatekeepers or agents that ensure compliance of the primary market actor (the issuer) with applicable rules by reviewing its disclosures and withholding their participation in transactions if violations occur. However, commonly acknowledged contours of gatekeeper liability have not yet emerged. Furthermore, the discussion is largely confined to an abstract analysis of the advantages and disadvantages of the gatekeeper theory without asking whether the legislative measures that are in force may be construed in a way that facilitates considerations of the theory. This comment undertakes to remedy the omission. It conducts a comprehensive analysis of the U.S. and European regulation of the market for securities, identifies deficiencies and suggests a new approach to solve one of the major conundrums of the current discussion - the standard of care that the gatekeeper should be held accountable for when reviewing the acts of the primary market participant. The comment concludes by advancing a tentative explanation of certain trends of convergence between U.S. and European regulatory mechanisms that can be observed.

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