Do Institutional Investors Value the Rule 10b-5 Private Right of Action? Evidence from Investors’ Trading Behavior following Morrison v. National Australia Bank Ltd.

In Morrison v. National Australia Bank Ltd., the U.S. Supreme Court limited investors’ ability to bring private Rule 10b-5 securities fraud actions to cases involving securities purchased on a U.S. stock exchange or otherwise purchased in the United States. Because many foreign firms’ securities trade simultaneously on non-U.S. venues and on U.S. exchanges, institutional investors claimed after Morrison that they would look to such firms’ U.S.-traded securities to preserve their rights under Rule 10b-5. This paper tests this prediction using proprietary trading data from 378 institutional investors. The analysis reveals no evidence that investors reallocated trades in cross-listed issuers to the United States, nor did they reallocate foreign trading to cross-listed issuers that are now clearly subject to 10b-5 securities suits. This persistence in trading appears across both money managers and pension plan sponsors, notwithstanding sponsors’ more vocal criticism of Morrison and their prominence in 10b-5 litigation.