Company Responses to Exchange Queries in Real Time

We examine the efficacy of exchange queries in assisting to explain anomalous trading behaviour in a timely manner. Most equity markets rely on continuous disclosure rules to motivate corporations to immediately disclose sensitive information that can affect trading. Queries allow exchanges to request that listed firms clarify unexplained variation in their securities directly. Using intraday data for a sample of liquid stocks, we find consistent price reversals after firms respond to the query by labelling the pre-announcement trading activity as unsubstantiated. The information contained in this unanticipated announcement is impounded within 20 minutes, preceded by a transition period of heightened trading intensity, wider spreads and shifting order book depth. We show evidence consistent with efficient markets and rational investor behaviour. Overall, this study finds that queries enhance the orderly flow of information and reduce information asymmetry. Exchanges in other countries should consider their use.