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Regulating Competition in Stock Markets: Antitrust Measures to Promote Fairness and Transparency through Investor Protection and Crisis Prevention by Michael Wang, Viktoria Dalko, Lawrence Klein

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Chapter 8

Preventing Stock Market Crises (VI)

Regulating Information-Based Manipulation

Xin Yan

Lawrence R. Klein

Viktoria Dalko

Ferenc Gyurcsány

Michael H. Wang1

What is the key to information-based manipulation? The manipulator possesses an information monopoly, exercises it in the trading strategy, and realizes unfair profit by trading against the publicly released information. The components of information monopolies are information with price-moving potential, its substantial publicity, and high credibility. With antitrust spirit in mind, we have recommended preventive measures targeting the inconsistency of the manipulator's trading with his publicly released information. The effectiveness of the measures lies in breaking the link between the manipulator's exercise of the information monopoly and his actual trading profit. These measures are quantifiable, adjustable, and easy to implement in daily regulatory operations. Compared to enforcement outcomes based on current disclosure-oriented securities laws, these measures are expected to be effective and efficient. They will benefit securities regulators in making related rules, in order to complement and perfect extant regulations. The reason to analyze empirical data and propose the measures in this chapter is to build perfect competition for trading profit in any stock market with fairness and transparency. The measures proposed have great potential to improve investor protection, enhance market stability, and prevent stock ...

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