The case for harmonisation of a capital market where it is needed: a shift in focus to the market for corporate debt

It is often said that corporate bond markets are fundamentally different from stock markets, and that, therefore, policymakers should not design regulation based on analogies to stock market regulation. This notion is reflected in the huge difference between regulatory approaches for these two types of securities markets. While equity markets are carefully regulated in most jurisdictions, the same cannot be said for bond markets. This applies to EU law too, and in the ongoing Savings and Investment Union (previously Capital Market Union) policy work, almost all of the focus is on equity markets, and almost none (directly) on corporate bond markets. 

But perhaps at least one important policymaker’s previously narrow focus on equity markets has broadened. On December 1, 2025, the OECD Corporate Governance Committee launched a public consultation concerning new Draft Guidelines for Corporate Bond Issuers (the Draft Guidelines), intended to help policymakers evaluate and improve regulation of the corporate bond markets. The Corporate Governance Committee has mostly been known for its equity-focused G20/OECD Principles of Corporate Governance, and as one can see in the Draft Guidelines, the proposed regulatory framework for corporate bonds is clearly inspired by the corporate governance principles for stock markets, despite the aforementioned cautions against such analogies. 

As company lawyers, several of whom have worked extensively with bond market regulation too, we consider this a welcome development that hopefully can inspire regulators and, as we elaborate on in this post, most importantly the EU. In Douglass North’s words, returns on opportunism, cheating, and shirking occur in all markets, and regulation must address these issues if markets are to perform as intended. And as highlighted in the Draft Guidelines, many of the fundamental economic problems that necessitate specific company law and equity market regulation arise just as clearly in bond markets. Bondholders are a dispersed collective of investors in a company, just as shareholders, with an agency relationship to the issuer. So, we get agency problems (between bondholders and the company and/or shareholders), collective action and coordination problems in the bondholder collective, moral hazard (in managerial decision making and/or shareholders’ resolutions), and the risk of a majority (of bondholders) abusing their control.

Granted, not all problems or possible regulatory solutions are directly analogous between equity and debt markets. Since bondholders are not (typically and outside of insolvency) residual claimants and have different competences than shareholders, the ‘symptoms’ of the underlying economic problems will express themselves differently. For instance, majority abuse of control may not take the form of tunnelling, but can instead result in a majority bondholder pushing refinancing solutions that are favourable for the controller, to the disadvantage of a minority. And bonding costs may not primarily be attributed to incentive mechanisms and division of competence between management, boards and shareholders, but rather to the construction and writing of elaborative covenants and other constraints on management’s decisions regarding such things as dividends, future debt issues, and maintenance of working capital. But broadly, the fundamental problems that company law and equity market regulation aim to solve occur equally in ‘bondholder law’, and the Draft Guidelines reflect this clearly. The key principles outlined in the Draft Guidelines include recommendations on disclosure and transparency, equal access to information, certain fiduciary duties for directors vis-à-vis bondholders, facilitation of bondholder rights, facilitation of investor engagement, bondholder communication, fair, accessible, and effective participation and voting rights for bondholders in bondholder meetings, and rules regarding equitable treatment of bondholders. All areas covered (extensively) by EU company law and equity market directives and regulations, mutatis mutandis.

Despite this, there is no ‘EU corporate bond law’ equivalent to the company law directives, the shareholders’ rights directives, and so on. What does exist is almost exclusively limited to transparency rules, including the Prospectus Regulation, the Transparency Directive and the Market Abuse Regulation. One reason might be that the growth and development of the corporate bond markets are a fairly recent phenomenon. Another might be that the bond market does not catch the popular interest in the same way as the equity market. Ian Fleming allegedly chose the name ‘Bond’ for 007 since he thought it was ‘the dullest name I’ve ever heard’. And although the group of authors behind this post has, at several times, given expression to the now broadly shared perception that the EU has overregulated equity markets to a point that may even be detrimental, we do here see a closely related area where harmonisation may not only be helpful, but even necessary.

A few European countries have some regulation addressing some of the issues outlined above, including Denmark, Finland, Germany, Italy and Spain. In other countries, such as Austria, France, Norway, Poland, Sweden, and the UK, there is little or no such specific regulation, and as far as we are aware, despite corporate bond markets growing and becoming an increasingly important and complex part of the European capital market, there have been few attempts to regulate these markets. One reason for this is the fear of negative regulatory competition. While it is no small matter for a company to list its shares in another jurisdiction, and cross-border equity listings are therefore fairly rare, the same is not true for listings of corporate bonds. It is a much faster and cheaper listing process, and companies list their bonds in other markets than their home market frequently. Luxembourg Stock Exchange and Euronext Dublin are two examples of bourses that have been highly successful in attracting foreign corporate bond listings, and in recent years the Nordic markets have attracted large volumes of foreign high-yield debt due to ‘a reputation for looser investor protections and lighter disclosures’. As familiar from company law, this creates a risk of a regulatory race to the bottom, which requires coordinated actions from legislators to be resolved — through harmonisation.

Corporate bond markets are thus not as different from equity markets as is sometimes claimed. On the contrary, many of the fundamental economic issues that company law and equity market regulation aim to address also occur in these debt markets. While these issues have been extensively addressed in EU company law, corporate bond markets have been overlooked in the EU’s capital market harmonisation project. This is unfortunate, given that the borderless nature of the corporate bond markets makes them difficult to regulate nationally due to the risk of regulatory arbitrage and a race to the bottom. Harmonisation is therefore needed, and we hope that the OECD’s Draft Guidelines can serve as a starting point for this process in an area where the Commission’s attention is required.

The European Company Law Experts (ECLE) comprise professors Franca Contratto, Sofie Cools, Paul Davies, Rui Dias, Guido Ferrarini, Klaus J. Hopt, Erik Lidman, Adam Opalski, Eva Micheler, Alain Pietrancosta, Andrés Recalde Castells, Markus Roth, Rolf Skog, Martin Winner, Eddy Wymeersch.