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Trading by an insider on the basis of material non-public corporate information violates the securities laws of the United States and of many, but not all, other countries. As the market for securities becomes increasingly global, the question of whose rules should apply to any particular transaction will arise with increasing frequency. This article addresses that question.

Each country's regime concerning insider trading – which transactions, if any, to ban, and how to do so – has largely evolved through consideration of transactions that are entirely domestic in character and impact. In these transactions, the issuer's state of incorporation and principal place of business, the nationality and residence of the insider and of the other party to the transaction, the location of each when placing the order, and the locations of the exchange on which the transaction is effected and of any other exchanges on which the security is listed, have all been of the same country. Globalization, however, means that an increasing number of securities transactions have one or more such dimensions that differ in nationality from the nationality of the other dimensions. Each country associated with such a transnational transaction must decide whether to try to apply its regime to the transaction and whether to resist attempts by other countries to do so. These decisions will have an important impact on behavior in the globalizing securities market, and hence on global economic welfare, because countries' regimes differ in significant ways: in whether or not they ban insider trading and, where they do, in the scope of such ban, the vigor and methods with which they pursue suspected violators, and in the civil and criminal consequences of violating the ban.

This article offers a framework for considering the different possible decisions countries can make concerning the reach of their policy relating to insider trading. The ultimate question is what, in terms of commonly held goals, are the effects of these decisions? The fundamental tool of analysis is modern finance theory.


Law | Securities Law | Transnational Law