Constructive Ambiguity and Judicial Development of Insider Trading

19 Pages Posted: 14 Dec 2018

See all articles by Jill E. Fisch

Jill E. Fisch

University of Pennsylvania Carey Law School; European Corporate Governance Institute (ECGI)

Date Written: 2018


The Texas Gulf Sulphur decision began what has become a fifty-year project of developing U.S. insider trading regulation through judicial lawmaking. During the course of that project, the courts developed a complex, fraud-based approach to determining the scope of liability. The approach has led, in many cases, to doctrinal uncertainty, a result that is reflected in the recent decisions in Newman, Salman, and Martoma.

In the face of this uncertainty, many commentators have called for a legislative solution. This article argues, however, that the true challenge of insider trading regulation is a lack of consensus about the appropriate scope of the prohibition. On the one hand, insider trading regulation seeks to address the potential unfairness resulting from wealth and privileged access. On the other hand, it seeks to preserve sufficient incentives for research to promote market efficiency.

In the face of these competing policy concerns, a legislative definition is likely to be both under- and over-inclusive. Judicial lawmaking may offer a superior alternative because it, unlike legislation, can employ constructive ambiguity—deliberately vague standards that require contextual analysis. By enabling policymakers to maintain ambiguity about the permissible limits on the acquisition and use of market-sensitive information, judicial lawmaking helps to balance the competing concerns that animate the debate over insider trading.

Keywords: Securities regulation, insider trading, Securities & Exchange Commission v. Texas Gulf Sulphur, TGS, fraud, judicial lawmaking, United States v. Newman, Salman, Martoma, Dirks v. SEC, Supreme Court of the United States, SCOTUS, fiduciary duty, material nonpublic information

JEL Classification: G14, K22, K42

Suggested Citation

Fisch, Jill E., Constructive Ambiguity and Judicial Development of Insider Trading (2018). SMU Law Review, Vol. 71, Pg. 749, 2018, U of Penn Law School, Public Law Research Paper No. 18-41, Available at SSRN:

Jill E. Fisch (Contact Author)

University of Pennsylvania Carey Law School ( email )

Philadelphia, PA 19104
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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