Rationales and Requirements of the Legal Framework of Insider Dealing in the European Union

Abstract

This article discusses insider dealing in the across the EU which is regulated by the Market Abuse Directive. Also it shows different approach to insider dealing prohibition between EU directive and the United States law which is based on the agent approach. These two approaches bring different results in that the agent approach is requiring a fiduciary duty between the origin of inside information and the 'tippee' but the market approach does not. Because the Market Abuse Directive is based on the market approach, its scope of application is provided in the way of focusing on the market effect of inside information instead of focusing on the territorial scope. Inside information must have two characteristics: one is non-public and the other one is price-sensitive. Insider information must not be known to the public. Whether information is known to the public or not is decided subjectively and hypothetically by the eye of the common market participants. To come to a conclusion that inside information is price-sensitive, lots of factors shall be taken into account. For this reason, it is almost impossible to define 'price-sensitive'. The Directive distinguishes between the primary insider and the secondary insider. This distinction does not have a significant meaning in the market approach because a fiduciary relationship is not required between the origin of inside information and 'tippee'. Insider dealing prohibitions include recommending and disclosure as well as dealing irrespective of the existence of profits unless such disclosure is made in the normal course of the exercise of his employment, profession or duties. If the background of SEC v Willis is applied by the Directive, the conclusion would be same as the decision of the U.S. Court. However, the former does not require the existence of a fiduciary duty whereas the latter requires the existence of the duty.