TY - JOUR

T1 - The German Capital Markets Model Case Act (KapMuG): a European role model for increasing the efficiency of capital markets?

T2 - Analysis and suggestions for reform

AU - Feess, Eberhard

AU - Halfmeier, Axel

PY - 2014/4/3

Y1 - 2014/4/3

N2 - In this paper, we analyze the German Capital Markets Model Case Law (KapMuG) enacted to reduce transaction costs in securities mass litigation. The KapMuG is often seen as a European role model trying to enhance investor rights without running the risk of frivolous claims known from the US class actions. We show that the current legislation is insufficient due to two main obstacles: first, shareholders need to file individual lawsuits before being eligible for participation in the model case, which leads to a rational ignorance of small shareholders. Second, for wrong and omitted capital market information beyond prospectus liability, it is unclear if shareholders need to prove the causal link between the wrong information and the investment decision, which is hardly possible. We suggest two major changes for the reform due in November 2012: a simplified opt-in mechanism without the prerequisite of individual lawsuits and extension of the reversal of the burden of proof for causation from prospectus liability to wrong or omitted ad hoc information. Besides, we argue that gross negligence is the appropriate liability rule in the substantive law underlying the KapMuG.

AB - In this paper, we analyze the German Capital Markets Model Case Law (KapMuG) enacted to reduce transaction costs in securities mass litigation. The KapMuG is often seen as a European role model trying to enhance investor rights without running the risk of frivolous claims known from the US class actions. We show that the current legislation is insufficient due to two main obstacles: first, shareholders need to file individual lawsuits before being eligible for participation in the model case, which leads to a rational ignorance of small shareholders. Second, for wrong and omitted capital market information beyond prospectus liability, it is unclear if shareholders need to prove the causal link between the wrong information and the investment decision, which is hardly possible. We suggest two major changes for the reform due in November 2012: a simplified opt-in mechanism without the prerequisite of individual lawsuits and extension of the reversal of the burden of proof for causation from prospectus liability to wrong or omitted ad hoc information. Besides, we argue that gross negligence is the appropriate liability rule in the substantive law underlying the KapMuG.

KW - Law

KW - German Capital Markets Model Case Act

KW - Model Case Act

KW - capital markets

KW - shareholder mass litigation

KW - securities ligitation

KW - KapMuG

KW - Standard of proof

UR - http://www.scopus.com/inward/record.url?scp=84893091298&partnerID=8YFLogxK

U2 - 10.1080/1351847X.2012.709469

DO - 10.1080/1351847X.2012.709469

M3 - Journal articles

VL - 20

SP - 361

EP - 379

JO - European Journal of Finance

JF - European Journal of Finance

SN - 1351-847X

IS - 4

ER -