From the fiduciary theory to information abuse: The changing fabric of insider trading law in the U.K., Australia and Singapore

Abstract

The fiduciary theory animates to a considerable degree the U.S. federal securities law against insider trading; in contrast, the theoretical basis of insider trading law in the United Kingdom, Australia and Singapore has historically been less clearly articulated. While the earlier legislative enactments against insider trading in these three jurisdictions reveal traces of the fiduciary theory, the law in these countries has been significantly refashioned. They have all quite clearly moved away from fiduciary notions. This article looks at how the contours of insider trading liability evolved in the U.K., Australia and Singapore and the ramifications of these changing contours for insiders, investors, market professionals, and associated persons. The author argues that the contours of insider trading liability have come to be shaped by two opposing notions: the parity of information norm and the economic efficiency norm. In their sophistication, these insider trading regimes easily match the U.S. federal securities law on insider trading; from a comparative perspective, therefore, they offer attractive alternatives to the U.S. model. A broad proscription inspired by the parity of information norm augurs well for the small investor. Yet, the carve-outs found in these regimes also demonstrate the need to permit economically desirable activities - and importantly, to guard against the "chilling" effect on economic efficiency from an over-enthusiastic pursuit of the parity norm. The author analyzes how these jurisdictions have attempted to resolve the resultant tension; this is instructive first, for the policy choices made and second, for the techniques by which the legal draftsmen gave effect to the policy choices. The information parity / economic efficiency tension also poses challenges for judicial interpretation. Insofar as there is legislative ambiguity regarding activities that are arguably desirable, the judiciary is potentially called upon to resolve this tension. The author identifies a few areas where such an occasion might arise.