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Who dares wins : the MAR and speculative investing

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Title: Who dares wins : the MAR and speculative investing
Author(s): Rydbeck, Axel
Contributor: University of Helsinki, Faculty of Law
Language: English
Acceptance year: 2018
One of the indisputable characteristics of any market is that they are and always will be to a certain extent speculative. When the securities markets are speculative, they will include investors who are not intrinsically concerned with the powers of supply and demand that shape the fundamental value of a security. Instead, speculative investors are engaged in investing where the modus operandi relies on a change in the price of a security which is either insufficient in regard or excessive to a change in its fundamental value. As most any phenomena on the securities markets, the net benefit or cost of speculative investing is the subject of extensive debate in financial research. Proponents high-light the increase in market liquidity often associated with speculative investing, as well as its potential for increasing the informational efficiency of the markets. In contrast, opponents argue that speculators are the culprits behind inefficiencies and potentially devastating price bubbles. Due to the ambiguous nature of speculative investing, little consensus exists regarding when it could be considered either benevolent or malignant. The matter of speculative investing assumes a further theoretical dimension when we begin to consider regulating the securities market. More precisely, speculative investing raises interesting questions for both the regulatory approaches towards continuous issuer disclosure and insider trading regulation. Obligating continuous issuer disclosure and prohibiting insider trading are to their nature two very different regulatory tools with two very different purposes: the former seeks to extend the amount of relevant information on the market whilst the purpose of the second is to, at the end of the day, limit investing on the basis of relevant information. When we add in the rogue element of speculative investing, interesting questions arise as to when regulation will be hard-pressed to fulfil their respective purposes. Challenges occur especially when regulation attempts to supply information regarding the fundamental value of a security to the market mechanism but might end up back-firing when the market mechanism is gripped by potentially harmful elements of speculative investing. These theoretical conjectures move into the plane of the very much tangible, as we begin to consider the content of the current EU approach towards regulating disclosure and insider trading through the Market Abuse Regulation (MAR, EU 596/2014). In the MAR, the foundational approaches towards both forms of regulation are manifested in the uniform definition of inside information. This means that any theoretical assessments regarding the appropriate dynamic between speculative investing and disclosure vis- à-vis insider trading regulation, need to be necessarily fit into the framework offered by de lege lata or risk resulting in unsatisfactory or legally untenable outcomes. This thesis seeks to investigate, expand and highlight potential challenges between the two forms of regulation and the phenomena of speculative investing. In order to do this, it adopts a law and economics method with a core constructed around the maxim of market-efficiency. The ambition of the thesis is constructed by three principal purposes. Firstly, the thesis will examine when speculative investing contains elements potentially harmful to market efficiency. Secondly, the thesis will establish what consequences this has for obligations on continuous issuer disclosure and how this relates to prohibitions against insider trading. Thirdly, the thesis will evaluate the MAR approach towards regulating issuer disclosure and insider trading in light of what has been established. In order to form comprehensive understanding of the above, this thesis seeks to answer the following three research questions: 1. What are elements to speculative investing which can possibly cause harm to the market mechanism? 2. When will issuer disclosure likely lead to speculative investing which causes harm to the market mechanism? 3. How does the above relate to the purposes of insider trading regulation?

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