Insider Abstention

38 Pages Posted: 18 Sep 2002 Last revised: 27 Sep 2010

See all articles by Jesse M. Fried

Jesse M. Fried

Harvard Law School; European Corporate Governance Institute (ECGI)


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

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: or

Jesse M. Fried (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Griswold Hall 506
Cambridge, MA 02138
United States
617-384-8158 (Phone)


European Corporate Governance Institute (ECGI) ( email )

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

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