The Knowing Possession versus Use Debate on Insider Trading Prohibition under Securities Exchange Law
| Autor: | Cheng-Yong Liu, 劉成墉 |
|---|---|
| Rok vydání: | 2009 |
| Druh dokumentu: | 學位論文 ; thesis |
| Popis: | 97 This thesis is to explore the "Knowing Possession" versus "Use" debate on insider trading prohibition under Securities Exchange Law, focusing on: does the plaintiff need to demonstrate the causal connection between the material nonpublic information and the defendants'' trading? Commentators supporting "Knowing Possession" standard claim that the plaintiff need not prove that the defendants purchased or sold securities because of the material nonpublic information that they knowingly possessed. It is sufficient if the plaintiff proves that the defendants purchased or sold securities while knowingly in possession of the material nonpublic information. However, Commentators supporting "Use" standard deem that the plaintiff must, at a minimum, prove that the suspect used the information in formulating or consummating his trade. In United State, this debate originated from a circuit split among federal courts as to insider trading’s "Scienter" requirement. In order to settle the dispute, SEC promulgated Rule 10b5-1 in 2000, imposing liability when a person is "aware" of the material nonpublic information when they participate in a securities trade. Nevertheless, U. S. courts and commentators still doubt whether "aware" standard really resolve the problem. In Taiwan, article 157-1, Paragraph 1 of the Securities and Exchange Law imposes liability when a person is learning about the material nonpublic information when they trade. Even so, the reasons of amendment to that article in 1988 revealed that insider trading is someone "using" the material nonpublic information to trade. The split opinions showed that there is "Knowing Possession" versus "Use" debate in Taiwan since 1988. The author discusses the debate in Taiwan, and advocates possible solutions to the dilemma in this thesis. The scheme of this thesis comprises six chapters as follows: Chapter I illustrates the motives, methods and realm of this thesis. Chapter II explores the theoretical underpinnings of insider trading regulation. First of all, the author illustrates several theories in U.S., and then explores the theoretical underpinnings of insider trading regulation in Taiwan. In the end, the author stands for the Information Property Theory, and advocates that the insider trading prohibition is more easily justified as a means of protecting property rights in information than as a way of protecting investors. And that property right is assigned to corporation paying to produce information. The rationale for assigning the property right to the firm is precisely the same as the rationale for prohibiting patent infringement or theft of trade secrets: protecting the economic incentive to produce socially valuable information. Chapter III illustrates the "Knowing Possession" versus "Use" debate on insider trading prohibition in U.S. before 2000. The federal judicial decisions in three recent cases frame the debate. The Second Circuit in United States v. Teicher stated in dicta that possession of material nonpublic information was the correct standard for courts to use in cases of insider trading. In SEC v. Adler and United States v. Smith, the Eleventh and Ninth Circuits, respectively, found that actual use of nonpublic information was necessary to find that an insider trading violation occurred. Chapter IV explores the recent situation of the debate in U.S. The SEC promulgated Rule 10b5-1 in 2000 to resolve the circuit split between the possession or use standards in cases of insider trading. Although debate existed over whether or not the SEC should offer a formal definition, the SEC determined that the time had come to provide a definition and contended that "aware" standard including several affirmative defenses best satisfy the goals of insider trading laws to protect investors and the market. However, most U.S. courts and some commentators don’t agree with SEC on "aware" standard, and still support "Knowing Possession" or "Use" standard. In sum, this debate exists in U.S. until now. Chapter V illustrates the "Knowing Possession" versus "Use" debate on insider trading prohibition in Taiwan. As we know, article 157-1, Paragraph 1 of the Securities and Exchange Law imposes liability when a person is learning about the material nonpublic information when they trade. However, the reasons of amendment to that article in 1988 revealed that insider trading is someone "using" the material nonpublic information to trade. The split opinions showed that there is "Knowing Possession" versus "Use" debate in Taiwan. After carefully studying major opinions made by courts and commentators, the author uses the former analysis of Chapter II ~ IV to discuss the debate in several aspects, including the theoretical underpinnings of insider trading regulation, Principles of Proportionality, Principles of the Clearness, and Subjective Constitutive Requirement and its proof. Finally, this thesis argues, for a violation of insider trading regulation, the plaintiff must, at a minimum, prove that: (1) there is a causal connection between the material nonpublic information and the defendants'' trading; (2) no matter having any intention or not, the defendants should willfully violate insider trading regulation. Chapter VI reviews all discussions in this thesis. The author advocates two possible solutions to the dilemma. |
| Databáze: | Networked Digital Library of Theses & Dissertations |
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