Table of Contents

Research Handbook on Insider Trading

Research Handbook on Insider Trading

Research Handbooks in Corporate Law and Governance series

Edited by Stephen M. Bainbridge

In most capital markets, insider trading is the most common violation of securities law. It is also the most well known, inspiring countless movie plots and attracting scholars with a broad range of backgrounds and interests, from pure legal doctrine to empirical analysis to complex economic theory. This volume brings together original cutting-edge research in these and other areas written by leading experts in insider trading law and economics.

Chapter 7: Regulation FD: an alternative approach to addressing information asymmetry

Jill Fisch

Subjects: economics and finance, economic crime and corruption, law - academic, company and insolvency law, corporate law and governance, corruption and economic crime


Although commentators have identified various reasons to regulate insider trading, one rationale is to reduce the existence of information asymmetries in the securities markets. In its litigations in Chiarella and Dirks, the government attempted to use fraud-based theories of liability to address information asymmetries. The Supreme Court limited the effectiveness of this approach by requiring a predicate breach of duty for a violation of Rule 10b-5. The Securities and Exchange Commission (SEC) responded in August 2000, by adopting Regulation Fair Disclosure. Regulation FD took an alternative approach to information asymmetry that was not grounded in theories of fraud but, instead, in issuer disclosure obligations. Specifically the Rule focused on corporate issuers and corporate officials as the sources of such asymmetries, reasoning that if selective disclosures by corporate insiders could be prevented at the source, regulators would have less need to address trading by the recipients of that information.

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