Policy Discussion about Insider Trading / Tipping Prohibition

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You can grab notes on other topic from here.

Why do we have the rules? (why can’t you trade with info not generally disclosed?) ^ Kimber Report

POLICY: maintain integrity of capital markets, provide fullest poss knowledge so that investor confidence

is maintained (want everyone to play)

  • “Not improper for insider to buy/sell securities in their own company.. .generally accepted that it’s beneficial to have officers/directors purchase, as they thereby acquire direct financial interest in welfare of co. Impossible to justify proposition that investment so made can’t be realized or liquidated merely bc investor is insider. BUT improper for insider to use confidential info acquired by virtue of his position as insider to make profits by trading in securities of company. Should be free/open market with prices thereon based on fullest possible knowledge of all material facts among traders. Anything that puts that into question reduces confidence in the market place and is therefore a matter of public concern”

Why doesn’t this work?

  • Not many successful prosecutions out of millions of trades, hard to monitor.

Regulators should just be honest: there is no way to stop insider trading. 6 people at OSC. Millions of people trading. You as an investor should not rely on the fact that there is a level playing field ^ false sense of confidence.


  • Abolish Insider Trading laws, Let the industry/market regulate itself.

o Opposite argument: these rules still serve a massive deterrent effect (just b/c people do bad things doesn’t mean you shouldn’t regulate that activity)

o Maybe: give liability to CEOs who don’t monitor it, giving DD defence

o Or have both.

  • Manager or directors will police execs better than securities regulators, or else people won’t want to buy your stuff, bad reputation

o NBA Example – commissioner cares b/c if people don’t have confidence in integrity of the market, they aren’t going to play (did a lot more than the police to prevent fixing games). If true, Apple has a better chance of stopping insider trading than the securities commission^ These people have better chance of controlling b/c their career depends on integrity of their company or game

You can grab notes on other topic from here.

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