Penal Law, Prosecution of Insider Trading, and the Informational Efficiency of Securities Markets

2012 ◽  
Author(s):  
Karl Ludwig Keiber
Keyword(s):  
Insider Trading ◽  
Securities Markets ◽  
Informational Efficiency ◽  
Penal Law

INSIDER TRADING RULES AND PRICE FORMATION IN SECURITIES MARKETS: AN ENTROPY ANALYSIS OF STRATEGIC TRADING

2006 ◽  
Vol 09 (08) ◽  
pp. 1215-1243
Author(s):  
KARL LUDWIG KEIBER
Keyword(s):  
Information Theory ◽  
Insider Trading ◽  
Market Price ◽  
Securities Market ◽  
Price Formation ◽  
Securities Markets ◽  
Informational Efficiency ◽  
General Criterion ◽  
Maximum Information ◽  
Trading Rules

This paper addresses the issue of how insider trading rules affect price formation in securities markets and suggests the application of information theory to market microstructure theory. We analyze a variant of the setting in [20] by simply introducing a more general criterion for informational efficiency borrowed from information theory — namely maximum information transmission. The analysis shows that both the insider's optimal trading strategy and the market price of the risky security depend on the insider trading restriction. Insider trading restrictions are reported to be detrimental to the liquidity of the securities market. We find that a unique insider trading rule exists which implements semi-strong form informational efficiency of the securities market. Alternative restrictions on insider trading give rise to either underreaction or overreaction in securities prices. Too strict insider trading rules are shown to account for excess volatility in securities prices. Contrary to common notion, the uninformed investors are shown to be hurt by too restrictive insider trading rules. We conclude that loose insider trading rules are preferred by the group of investors as a whole.

scholarly journals A Global Comparison of Insider Trading Regulations

2013 ◽  
Vol 3 (1) ◽  
pp. 1 ◽  
Author(s):  
James H. Thompson
Keyword(s):  
Insider Trading ◽  
Public Information ◽  
Global Markets ◽  
Securities Markets ◽  
Business World ◽  
Global Comparison ◽  
The World

As the business world continues to expand in global markets, trading of shares, bonds, derivatives and other instruments continues to increase.  One form of trading that has received considerable interest in recent years is insider trading.  Insider trading occurs when individuals with potential access to non-public information about a corporation buy or sell stock of that corporation.  When the information is material and non-public, such trading is illegal.  However, if the trading is done in a manner that does not take advantage of non-public information, it is often permissible.  This study compares insider trading laws, penalties, and convictions in countries represented by the 14 largest securities markets throughout the world and provides data indicating that there are important differences.

scholarly journals A Comparative Synopsis of the Enforcement of Market Abuse Prohibition in Australia and South Africa

2016 ◽  
Vol 9 (1) ◽  
pp. 46-77
Author(s):  
Howard Chitimira
Keyword(s):  
South Africa ◽  
South African ◽  
Insider Trading ◽  
Regulatory Framework ◽  
Securities Markets ◽  
Market Manipulation ◽  
Market Abuse ◽  
The Government ◽  
Australian Experience

In Australia, the market abuse prohibition is generally well accepted by the investing and non-investing public as well as by the government. This co-operative and co-ordinated approach on the part of all the relevant stakeholders has to date given rise to an increased awareness and commendable combating of market abuse activities in the Australian corporations, companies and securities markets. It is against this background that this article seeks to explore the general enforcement approaches that are employed to combat market abuse (insider trading and market manipulation) activity in Australia. In relation to this, the role of selected enforcement authorities and possible enforcement methods which may be learnt from the Australian experience will be isolated where necessary for consideration in the South African market abuse regulatory framework.

A Robust Multivariate Outlier Detection Method for Detection of Securities Fraud

2020 ◽  
Vol 7 (3) ◽  
pp. 12-29
Author(s):  
M. Fevzi Esen
Keyword(s):  
Outlier Detection ◽  
Insider Trading ◽  
Business Intelligence ◽  
Abnormal Returns ◽  
Detection Methods ◽  
Financial Fraud ◽  
Securities Markets ◽  
Securities Fraud ◽  
Minimum Covariance Determinant ◽  
Minimum Volume Ellipsoid

Insider trading is one the most common deceptive trading practice in securities markets. Data mining appears as an effective approach to tackle the problems in fraud detection with high accuracy. In this study, the authors aim to detect outlying insider transactions depending on the variables affecting insider trading profitability. 1,241,603 sales and purchases of insiders, which range from 2010 to 2017, are analyzed by using classical and robust outlier detection methods. They computed robust distance scores based on minimum volume ellipsoid, Stahel-Donoho, and fast minimum covariance determinant estimators. To investigate the outlying observations that are likely to be fraudulent, they employ event study analysis to measure abnormal returns of outlying transactions. The results are compared to the abnormal returns of non-outlying transactions. They find that outlying transactions gain higher abnormal returns than transactions that are not flagged as outliers. Business intelligence and analytics may be a useful strategy for detecting and preventing of financial fraud for companies.

A Critical Analysis of Misappropriation Theory in Insider Trading Cases

1992 ◽  
Vol 2 (4) ◽  
pp. 465-477 ◽  
Author(s):  
Steven R. Salbu
Keyword(s):  
Insider Trading ◽  
Critical Analysis ◽  
Public Information ◽  
Fiduciary Duty ◽  
Securities Markets ◽  
Judicial Interpretation ◽  
Securities Law ◽  
Current Requirement ◽  
Fairness And Efficiency ◽  
Legislative Reforms

Under the present judicial interpretation of federal securities law, an individual is prohibited from trading on non-public information that has been misappropriated in contravention of a fiduciary duty. Trades made using non-public information that has not been misappropriated are not prohibited by Rule 10b-5, promulgated under the Securities and Exchange Act of 1934. The current requirement of misappropriation to trigger Rule 10b-5 liability creates a gap that permits transactions that are both ethically and economically undesirable. Judicial or legislative reforms are recommended to close the gap and help ensure the fairness and efficiency of securities markets.

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