Regulatory Ritualism and Other Lessons from the Global Experience of Insider Trading Law

Abstract

There is growing consensus that the insider-trading regime in the United States, the oldest in the world, is in need of reform. Indeed, three reform bills are currently before Congress, and one recently passed the House with overwhelming bipartisan support. As the U.S. considers paths to reforming its own insider trading laws, it would be remiss to ignore potential lessons from global experimentation and innovation, particularly in light of the fact that so many insider trading regimes have been recently adopted around the world.

Any such comparative study should, however, be cautious in drawing its conclusions. Reformers should pay close attention to the political, social, and economic motivations that might explain the recent trend toward near-universal adoption of insider trading regulations around the globe. Evidence suggests that at least some countries have adopted their insider trading regimes ritualistically. Regulatory ritualism occurs where great attention is paid to the institutionalization of a regulatory regime without commitment to or acceptance of the normative goals that those institutions are designed to achieve. If countries' insider trading regimes are adopted only ritualistically (e.g., to receive geopolitical carrots or to avoid geopolitical sticks), then comparative analysis should account for the fact that these regimes may not reflect its citizens' (or markets') lived experience or normative commitments.

This Article aids the effort of reforming our insider-trading laws here in the United States by considering lessons that can be learned from the global experience. Part I makes the case that the insider-trading regime in the U.S. is in need of reform. Part II charts the global rise of insider trading regulation in the twentieth century. Part III summarizes important features of representative regimes around the globe (e.g., in Japan, Europe, China, Russia, India, Canada, Australia, and Brazil). Part IV notes the trend toward universality in insider trading regulations and considers some of the moral and economic conclusions scholars and regulators have drawn from this trend. Part V identifies the problem of regulatory ritualism, and its implications for global enforcement and compliance. Part VI then turns to the constructive exercise of determining what can be learned from the global experience of regulating insider trading with an eye to reforming the American regime.

Keywords: insider trading, white collar crime, comparative, securities enforcement, securities regulation, regulatory ritualism, human rights, securities fraud, Europe, Brazil, Canada, India, China, Russia, Japan