Same rules, different enforcement: Market abuse in Europe

• Published in: Journal of international financial markets, institutions & money institutions & money, 2018-05, Vol.54, p.130-151
• Main Authors: Cumming, Douglas, Peter Groh, Alexander, Johan, Sofia
• Format: Article
• Language: English
• Subjects: Business administration; Economics and Finance; Enforcement; Humanities and Social Sciences; Law and finance; Securities regulation
• ISSN: 1042-4431; 1873-0612
• DOI: 10.1016/j.intfin.2018.03.006

•We utilize a unique data set provided by the European Security and Markets Authority.•Increasing the resources for supervisory authorities strongly supports fraud detection.•Formalized cooperation between the supervisory and legal authorities deters fraudulent activities.•Differences in enforcement rules give rise to large differences in fraud. We present and analyze a novel set of enforcement data from the European Securities Market Authority during the period following the European Union’s harmonized rule setting on securities market abuse. The data show significant differences in the intensity of enforcement across Europe. The empirical tests are highly consistent with the view that the intensity of enforcement is the most statistically robust and economically significant predictor of market abuse detection. In particular, the data identify three important arms of enforcement: the number of supervisors, which enhances detection; formalized cooperation, which facilitates surveillance; and imprisonment, which facilitates deterrence. We discuss research, practitioner implications, and policy implications for securities regulation across several key European countries.