A NEW APPROACH TO THE REGULATION OF TRADING ACROSS SECURITIES MARKETS

In this Article, Professors Amihud and Mendelson propose that a securi ties issuer should have the exclusive right to determine in which mark ets its securities will be traded, in contrast to the current regulato ry scheme under which markets may unilaterally enable trading in secur ities without issuer consent. Professors Amihud and Mendelson demonstr ate that the trading regime of a security affects its liquidity, and c onsequently its value, and that multimarket trading by some securities holders may produce negative externalities that harm securities holde rs collectively. Under the current scheme, some markets compete for or der flow from individuals by lowering standards, thereby creating the need for regulatory oversight. A rule requiring issuer consent would p rotect the liquidity interests of issuers and of securities holders as a group. Professors Amihud and Mendelson address the treatment of der ivative securities under their scheme, proposing a fair use test that would balance the issuer's liquidity interest against the public's rig ht to use price information freely. The authors suggest that under the ir proposed rule, markets will compete to attract securities issuers b y implementing and enforcing value-maximizing trading rules, thereby p roviding a market-based solution to market regulation.