Browsing by Author "Rautanen, Eino"

Activist investing has become an established phenomenon on the regulated markets in Europe. The market abuse provisions have simultaneously been described as the Achilles’ heel of activist investors. Nonetheless, specific legal research on the relationship between activist investing and market abuse under the current EU market abuse regime is very limited. This thesis examines the highly critical and unexplored question of when activist investing may amount to market abuse under the EU market abuse regime. In examining that question, this thesis also explores certain defences that would render activist engagements legitimate. This thesis does not only ambitiously restate the EU law in relation to activist investing; it also seeks to further identify, engage with and offer persuasive solutions to deeper underlying issues that relate to activist investing on the regulated markets. The EU Market Abuse Regulation (No 596/2014, hereinafter ‘MAR’) established a directly applicable market abuse framework that is to be uniformly interpreted within the EU, which means that the market abuse regime is the same within all of the Union’s Member States. As such, this thesis focuses on its uniform interpretation and systematization in relation to activist investing. The doctrinal analysis of when activist investing may amount to a contravention of the MAR forms the basis of this research, which also enables the thesis to offer useful hands-on advice on EU level compliance to activist investors, issuers, compliance officers, practitioners, supervisory authorities, prosecutors, and judges alike. Moreover, this thesis examines both sides of the activist investing phenomenon: the activist long and the activist short. With this in mind, the thesis also proposes a definition of activist investing. Two types of activist investing, namely activist short-selling and offensive shareholder activism, are studied in closer detail. The thesis ultimately finds that a categorical view on activist investing is to be dismissed. Economic research suggests that lawful activist investing contributes to improving the operational and share price performance of targeted firms in Europe, enhances the price discovery mechanism on the market and increases long-term welfare by discouraging fraudulent behaviour; it further suggests that unlawful activism is likely to have the opposite effects and a negative overall impact on the markets. The topic of this thesis, namely the separation of lawful and unlawful activist investing, is thus of uttermost importance. The findings of this thesis further indicate that the merits of activist investing should be assessed on a case-by-case basis in accordance with the doctrinal methodology and legal framework systematized herein. Further, this thesis discovers that the EU market abuse regime restricts the scope of both public and non-public forms of activist investing. Non-public (or ‘publicity-shy’) activist investors (i.e. activist investors who engage with public companies in private) must particularly consider the limitations instilled by the insider regime; in contrast, activist investors who engage in public campaigns must consider the prohibitions on unlawful disclosure of inside information and market manipulation in addition to certain disclosure obligations that producers and disseminators of investment recommendations are obliged to follow. The thesis further discovers that the EU market abuse regime also effectively hinders activist collaboration (wolf pack activism), as pursuing such collaboration would amount to market abuse provided that the criteria of inside information are met. The thesis additionally suggests that the renewed EU market abuse regime is likely a contributing factor in the recent upsurge of public activism, as activist investors may avoid the insider prohibitions by going public with their demands and agenda. This thesis also finds that activist engagements that amount to market abuse are unlikely to enjoy constitutional protection under the so-called ‘freedom of expression defence’, which activist investors occasionally employ in courts. However, some exceptions to this exist. For example, the disclosure of inside information to the press may enjoy constitutional protection in some Member States but amount to unlawful disclosure in others (in which case constitutional provisions governing freedoms of expression and the press are likely to prevail and effectively limit the scope of the MAR). As such, comparative constitutional research on the relationship between market abuse and the freedoms of expression and the press in Member States is needed. Given that such an examination falls mainly beyond the scope of this thesis, some proposals for further research in the field are made.