Academic journal article Journal of Financial Management & Analysis

Internal Dealing and Insider Trading: Focus on Financial Market Discipline in Italy Empirical Research Findings

Academic journal article Journal of Financial Management & Analysis

Internal Dealing and Insider Trading: Focus on Financial Market Discipline in Italy Empirical Research Findings

Article excerpt


During the last years we faced a general consciousness for what corporation governance is concerned, especially for financial markets efficiency, stability and transparency. In fact, we have been witnessing a liberalization trend that created a wave of worldwide consensus regarding the necessity of giving corporations more freedom to do business. According to these voices, this greater autonomy brings efficiency, profit and augmented welfare. Nevertheless, we also witnessed some cases in which very important corporations (in terms of dimension, ENRON for example) had influenced autonomy strategies of fraud and investor deception1.

The long and cumbersome work of defining and implementing a European financial market discipline, carried along with free commerce and ECC market, is connected with law policies carried along by the Member States, in some cases born by contingencies or by internal policies purposes. Starting from 2004 till 2006 in Italy, for example, new regulations were introduced allowing the revision of financial market discipline. These new rules, introduced after compulsory reception of new European Directives (among which the most relevant is certainly the European Directive 6/2003 - Market Abuse Directive) were needed also to provide a political answer to the huge default hitting the Italian financial system, starting with Cirio and Parmalat, to end at the Argentine bonds default crisis, and to the recent notes about banking system restructuring2.

By accepting the European Directive 6/2003 Market Abuse Directive and the renaming of comma 7 art. 1 14 of "Testo Unico della Finanza" it is changed into the so called law internal dealing. With the Anglo-Saxon term internal dealing we identify a quoted corporation buy and sell transactions by their own Administrators and top managers. This careful attention to market transparency has its real purpose in trying to avoid, as much as possible, the abuse of confidential data, known as insider trading, that pinpoints trade-offs over financial tools, performed by subjects, that depending upon their role in the corporation, have access to not yet public confidential data which could sensibly influence stock quote trends (see rule 10b-5 issued in 1942 by Securities Exchange Commission).

The European Directive 6/2003 makes an important step forward, foreseen, in each Member State, the naming of a unique administrative authority (for Italy the CONSOB), with the exception of Justice Department Authority, (Article 11). Along with the Directive 2004/ 39/CEE, better known as MiFid Directive (Market in Financial Instruments Directive), the new Directive 2003/6/CE about market abuse is moving toward increasing more and more the financial markets transparency level, especially by forcing behaviour and organizational duties to people who have access to confidential data. Always in the corporation governance we analyzed the European Directive 2004/109/CE, which aims at ruling some ties regarding disclosures about share issue where its financial tools are negotiated in a disciplined European market. The European Union zeros in on promoting financial European market integration by a better access to data and quality data improvement. Internal dealing, therefore, is a very complex phenomenon dealing not only with manager's behaviour, but also with markets and their discipline.


Capital markets play an important role in the economy by making possible the transfer of funds from savers (investors) to project developers (corporations). Corporations give back to investors a part of propriety along with the correspondent part on the results. In the case of deferred transactions, confidence amongst players is a fundamental element. The uncertainty regarding the possibility of fulfilling all pre-determined conditions of the transaction, and the uncertainty regarding the characteristics of the object of the transaction can undermine the confidence between both parts. …

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