Introduction

The euro and financial services regulation

The velocity and complexity of securities markets have affected the European Union and its Member States as they have other parts of the world. It is, however, the decision for monetary union, agreed in Maastricht, and in effect since 1 January 1999, in conjunction with the full liberalisation of capital flow within the European Union, that has rendered the regulation of European securities markets particularly urgent. Although Europe's market for corporate bonds still pales beside America's, it is growing quickly. European firms are issuing euro-denominated bonds to refinance bank debt, their traditional source of finance, and to generate capital for takeovers. High growth enterprises depend on the efficiency and transparency of financial markets in order to raise capital. The euro has allowed investors to become much more flexible. European investment funds used to keep a large part of their money for their home market, often because of currency concerns, but are now free to plan by industry rather than geography. The consolidation of the European financial services industry is continuing as financial institutions engage in mergers and acquisitions on a cross-border and cross-sector basis. In equity markets, new trading systems (options and futures) have made limited progress in attracting liquidity from traditional exchanges. The advent of new technologies, most notably the internet, is a powerful agent of change both at the wholesale and the retail level including cross-border provision of services.