The following paper investigates the concepts of insider dealing. While the first part offers an overview of the relevant legislation, the second part aims to answer the question as to whether insider trading should be prohibited by legislation.
Insider dealing refers to the use of non-public and price-sensitive information for the purpose of gaining an unfair advantage and involves trading with company shares or other securities in a public financial market. Such conduct is both a criminal offence and a regulatory infringement under the civil code.
There are various theories dealing with insider trading that offers arguments for and against the prohibition of insider trading. The misappropriation theory, the unfairness approach and the idea that insider dealing will negatively affect market confidence are all considered to be distinct reasons for regulating insider dealing. On the other hand, opponents argue that legalization of insider dealing would lead to increased market efficiency, fairer share pricing and fraud prevention.
Despite the high costs required for prevention of insider dealing and the fact that very few if any companies have ever sued its officers for inside trading, it is widely regarded by the governments as being immoral and damaging for the markets and is therefore prohibited. The offences can be dealt with either civil or criminal regime, with the latter being far more difficult to apply in practice and thus less effective.
Table of Contents
1. INTRODUCTION
2. LEGAL REGULATION
2.1. Criminal regime
2.2. Civil code
3. PHILOSOPHICAL BACKGROUND OF INSIDER DEALING
4. CONCLUSIONS
Objectives and Research Themes
This paper examines the concepts and regulatory frameworks surrounding insider dealing, aiming to provide a comprehensive legal overview while critically evaluating whether such practices should remain prohibited by legislation.
- The distinction between criminal and civil legal regimes governing insider trading in the UK.
- The definition and scope of 'inside information' and 'insider' status within corporate law.
- Philosophical arguments regarding market distortion and the misappropriation theory.
- Counter-arguments viewing insider trading as a potential mechanism for market efficiency.
- The challenges of prosecution and the effectiveness of current regulatory enforcement.
Excerpt from the Book
2.1. Criminal regime
In the UK insider dealing was first made a criminal offence when Part V of the Companies Act 1980 came into force (Griffin, 2006, p198). The original legislation was re-enacted in the Company Securities (Insider Dealing) Act 1985 and further amended by the Financial Services Act 1986. This was superseded when the EC agreed in 1989 on a Directive to co-ordinate the legislation of insider trading, as a result of which Part V of the Criminal Justice Act 1993 was brought into force (Cole, 2007). Under the Act, Sc 52 if a person has an ‘inside information’ and he has the information as an ‘insider’, it is criminal offence if he:
deals in price-affected securities in relation to the information himself or through professional intermediary on a regulated market
knowingly encourages other person to deal so (even if the other person is not aware of this) or
improperly discloses the specific information to another person (Dignam and Lowry, 2009, pp78-79).
An ‘inside information’ refers to a confidential, specific and price-sensitive information while the ‘insider’ is a person who has the information through being a shareholder, director or employee or through access of his employment or another inside source (Rose, 2009, p26). The individual must know that the information is ‘inside information’ and that it comes from an ‘inside source’ (Dine and Koutsias, 2007, p237). The Act exempts individuals who have to pass on inside information through employment as well as persons operating as dealers.
Summary of Chapters
1. INTRODUCTION: Outlines the definition of insider dealing as the misuse of non-public information and introduces the paper's dual focus on legal regulation and the justification for its prohibition.
2. LEGAL REGULATION: Details the evolution of the UK's legal framework, distinguishing between the punitive criminal regime and the civil procedures established under the Financial Services and Markets Act.
3. PHILOSOPHICAL BACKGROUND OF INSIDER DEALING: Explores the controversy surrounding insider trading, weighing arguments about market integrity and theft against theories suggesting potential market efficiency.
4. CONCLUSIONS: Synthesizes the debate, noting that despite high enforcement costs and difficulties in application, insider dealing is broadly condemned as immoral and damaging to market confidence.
Keywords
Insider dealing, insider trading, criminal offence, civil code, FSMA, market abuse, misappropriation theory, market distortion, shareholder value, financial regulation, market efficiency, price-sensitive information, corporate law, legal prohibition, investor confidence.
Frequently Asked Questions
What is the primary focus of this paper?
The paper investigates the legal and philosophical dimensions of insider dealing, specifically examining the UK's regulatory approach and the justification for prohibiting such activities.
What are the central themes discussed in this work?
The central themes include the criminalization of insider trading, the implementation of civil procedures like the 'market abuse' regime, and the philosophical debate regarding the impact of insider information on market integrity.
What is the core research question addressed by the author?
The author seeks to address whether insider trading is an act that should be legally prohibited, balancing it against theories that suggest it might provide certain economic benefits.
Which scientific methods or approaches are used in this study?
The work utilizes a legal-analytical method, synthesizing existing statutory legislation, historical case development, and academic arguments regarding the economic consequences of insider trading.
What topics are covered in the main body of the text?
The main body covers the history of UK legislation, the distinction between criminal and civil codes, and various theoretical arguments for and against the prohibition of insider dealing.
Which keywords best describe this research?
Key terms include insider dealing, market abuse, criminal regime, civil code, and market efficiency.
Why is prosecution for insider trading considered difficult under the criminal code?
Prosecution is hindered by a high burden of proof regarding mens rea (intention) and the requirement to prove the offence beyond a reasonable doubt, leading to historically low conviction rates.
How does the Financial Services and Markets Act (FSMA) differ from the criminal regime?
The FSMA operates on a civil basis, requiring a lower standard of proof (balance of probabilities) and granting the Financial Services Authority investigative powers to impose fines and sanctions.
What is the 'misappropriation theory' in the context of this paper?
This theory posits that confidential, price-sensitive information is a valuable commodity belonging to the company, making its personal use by insiders a form of inequitable and offensive theft.
- Arbeit zitieren
- Linda Vuskane (Autor:in), 2010, The Concepts of Insider Dealing, München, GRIN Verlag, https://www.hausarbeiten.de/document/154388
