COMPANY LAW Essay Example | Topics and Well Written Essays - 1500 words

COMPANY LAW - Essay Example The deregulatory claims are premised on the view that inside information fosters market efficiency and that granting the property rights to security managers is an efficient compensation scheme. Prohibition of insider trading in European Union is justified on the basis of equity and fairness to all market participants. Generally, both firms, shareholders and the society benefit from the accurate pricing of the securities since it leads to efficient allocation of capital and decreases the volatility of the prices in the market thus attracting the risk-averse investors. The firm will also benefit from the accurate pricing through increase investor confidence in the security and reduction in monitoring costs. According to the proponents of deregulation, insider trading will benefit the society since it moves the price to a level which it would be if the inside information was available to the public. Henry Manne, asserts that insider trading leads to price accuracy thus it is an efficie nt mechanism for compensating the security managers for the release of stock information2. The aim of the new EU rules was address the divergence of the member states in their approach to market abuse3. Variations in the national laws have allowed many security managers to escape prosecution for insider dealing. Some countries even lack the sanction powers while other countries do not have sanctions for certain market manipulation offences. For instance, Bulgaria does not have any criminal laws to govern insider trading while other countries impose only up to five years maximum imprisonment for inside trading related offences. Another problem to the effectiveness of the sanctions is the Bank secrecy laws in some countries. For instance, French authorities have faced challenges in tracing the persons who executed order in Paris Stock Exchange via the Swiss banks. Some of the problematic effectiveness of sanctions includes the gaps in regulation of commodity derivatives, lack of legal certainty of the market abuse directive, the gaps in regulating new markets, platforms and over the counter instruments in the emerging markets. EU Directive 2003/6/EC24 adopted in 2003 updated the legal framework on insider dealing and market manipulation behavior. However, several market, technological and legislative changes have led to changes in the financial landscape thus creating loopholes for insider dealing. The Market Abuse Directive (MAD) faced numerous challenges in curbing insider trading. For instance, Section 3.1.1 of the MAD covered limited financial instruments