Common Roots, Divergent Evolution: Insider Trading Doctrine in the United States, Japan, and Germany

Abstract

Many nations ostensibly use (or at least credit) U.S. insider trading doctrine under Rule 10b-5 as the model for their own regulation of insider trading. This phenomenon has occurred in part because of historical and political factors and in part because the United States is seen as (and has wielded regulatory power as) a market leader — an early adopter of regulation with both (a) a well established supervisory and policy-oriented regulatory and enforcement agency and (b) a well developed, disaggregated, public securities market. As a result, the laws of many countries now prohibit identified classes of persons from trading while in possession of material nonpublic information, the central focus of insider trading regulation under Rule 10b-5. Yet, despite seemingly convergent beginnings and a general agreement on the nature of the regulated conduct, operative insider trading principles in the United States (as a rule originator) have evolved to protect different interests and regulate different specific market activities than insider trading rules in other countries. With the foregoing in mind, this working paper describes the common roots and divergent developmental paths of insider trading rules in the United States, Japan, and Germany and endeavors to place them in a meaningful international legal, political, economic, and social context.