Re-Examining Investor Protection in Europe and the US

The year 2009 is a propitious time to evaluate systems of investor protection in financial markets as global bank losses exceed the 1 trillion mark and market losses equally exceed the 1 trillion mark. Prior to the Global Financial Crisis, the European Union enacted sweeping legislation to reform its system of investor protection. The Markets in Financial Instruments Directive [MiFID] is the regulatory equivalent of the deregulatory 1987 'Big Bang' that shaped the current European financial markets. It also applies to one of the world's largest trading regions. This article examines select investor protection provisions of MiFID and their analogues in US securities legislation. Part I sets forth the macroeconomic function of financial markets as an essential perquisite by which to measure the likely effectiveness of investor protection provisions. Part II sets forth two models of investor behaviour. Part III describes paradigmatic theories of investor protection. Part IV critically assesses the paradigmatic theories of investor protection. Part V undertakes a comparative analysis of the principal investor protection provisions of MiFID and their US analogues. Part VI summarises the conclusions reached by the foregoing analysis. MiFID reinvents and improves its predecessor, the Investment Services Directive, and tracks commercial developments in the marketplace. Its vaunted investor protection scheme cannot protect the investor against the most significant factor driving prices of financial instruments: the dark pool of unknown and unknowable contingencies