Conflicts of Interest and (Retail) Investor Protection in EU IPOs. An Analysis of the EU/Italian Regulatory Regime including the Prospectus Regulation, the Market Abuse Regulation and MiFID II-CDR 2017/565

The article starts with an introduction to the “economics” of Initial Public Offerings (IPOs), the “economics” of book-building and clarification of the important role played by institutional investors in determining the final offer price and the allocation of shares. The article then goes on to analyse the interrelation between the provisions of the CDR 2017/565 supplementing MiFID II (in particular Articles 38-40) and the complex system established by the PR (in particular under Article 17) and the MAR (especially with respect to market manipulation) during IPOs for the purposes of investor protection from a European perspective. The question addressed is the extent to which the IPO conflict of interest rules laid down by the CDR 2017/565, particularly where they may give rise to market abuse, can function as an ex ante preventive mechanism, as opposed to relying on ex post sanctions for market manipulation. The article then considers the Italian IPO system by analysing certain practices that may be considered to be problematic in the light of the CDR 2017/565 rules. In particular, the article argues that, even if the important role played by institutional investors in final price determination is accepted, in “problematic” IPOs the practice of shifting shares to retail investors (with clawback clauses) may be suspected as amounting to market abuse in terms of market manipulation also based on the CDR 2017/565 rules. As a further step, it should be possible to empirically analyse the extent to which the post-2018 regulatory regime has implied a reduction in the use of clawback clauses, thereby mitigating the risk of enforcement for market abuse.