An Empirical Comparison of Insider Trading Enforcement in Canada and the United States

Abstract

Canadian and American securities market regulators have differing approaches to enforcement. In this article, we present the results of an empirical study comparing a highly salient aspect of securities enforcement—insider trading—in Canada and the United States. We reach a number of important findings. First, adjusting for trading volume, Canada has a greater intensity of enforcement when compared to the U.S. Second, Canadian securities regulators primarily concern themselves with insider trading in Canadian companies, while the SEC brings more enforcement actions involving insider trading in companies incorporated outside the U.S. Third, we do not find significant differences in the fraction of actions involving multiple traded companies between Canada and the U.S. However, we do see that U.S. investigations involve a significantly greater number of defendants and that the SEC is more than twice as likely to pursue tippers or tippees (although we observe no significant difference in the likelihood that top insiders will be pursued). Fourth, we find that U.S. cases are significantly more likely to result in a criminal referral leading to prosecution. Fifth, we find that settlements are more likely in the U.S. Finally, in terms of monetary penalties, we find no significant difference between the two countries. However, we do find that Canada is more likely to apply a bar as a sanction, but if a bar is applied, the U.S. is more likely to make the bar permanent. These findings neither demonstrate a need for systemic reform in either jurisdiction nor suggest that centralized regulation is necessarily better from an enforcement perspective. But, they do provide insight into the differing points of regulatory emphasis in two jurisdictions. From a comparative perspective, our research thus allows securities regulators to begin to evaluate whether their enforcement approach is optimal on the basis of quantitative data.

Keywords: Insider trading