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Indirect Investor Protection: The Investment Ecosystem and Its Legal Underpinnings

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  • Spamann, Holger

Abstract

This paper argues that the key mechanisms protecting retail investors' financial stake in their portfolio investments are indirect. They do not rely on actions by the investors or by any private actor directly charged with looking after investors' interests. Rather, they are provided by the ecosystem that investors (are legally forced to) inhabit, as a byproduct of the mostly self-interested, mutually and legally constrained behavior of third parties without a mandate to help the investors (e.g., speculators, activists). This elucidates key rules, resolves the mandatory vs. enabling tension in corporate/securities law, and exposes passive investing's fragile reliance on others' trading.

Suggested Citation

  • Spamann, Holger, 2021. "Indirect Investor Protection: The Investment Ecosystem and Its Legal Underpinnings," LawFin Working Paper Series 18, Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin).
    • Handle: RePEc:zbw:lawfin:18
    DOI: 10.2139/ssrn.3707249
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    More about this item

    Keywords

    Investor Protection; Index Funds; Market Efficiency; Activism; Activist Hedge Fund; Private Equity; Plaintiff Lawyers; Contractarian Model of Corporate Law; Mandatory Law;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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