Global Capital Markets Center
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Insider Trading and Contracting: A Critical Response to the 'Chicago School.' James D. Cox 1986 Duke L.J. 628 |
ABSTRACT:
American jurisprudence abhors insider trading. It is generally believed that insider trading is unfair, it adversely impacts the corporation's operation, investor behavior, and the allocational efficiency of capital markets. this article examines the indeterminacy of these approaches. Part I of this article criticizes the Supreme Court's contemporary justifications for regulating insider trading. It develops the view that the limitations that Chiarella v. United States and Dirks v. SEC impose on the disclose-or-abstain rule are completely artificial. Part II challenges the prevalent view that insider trading affects the market's allocational efficiency. Accepting the assumption that insider trading leads to the manipulation of corporate disclosures, this article uses the capital market theory to demonstrate that insider trading harms neither the individual investor nor the market's allocational efficiency. Part III critically analyzes and takes exception to the emerging arguments of those commentators who contend that the present form of consider trading regulation is unjustified and that the law should allow corporations to license their agents to engage in insider trading. Finally, in the wake of the exceptions taken to the Supreme Court and the commentators, Part IV provides a coherent justification for continuing the regulation of insider trading.
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