A New Approach to the Regulation of Trading Across Securities Markets
Yakov Amihud, Haim Mendelson
In this Article, Professors Amihud and Mendelson propose that a securities issuer should have the exclusive right to determine in which markets its securities will be traded, in contrast to the current regulatory scheme under which markets may unilaterally enable trading in securities without issuer consent. Professors Amihud and Mendelson demonstrate that the trading regime of a security affects its liquidity, and consequently its value, and that multimarket trading by some securities holders may produce negative externalities that harm securities holders collectively. Under the current scheme, some markets compete for order flow from individuals by lowering standards, thereby creating the need for regulatory oversight. A rule requiring issuer consent would protect the liquidity interests of issuers and of securities holders as a group. Professors Amihud and Mendelson address the treatment of derivative securities under their scheme, proposing a fair use test that would balance the issuer’s liquidity interest against the public’s right to use price information freely. The authors suggest that under their proposed rule, markets will compete to attract securities issuers by implementing and enforcing value-maximizing trading rules, thereby providing a market-based solution to market regulation.