Download this Paper Open PDF in Browser

Market Structure for Institutional Investors: Comparing the U.S. and the E.U. Regimes

46 Pages Posted: 5 Mar 2006 Last revised: 8 Dec 2008

Stavros Gadinis

University of California, Berkeley - School of Law

Date Written: 2008

Abstract

In 2007, both the U.S. and the E.U. implemented sweeping reforms in the regulation of stock exchange trading and market structure, following diametrically opposite approaches. While the E.U. effort is deregulatory and decentralized, allowing investors' choices to determine how different marketplaces interact, U.S. rules are detailed and interventionist, mandating specific principles for the interaction of orders. To explore the impact of these surprising choices of regulatory design, this article focuses on institutional investors, who have come to dominate stock exchange trading in recent years. Because these investors trade in large blocks, their orders may affect the stock price to their detriment, increasing their liquidity costs. However, the new U.S. rules limit institutional investors' flexibility in choosing a trading strategy that would reduce their liquidity costs effectively. As a result, these rules introduce unnecessary volatility in the market and may harm the informational value of stock prices. Instead, the European framework relies on disclosure of quote and last sale information, and helps investors monitor market participants more successfully.

Keywords: Stock Exchange, Regulation, Securities, U.S., E.U.

JEL Classification: G18, G19, G29, K23, K29, N21, O32, O34, O39

Suggested Citation

Gadinis, Stavros, Market Structure for Institutional Investors: Comparing the U.S. and the E.U. Regimes (2008). Virginia Law & Business Review, Vol. 3, No. 313, 2008. Available at SSRN: https://ssrn.com/abstract=887645 or http://dx.doi.org/10.2139/ssrn.887645

Stavros Gadinis (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

Paper statistics

Downloads
466
Rank
50,129
Abstract Views
1,964