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The efficacy of market abuse regulation in the UK

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  • Brendan John Lambe

Abstract

Purpose - The purpose of this paper is to ascertain the efficacy of Financial Services and Markets Act (FMSA) (2000) in deterring illegal insider trading in target companies around the time of a merger and aquisition announcement. Design/methodology/approach - The author uses an event study to measure the cumulative average abnormal returns (CAARs) around both the announcement and rumour date for a sample of UK takeovers between 2001 and 2010. Findings - Statistically significant CAARs prior to the event date are observed across the sample. Research limitations/implications - It is not possible to link unknown instances of illegal insider trading with pre takeover residuals, therefore explaining the residuals remains a deductive process. Practical implications - Pre-event abnormal returns may indicate that trading on material nonpublic information is still a contributory factor in the run-up proportion of takeover premiums. Social implications - This draws a question over the efficacy of the regulatory system. Originality/value - This study provides evidence which points to insider trading activity ahead of Mergers in a post FMSA 200 UK context.

Suggested Citation

  • Brendan John Lambe, 2016. "The efficacy of market abuse regulation in the UK," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 24(3), pages 248-267, July.
    • Handle: RePEc:eme:jfrcpp:v:24:y:2016:i:3:p:248-267
    DOI: 10.1108/JFRC-06-2015-0029
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    Keywords

    Regulation; Insider trading;

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