Study On The Theories Of American Insider Trading Liability

Law changes as things change. The adjustment to the securities law system is demanded to actively develop the capital market. On October 27^th, 2005, the Standing Committee of the National People's Congress examined and adopted the "Securities Law". The new version of the "Securities Law" has a significant impact on China's capital market and the overall economy. However, this does not mean that the theoretical study of insider trading legislation has already matured. In fact, compared to the American insider trading legislation, the insider trading provisions of China's "Securities Law" are too principled and too simple to resolve the practical controversies. By examining the legislative and judicial practice of American insider trading, and analyzing the evolution of insider-trading liability theory, the author puts forward several proposals to perfect China's anti-insider trading legislation. The thesis includes six parts:The first chapter expounds the basic definition related to insider trading, analyzes the necessity of prohibiting insider trading, and introduces American legislation on insider trading. American anti-insider trading laws and rules do not expressly provide the conditions that constitute insider trading. Courts create many principles of liability in the process of actual trial. After the jurists review and summarize these principles, the insider-trading liability theories are formed.In the second chapter, the author examines the development of "disclose or abstain from trading" rule and equal access to information theory, and analyzes the distinction between equal information rule and equal access to information theory, as well as the doctrinal rationale of equal access to information theory. Based on equal access to information theory, anyone who possesses material undisclosed information bears the corresponding "disclose or abstain from trading" duty.The third chapter expatiates on the establishment of fiduciary duty theory and its doctrinal foundation, tries to analyze the defect resulting from introducing common-law fraud into fiduciary duty theory, and explores the debate between "possession" and "use". According to fiduciary duty theory, corporate insiders who use material undisclosed information obtained by their positions for trading, have violated the fiduciary duty to the company's shareholders, and should bear responsibility for insider trading.The fourth chapter is about the development of tipper-tippee theory and temporary insider theory. The author analyzes the shortcoming of this theory in terms of uncertainty. Under tipper-tippee theory, a tippee who uses the inside information for trading is liable for insider trading only if the tipper violates the fiduciary duty to the company's shareholders and if the tippee knows or should know the breach.The fifth chapter expounds the development and doctrinal foundation of misappropriation theory, introduces Rule 10b5-2's effect on misappropriation theory, explores the difference between equal access to information theory and misappropriation theory, and analyzes the significance and loopholes of this theory. Misappropriation theory prohibits corporate outsiders who violate their fiduciary duties to the sources from using important non-public information for securities transactions.The last chapter provides an overview of Chinese law and regulation governing insider trading and analysis of the defects arising from the relevant provisions. The author concludes that there is the need for more detailed provisions of insider trading. First, the adoption of American misappropriation theory helps to avoid the expense of individual interests. The tipper-tippee theory can define more clearly the responsibilities tippers and tippees should bear. Second, "awareness with defenses" test should be adopted to solve the causal relationship between the possession of inside information and securities transactions. Finally, given the legislative practice of America, Taiwan and Japan, Chinese securities law should incorporate family members, issuers and information producers outside the company into the subject of insider trading.