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Securities regulation is a diverse topic that covers many areas, including but not limited to the distribution of new securities (United States Securities Act of 1933), trading of securities, brokers, and exchanges (United States Securities Act of 1933), debt securities (United States Trust Indenture Act of 1939), mutual funds (Investment Company Act of 1940), and investment advisors (Investment Advisers Act of 1940). Given that the book's focus is on equity markets and valuation, this chapter focuses on trading securities on public stock exchanges.

According to Cumming and Johan (2019), some authors have written about the impact of securities regulation without even understanding that the source of regulatory change that they have studied involves exchange-trading rules. Two types of regulatory regimes are available: regulator-led and market-led. Hence, recognizing that trading rule sources are not always the same around the world is important. The source of securities regulations for trading on exchanges varies by country, and the source likewise varies over time. For example, in China, the rules pertaining to the trading of securities are found in the China Securities and Regulatory Commission rules. In the United States, the trading rules are listed on the stock exchange web pages. In Europe before 2004, the rules were likewise made available by the exchange or found on each exchange's web page, but thereafter these rules were harmonized and are now found in a set of pan-European wide directives. Collectively, they are called the Lamfalussy Directives – the Market in Financial Instruments Directive (MiFID), the Prospectus Directive, the Market Abuse Directive (MAD), and the Transparency Directive. The Lamfalussy Directives comprise a four-part system, where MAD is Part 3, and MiFID culminates in Part 4 with computer surveillance and enforcement (Cumming and Johan 2019).

This chapter consists of three main sections. The first part explains the meaning of different types of trading rules and the forms of market manipulation that the rules are intended to curtail. The second part reviews evidence on the impact of trading rules and enforcement on trading outcomes. The third part reviews evidence on the impact of trading rules and enforcement on real corporate outcomes.