Читать книгу Equity Markets, Valuation, and Analysis - H. Kent Baker - Страница 64

Brokers act on behalf of clients but can do so in ways that are against client interests. This type of principal-agent problem may arise from a broker's failure to obtain the best price for a client, which is commonly known as a breach of a trade through obligation; brokers may favor trades with affiliated brokers, the broker charging excessive fees (improper execution at unreasonable costs) or acting in ways that are generally detrimental to client interests such as by investing in securities that do not match the client's risk/return profile, which is referred to as breach of the know-your-client rule. Trade-throughs are initiated by colluding brokers, where trades involve a beneficial change in ownership and a violation of price/time priority. The broker benefits, but no direct adverse price of volume impact takes place. Improper execution is initiated by independent brokers, not necessarily colluding, where trades involve a beneficial change in ownership but without necessarily violating price/time priority. Here, the broker benefits, but no direct adverse price or volume impact occurs. Brokers might also use the exchange's name improperly in marketing their services or carry out other forms of improper or unethical sales and marketing efforts. For broker-agency conflict rules, Cumming et al. (2011) use information explicitly indicated in the rules of the exchange, and not guidelines from professional associations such as the Chartered Financial Analysts' ethics guidelines and the like.

Cumming et al. (2011) summarize all the different types of manipulation described in stock exchange trading rules. The trading rules for a stock exchange are drafted with varying degrees of specificity as they outline the exchange membership requirements, listing requirements, trading rules and regulations, and especially prohibited trading practices.

Each of the different rules for insider trading, market manipulation, and broker-agency conflict described in the exchanges' trading rules are weighted equally in the indices reported in Cumming et al. (2011). The Insider Trading Rules Index comprises 10 items. The Market Manipulation Rules Index encompasses a total of 14 items, which include price manipulation (seven items), volume manipulation (two items), spoofing (three items), and false disclosure (two items). The Broker-Agency Conflict Rules Index comprises five items. The indices in Cumming et al. summarize the degree of regulation in a country before and after the changes brought about in Europe with the Lamfalussy Directives, which encompass both MAD and MiFID.

Cumming et al. (2011) find evidence consistent with the view that more detailed trading rules are associated with greater market liquidity, in the spirit of early work ranking the quality of exchanges around the world (Aitken and Siow 2003). Cumming et al. use an international sample of countries, including some but not all in Europe, and use the pan-European wide regulatory change as a natural experiment to study the effect of a securities regulatory change on liquidity. They find strong evidence of a positive impact of the market abuse rules enumerated earlier.

Christensen, Hail, and Leuz (2016) study the same regulatory change as in Cumming et al. (2011), even though email correspondence with Cumming et al. shows that Christensen et al. did not realize that the regulatory change they examined involved changes in trading rules. Cumming and Johan (2019) document their lack of understanding about the regulatory change, among other things. Christensen et al. use a set of European-only countries, and likewise show a positive effect of the regulatory change on market liquidity. They also use slightly different dates than Cumming and Johan in their contribution to the literature.

Similar to work showing that trading rules improve liquidity, other research is likewise consistent with the view that stronger trading rules, surveillance, and enforcement affect the trading location of cross-listed stocks (Cumming, Hou, and Wu 2018) and curtail suspected insider trading activity (Aitken, Cumming, and Zhan 2015a) and end-of-day manipulation (Aitken, Cumming, and Zhan 2015b, 2017).