The regulation of insider trading in corporate securities

Abstract

Firstly it is necessary to examine insider trading in corporate securities in it's social and economic context. Before any discussion of substantive regulation can meaningfully take place it 1s necessary to consider such questions as the incidence of insider trading and whether in fact it causes harm. In, particular the question of 'fairness' is considered, and the economic arguments sometimes raised in support of insider trading explored. Corporate disclosure is directly related to insider trading. The ability of corporate insiders to abuse their positions is obviously related to the effectiveness of company disclosure. Furthermore apart from the effect corporate disclosure has on the availability of information for investors, disclosure of insiders transactions may discourage abusive trading and assist in the enforcement of regulatory provisions. Disclosure may also be used as a sanction. The impact of expanded corporate disclosure policies and in particular the disclosure of price sensativa information to employees is considered. One or the main problems with anti-insider trading regulation is the satisfactory determination of a definition for insiders. This determination will set the scope of regulation. In drawing up this definition attention must be given to the problem of 'tippee trading' and the effect that such provisions might have on the securities industry. An extensive study of the present law relevant to insider trading, in Britain, Australasia and Canada is provided with particular reference. to the role of self regulatory authorities. Recent proposals for anti-insider trading legislation in the United Kingdom are analysed. At the heart of any discussion of insider trading must be the question of enforcement Civil enforcement is discussed in the context of derivative actions and class suits. The present structure of regulation is analysed and a now enforcement agency is suggested. The crucial availability of effective market surveillance-is discussed in the context of the experience of other countries.