A Critical Analysis of Insider Dealing Under U.K. And U.S.A. Law

Begi nning in the late 1960s, the question of whether or not insider dealing [1] should be regulated has been a controversial issue. The crux of the matter is generally agreed to be Henry Manne’s arguments in his 1966 publication Insider Trading and the Stock Market. [2] This book stunned “the corporate law school of thought by arguing that insider dealing should be deregulated” and ranks among the “truly seminal events in the economic analysis of law”. [3] Whether or not one agrees with Professor Manne’s views on insider dealing, one must give him credit for studying the effects of insider dealing from an economics point of view and daring to conclude that rather than it being prohibited, insider dealing should be encouraged as the practice was beneficial to both the securities’ markets and the corporations using them. However, at the policy level, there is general consensus that insider dealing should be prohibited as regulating insider trading became the central element of modern well-regulated capital markets and this resulted in a wave of insider dealing regulation during the 1990s. [1] In chapter one, Manne’s crucial arguments are deconstructed and compared to the counter-arguments and policy justifications put forward by both, Manne’s critics and supporters, when discussing the regulation or deregulation of insider trading. It concludes by questioning the feasibility of (empirically-backed)economic arguments that are devoid of ethical considerations in the broad sphere of policy-making. [1] The expressions “insider trading” and “insider dealing” have been used interchangeably throughout this dissertation [2] H.G. Manne: 1966, Insider Trading and the Stock Market, New York, The Free Press. [3] Bainbridge & S. Mark: 2008, Manne on Insider Trading, UCLA School of Law , Law-Econ Research Paper No. 4 at 3. [4] P.J. Engelen, & L. Liedekerke: 2007, The Ethics of Insider Trading Revisited, Journal of Business Ethics, 74 at 497.