NCJ Number
189263
Journal
Journal of Financial Crime Volume: 8 Issue: 3 Dated: February 2001 Pages: 254-263
Date Published
February 2001
Length
10 pages
Annotation
In light of the increasing globalization of the securities markets and the rapid increase of cross-border mergers and acquisitions, there have been more cases of cross-border insider trading than before.
Abstract
Currently, there is no formal Securities Exchange Commission (SEC) policy on when United States insider trading rules will be applied extraterritorially. When an insider trading case has a multinational dimension, there are four major pieces of information needed to assess a claim of appropriate jurisdiction: the nationalities of the traders, as well as the tippers; the nationality of the issuer; where the information was obtained; and where the trading occurred. Where the answers to most of those questions are a single country, the case for claiming jurisdiction is easy. When the answers are scattered, it is harder. The standard explanations for a ban on insider trading are investor protection and corporate law. Investor protection is a weak explanation given that investors independently enter their buy/sell orders, taking the risk that there was some undisclosed information generated by the insider. Insider trading can pose a number of problems from a corporate perspective: it can compromise confidentiality of sensitive information; and give key executives an incentive to create volatility in stock price. A hypothetical case between four countries is discussed emphasizing the difficulty in asserting jurisdiction over trading. The long-term solution to this problem involves the creation of a multinational organization to which some of the tasks of insider trading surveillance and enforcement are given. 59 references.