The efficacy of market abuse regulation in the UK

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