In the increasingly interdependent national securities markets, the regulation of insider trading activity has taken on increasing importance. Universal recognition of the illegality of such activity may one day lead to universal prohibition and enforcement across national boundaries. However, today national regulation and enforcement regimes vary in their laws and enforcement of insider trading. The following is a description of cooperative efforts between national regulators to coordinate international efforts in this area.
PART I. INTRODUCTION
The securities markets(1) of both the advanced industrial and developing market economies have undergone dramatic change in recent years. This change has taken the form of both globalization(2) and integration(3) of these markets, creating "internationalized" markets(4) out of formerly purely national ones. While this development has been heralded as a boon to the investment community,(5) it has created a fundamental problem for the national regulators of securities markets on how to apply purely national securities laws and regulations to international securities transactions that may involve foreign national investors, foreign national issuers, and foreign national markets as well as those of the regulator's own country. This problem involves both issues of substance (e.g., the applicable body of law, the conduct of the investigation, and the gathering of evidence) as well as procedure (e.g., the existence of jurisdiction, the exercise of jurisdiction, and the service of process).
The problem of securities regulation and enforcement in international markets is particularly acute for the principal U.S. regulatory body, the
Securities and Exchange Commission (SEC). Because of the size and
sophistication of U.S. capital markets, the U.S. securities regulatory regime exerts substantial influence on the behavior and regulation of foreign and international securities markets.(6) Further, by allowing financial innovation and facilitating international capital mobility, the U.S. regulatory system has increased the operational efficiency of securities markets.(7) This has lead to increased international securities issuance and trading. "The SEC repeatedly has stated . . . that it is seeking to encourage and foster the development of international capital markets, and that it believes such development should occur in both the primary and secondary trading of securities."(8) The SEC and its fellow regulatory bodies have attempted to develop responses to deal with internationalized markets. This note will outline the responses to a particularly salient problem: insider trading in publicly registered securities.
Part II describes the internationalization of the securities markets. Part III discusses the regulation of insider trading in the United States and the problems that internationalization has caused for U.S. regulators. Part IV deals with the major regulatory responses, of both the SEC and foreign regulators, to the challenges posed by international insider trading. Part V concludes that the most advanced cooperative effort at insider trading
regulation, the European Economic Community Directive on Insider Trading (EEC Directive), while attempting a harmonized approach to regulation, falls short of its goal and represents primarily the mutual recognition of distinct national insider trading legislation.
A. The Phenomenon of Internationalization
The internationalization of commercial activity as a phenomenon has gained increasing currency in the economic, political, and legal discourse of our time. This is so because although international trade has been important historically, its rate of growth accelerated tremendously in the 1970's and 1980's, exceeding the underlying rate of economic growth. For example, while world commodity output grew at an average rate of just over four percent between 1963 and 1982, world exports grew at an average rate of just under six percent. …