Research On The Insider Criteria

As a country owning the most developed security market in the world,the United States has always been the model of other countries in the security legislation. Among these the insider trading regulation is especially concerned. However, since the case that SEC sued Dorozhko happened, the criteria of insider which had set up for years has been challenged a lot. This paper aims to start from the insider trading regulation history, to explore information about the insider standard----the information possession standard, the fiduciary standard and the cheating investor standard.According to the information possession standard, once the investor obtained the inside information and traded on the basis of the information, he can become qualified as an insider. While under the fiduciary standard, it is whether the investor violated he fiduciary duty that decides whether he can be an insider. It contains two part: fiduciary standard under the classical theory and under the misappropriation theory. The classical theory standard focus on the violation of fiduciary duty to the shareholders, while the misappropriation theory focus on duty to the source of the information. The two part together constitute the fiduciary standard. Also, as supplement, the tipper theory makes standard for tippers and tippee.However, with the development of insider trading, the fiduciary standard more and more exposed its defects when facing brazen fiduciary, tippee liability in the absence of a tipper’s personal benefit and liability for the non-fiduciary thief. So, the cheating investor standard becomes more and more welcomed. Under the cheating investor standard. investors can become an insider if he illegally obtained and used the insider information and lead the illegal information advantage to security trade.After the research, the author find that the current standard----the fiduciary standard is in tension with the goals of the insider trading regulation in some extent.Also, the basic theory for the standard advocates that the insider has fiduciary duty to shareholders which turns out to be a fiction. At the same time, the theory can’t give answer to the question that why we should protect the control right of information for the source of information. The basic theory has problems to be self-consistent. As for the information possession standard, it has the defect that aims to eliminate all the information asymmetry and attacks too wide. To be in coordination with the goal of insider trading regulation, the author thinks that the cheating investor standard should be and can be set up as the criteria of insider. The standard is in coordination with the goal of insider trading regulation in both connotation and extention. Also, it can solve the problems we meet in facing brazen fiduciary, tippee liability in the absence of a tipper’s personal benefit and liability for the non-fiduciary thief. In addition, the standard can be the criteria of insider which has been turned out both in legislative reference of other countries and the judicial practice of the United States. Finally,the author thinks China also should give up the fiduciary standard which has not been set up yet, and establish the cheating investor standard to be the criteria of insider.