MAR’s Jar? Information Quality

Abstract

If regulation is to improve the quality and efficiency of information in financial markets, its ability to separate abusive conduct from non-abusive is critical. It is critical because the speed and accuracy of algorithmic trading can exploit the error margin such that the costs of the current form of regulating market abuse outweigh its benefits.

This article focuses on the European Union’s Market Abuse Regulation (“MAR”), and notes that MAR’s approach seems to have significantly reduced the information quality of innovative public companies’ securities markets.

This is because of MAR’s error and administrative costs. Indeed, as we show through several difference-in-differences analyses, its current method of regulators and courts deciding what information is ‘false or misleading’ and what effect that information has on markets seems harmful for innovative businesses - because of how it affects the quality of information that is available to their markets.

MAR, it seems, has the potential to negatively affect market integrity and consequently corporate governance, and investor protection. This is increasingly concerning because of the potential of algorithmic trading.

We explain however, why the right kind of regulatory competition can assist us in both learning about how to manage manipulation issues, and matching the right regulation to investors and investments.

Historically the debate about whether to ‘regulate’ insider trading and market manipulation has been robust. Perhaps the debate should focus on how to regulate.

Keywords: Market Abuse Regulation, Market Manipulation, Insider Information, Regulatory Competition, Corporate Governance, Investor Protection, Algorithmic Trading

JEL Classification: K22, G38, G14