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Regulating Trading Practices

Oxford University Press, The Oxford Handbook of Financial Regulation, pp. 596-630, 2015

Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2015-8

Max Planck Private Law Research Paper No. 15/24

55 Pages Posted: 8 Aug 2014 Last revised: 7 Dec 2015

Andreas M. Fleckner

Max Planck Institute for Tax Law and Public Finance; Max Planck Institute for Comparative and International Private Law

Abstract

High-frequency trading, dark pools, front-running, phantom orders, short selling — the way securities are traded ranks high among today’s regulatory challenges. It has become commonplace, both in financial and in academic circles, to call for the government to intervene and impose order. From a historical and empirical perspective, however, many of the recent developments look less dramatic than some observers believe. This is the essence of the present chapter. It explains how today’s regulatory regime evolved, identifies the key rationale for governments to intervene, and analyzes the rules, regulators, and techniques of the world’s leading jurisdictions. The chapter’s central argument is that governments should focus on the price formation process and ensure that it is purely market-driven. Local regulators and self-regulatory organizations will take care of the rest.

Keywords: stock exchanges, securities trading, standardization, self-regulation, state intervention, price formation, price discovery, algorithmic trading, short selling, market fragmentation

JEL Classification: D47, G14, G15, G18, G23, G28, K22, N20, N40

Suggested Citation

Fleckner, Andreas M., Regulating Trading Practices. Oxford University Press, The Oxford Handbook of Financial Regulation, pp. 596-630, 2015; Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2015-8; Max Planck Private Law Research Paper No. 15/24. Available at SSRN: https://ssrn.com/abstract=2476950

Andreas M. Fleckner (Contact Author)

Max Planck Institute for Comparative and International Private Law ( email )

Mittelweg 187
20148 Hamburg
Germany

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
80539 Muenchen
Germany

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