The Insider Dealing Directive and its Implementation in the United Kingdom
| Author | Vanessa Edwards |
| Published date | 01 September 1996 |
| Date | 01 September 1996 |
| DOI | http://doi.org/10.1177/1023263X9600300305 |
| Subject Matter | Article |
Vanessa Edwards *
The
and
its
Implementation
in
the
United
Kingdom
§1. Background
Much has been written about the theory of insider dealing and the need - or lack of need
- for regulation. 1The traditional view is that it is undesirable for securities to be
bought or sold by someone in possession of confidential information which is not gen-
erally known
and
which, if it were known, would affect the price; 2the traditional
rationale is that investor confidence as a whole is undermined if potential investors fear
that they will not be able to deal on an equal footing with others, and that this may
'prejudice the smooth operation of the market'. 3The heterodox view, promoted in
particular by Manne, 4embraces a number of elements: insider dealing is a victimless
crime; by increasing the volume of sales it increases market efficiency; it is justifiable
remuneration for executives. Among advocates of the traditional view there is further
scope for debate as to the best means of dealing with the problem: are criminal penalties
either appropriate or effective and, if not, what sort of sanction would work?
Whatever the merits of the contrasting theories, regulation of insider dealing in one way
or another is in fact fast becoming the norm. Within the European Community, France
*Legal Secretary, Court of Justice of the European Communities. The author would like to thank Paul
Fanner
for his comments.
1. See B. Hannigan, Insider Dealing, (Kluwer, 1988),6-15, for a lucid overview of the arguments, and
J. Suter, The Regulation
of
Insider Dealing in Britain, (Butterworths, 1989), 14-49, for a thorough
theoretical analysis. Both are comprehensively annotated. For a much more concise summary of the
different theories, see J. Dine, EC Company Law, (Chancery Law Publishing, 1993), paras 13-2 -
13-9, and for an excellent distillation of the rationale for regulation see the introduction to B. Rider,
Insider Trading, (Jordans, 1983).
2. For example, knowledge of an unannounced pending takeover bid likely to enhance theprice of shares
in the target company, or knowledge before the figures have been made public of a significant rise or
fall in a company's profits.
OJ.
L334/30.
4. H.G. Manne, Insider Trading and the Stock Market, (The Free Press, 1966).
MJ 3 (1996) 287
was the first to legislate in 1970; in the same year, Germany introduced a voluntary
code of conduct. In the United Kingdom, insider dealing in connection with takeovers
was prohibited by the Takeover Panel's non-statutory code" in 1976; a general prohib-
ition was enacted in 1980. 6Sweden passed insider dealing legislation in 1985, Den-
mark in 1987, Greece and Finland in 1988, Belgium, the Netherlands and Austria in
1989, Ireland in 1990, and Spain, Portugal, Luxembourg and Italy in 1991. 7Mean-
while in 1989, after more than twenty years' discussion within the Community of the
described as 'the most advanced cooperative effort among national securities regulators
to date' 9and 'the first explicit step taken towards regulating the single financial market
of
the Community'. 10
This article focuses particularly on the EC insider dealing legislation and its implemen-
DealingDirective, the legal basis on which it was adopted and its aims and structure,
the substantive provisions of the directive are discussed in depth, with references to
their implementation in the United Kingdom and, where appropriate, discussion of
problems arising in that context.
§2. History
Commentators on the Directive frequently refer to the 'speed with which it was adop-
ted'. 11 While it is true that only 29 months separated the Commission's first proposal
5. City Code on Take-overs and Mergers, 1976 edn. See Suter, The Regulation
of
Insider Dealing in
Britain, 264-280 for a discussion of the Code's rules on insider dealing. Note also that in the UK the
Stock Exchange promulgated in 1977 a 'model code' for directors' share dealings which contained
provisions relating to insider dealing: see Suter, ibid., 255-264. Notwithstanding France's lead in
legislating against insider dealing, A. Tunc describes the requirements of the Model Code as 'striking'
in comparison with the French law, and states: 'It is a lesson to see how severely [theformer Council
for the Securities Industry, the pre-Big Bang City watchdog] considers unfair insider dealings': 'A
French Lawyer Looks at British Company Law', 45 Modern Law Review (1982), Iat 3.
6. Pt Vof the Companies Act 1980, subsequently re-enacted in the Company Securities (Insider Dealing)
1993, implementing the Directive. The Companies Bill 1973 prohibited insider dealing and included
civil and criminal sanctions, but was never enacted.
7. See E. Gaillard (ed.), Insider Trading: The Laws
of
Europe, the United States and Japan, (Kluwer,
1992).
[1989] 0.1. L334/30.
9. Written in 1991-1992: C. V. Baltic, 'The Next Step in Insider Trading Regulation: International
Cooperative Efforts in theGlobal Securities Market', 23 Law &Policy in International Business, 167.
10. R. Fornasier, 'The Directive on Insider Dealing', 13Fordham InternationalLaw Journal (1989-1990),
149 at 162.
11. 1. Pingel, 'The EC Directive of 1989', in Gaillard (ed.), Insider Trading: The Laws
of
Europe, the
United States and Japan.
288 MJ 3 (1996)
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