Exchange trading rules and stock market liquidity☆

Exchange trading rules, governance, and trading location of cross-listed stocks

“…La Porta, Lopez-deSilanes, and Shleifer (2006) show that disclosure rules backed by the threat of liability through private enforcement improve stock market development. Supporting this, Cumming, Johan, and Li (2011) show that an exchange's liquidity increases with the strength of its trading rules. These studies do not examine the location of trade; however, they do imply that strong rules should increase the amount of trade in the Non-U.S. market.…”

“…First, it harmonizes laws in six areas: insider trading, price manipulation, volume manipulation, spoofing, false disclosure, and broker-agency conflicts (Cumming et al, 2011). Second, it attempts to strengthen pre-trade and post-trade disclosure obligations.…”

“…Cumming, Johan, and Li (2011) use a difference in difference (DD) model to show that MIFID increased liquidity in the EU.…”

“…First, the paper is related to prior work showing the importance of regulation to economic development (for example La Porta et al, 1997Porta et al, , 1998. Second, the paper is related to other literature showing the importance of stock exchange rules for market integrity (Cumming and Johan, 2008) and liquidity (Cumming et al, 2011). Third, this paper tangentially relates to the bonding literature.…”

“…Stock exchanges invest considerable resources and money on technology, regulation and manpower to promote market efficiency and integrity 1 . Exchanges that are based in jurisdictions with superior regulation and surveillance enjoy the benefit of more active trading (Cumming and Johan, 2008;Cumming, Johan and Li, 2011). For firms resident in jurisdictions that have inferior regulation or enforcement, there is a benefit to cross-listing in the U.S. to spur on trading activity (Halling et al, 2008;Gagnon and Karolyi, 2009).…”