210 5 Equity and Shareholders’ Capital
For example, it does not apply to the sale and purchase of the assets of a listed
company (no financial instruments). Neither does it apply to the sale and purchase
of shares of a listed company outside regulated markets (no trading on a regulated
market).
Safe harbours under the Directive on market abuse are limited to stabilisation
measures and share buy-backs.
Lamfalussy model. The Directive on market abuse was the first FSAP measure
to follow the Lamfalussy model. The Market Abuse Directive takes the form of a
level 1 Directive which is subject to delegated law-making at level 2 (Article
17).^365 CESR has adopted extensive level 3 guidance.^366
Prohibition of insider trading. The laws of developed countries generally pro-
hibit insider trading. However, the prohibition does not cover all use of non-public
information. Where should the line be drawn?^367
It is common to explain the scope of the prohibition by theories based on exist-
ing laws. For example, the concept of fiduciary duties is well-known in common
law countries. The scope of the prohibition has therefore been explained by the ex-
istence of fiduciary relationships (fiduciary theory). In the US, section 10(b) of the
Securities Exchange Act of 1934 is a general anti-fraud provision; to bring insider
trading within the section makes it necessary to treat insider trading as a species of
fraud (misappropriation theory).^368
In Community law, the regulation of insider trading does not rest on any exist-
ing private law system. It is a transplant which cannot be explained by theories
based on anti-fraud provisions or fiduciary duties.
According to the preamble of the Market Abuse Directive, the objective of leg-
islation against insider dealing is: “to ensure the integrity of Community financial
markets and to enhance investor confidence in those markets”.^369
The Directive on market abuse not only prohibits insider trading but also re-
quires issuers to disclose information (section 5.9.4). This is reflected in the pre-
amble, which states that insider dealing rules are designed to increase “full and
proper market transparency, which is a prerequisite for trading for all economic
actors in integrated financial markets”.^370 Disclosure is a traditional anti-insider
dealing technique. Typical disclosure obligations which can mitigate the risk of
(^365) Directive 2003/124/EC; Directive 2003/125/EC; Regulation 2273/2003; and Directive
2004/72/EC.
(^366) See Moloney N, EC Securities Law. OUP, Oxford (2008) pp 919–923.
(^367) See the early US cases of In the Matter of Cady, Roberts & Company and SEC v Texas
Gulf Sulphur, 401 F. 2d 833 (2nd Circuit, 1968), cert. denied, 394 U.S. 976 (1969).
Manne argued that insider trading actually benefited market efficiency. Henry Manne,
Insider Trading and the Stock Market. The Free Press, New York (1966).
(^368) SEC Rule 10b5–1 and Rule 10b5–2. United States v. O’Hagan, 117 S. Ct. 2199 (1997).
For O’Hagan and Cady, Roberts, see Langevoort DC, Rereading Cady, Roberts: The
Ideology and Practice of Insider Trading Regulation, Columbia L R 99 (1999) pp 1319–
1343.
(^369) Recital 12 of Directive 2003/6/EC (Directive on market abuse).
(^370) Recital 15 of Directive 2003/6/EC (Directive on market abuse).