Insider Abstention
38 Pages
Posted: 18 Sep 2002
Last revised: 27 Sep 2010
Harvard Law School; European Corporate Governance Institute (ECGI)
Abstract
According to conventional wisdom, insiders' use of private information to abstain from trading raises the same policy concerns as insider trading. This widely held perception has dominated much of the academic debate over the regulation of insider trading. I show that this view is flatly incorrect: as long as insiders cannot trade while in possession of nonpublic information, their ability to use nonpublic information to abstain from trading does not make them better off than public shareholders. I then explain why insider abstention cannot give rise to the same type of economic distortions that might be associated with insider trading. I conclude by analyzing the implications of my findings for a number of issues in insider trading regulation, including the use vs. possession debate and the Rule 10b5-1 safe harbor.
Key Words:
Keywords: inside information, insider trading, securities regulation
JEL Classification: G18, G38, K22
Suggested Citation:
Suggested Citation
Fried, Jesse M., Insider Abstention. Yale Law Journal, Vol. 13, pp. 455-492, 2003; UC Berkeley Public Law Research Paper No. 330520. Available at SSRN: https://ssrn.com/abstract=330520 or http://dx.doi.org/10.2139/ssrn.330520
