Research Handbooks in Corporate Law and Governance series
Edited by Stephen M. Bainbridge
Chapter 5: Regulating insider trading in the post-fiduciary duty era: equal access or property rights?
Why do we regulate insider trading? In Texas Gulf Sulphur, the US Second Circuit Court of Appeals opined that “all investors trading on impersonal exchanges” should have “relatively equal access to material information” and “be subject to identical market risks.” This rationale presented a number of doctrinal and policy problems, but at least was linked to a core problem of securities regulation; namely, controlling flows of information to the capital markets. In his Chiarella and Dirks opinions, US Supreme Court Justice Lewis Powell led the Court in rejecting the equal access rationale in favor of a new focus on disclosure obligations arising out of fiduciary relationships. In doing so, Powell solved some of the problems created by the equal access rationale, but created a new set of doctrinal and policy issues. In particular, Powell’s rationale largely severed the link between the insider trading prohibition and the core concerns of securities law.
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