The Efficacy of Market Abuse Regulation in the UK

Purpose: The purpose of this paper is to ascertain the efficacy of Financial Services and Markets Act (FMSA) (2000) in deterring illegal insider trading in target companies around the time of a merger and aquisition announcement. Design/methodology/approach: The author uses an event study to measure the cumulative average abnormal returns (CAARs) around both the announcement and rumour date for a sample of UK takeovers between 2001 and 2010. Findings: Statistically significant CAARs prior to the event date are observed across the sample. Research limitations/implications: It is not possible to link unknown instances of illegal insider trading with pre takeover residuals, therefore explaining the residuals remains a deductive process. Practical implications: Pre-event abnormal returns may indicate that trading on material nonpublic information is still a contributory factor in the run-up proportion of takeover premiums. Social implications: This draws a question over the efficacy of the regulatory system. Originality/value: This study provides evidence which points to insider trading activity ahead of Mergers in a post FMSA 200 UK context.