How to Ensure Disclosure of Information in Securities Markets Post-GFC

Abstract

We are all affected by rising and falling prices in securities markets, whether as citizen, investor, adviser or manager. Stock prices feature in the daily media. Prices move up and down in response to the forces of supply and demand, and free markets sometimes result in booms and busts. Booms and busts usually lead to investigation by government, recommendations for change (‘reform’) and new regulation on top of the existing regulation. As a result, company law is heavy with sections requiring disclosure which have different histories and were passed at different times, often in response to the issues and the politics of the day. This results in piecemeal law-making, and disclosure laws which often overlap, duplicate and confuse. They also present problems of compliance, and provide opportunities for creative legal compliance, avoidance and non-disclosure. This paper commences with an examination of disclosure policy and theoretical considerations relevant to promoting information in securities markets. It examines the philosophy, reasons and purposes of disclosure of financial and non-financial information. It asks whether voluntary disclosure can be relied on to ensure that information will be disclosed to securities markets, or whether disclosure should be mandatory either by legislation or by ‘soft law’ in the rules of self-regulating organizations like stock exchanges. It addresses the problems with mandatory disclosure, including cost and conflict of interest, and concludes with a recommendation for a simple principles-based rule for disclosure of information in securities markets.