Building a Capital Markets Union: Improving the Market Infrastructure

The European Commission has recently launched a new project intended to create a Capital Markets Union. One obstacle in the way of the Commission’s vision is the current market infrastructure for holding securities. This infrastructure is inefficient because it prevents investors from exercising voting rights and from claiming against issuers. It also exposes investors to the risk of shortfalls, which increases with the number of custodians that operate between issuers and investors. This article also shows that the regulatory regime as it stands fails to remedy this inefficiency or to contain the risk. It points to possible avenues for law reform but concludes that these, too, are unlikely to improve the situation. The conclusion is that investors should receive information about the identity of all sub-custodians that operate between them and the issuer and about their terms.