BY WILLIAM K.S. WANG, 69 U. Miami L. Rev. 811 (2015).
Introduction: Professor John P. Anderson’s article, What’s the Harm in Issuer-Licensed Insider Trading?, argues that my “Law of Conservation of Securities” has no moral relevance to the question whether to allow such trading.
Although the Law of Conservation of Securities does not resolve the issue, the “law” does identify the victim(s) harmed by each stock market insider trade and aids in ascertaining the indirect effects of such harm, such as wider bid-ask spreads by market makers and impaired investor confidence—both of which, in turn, increase firms’ cost of equity capital. Specifying the actual victims of insider trades also helps to determine whether the market would know how much to adjust share prices for the possibility of insider trading and whether such adjustments (even if accurate) would compensate all investors for the risk of injury from an insider trade. With company-approved insider trading, the question also arises whether the decisionmakers adequately consider the interests of non-shareholder victims.
Some argue generally against the regulation of victimless crimes, but my Law of Conservation of Securities demonstrates that each stock market insider trade actually injures specific individuals. Whether to permit an insider trader to “take advantage” of these individuals is a separate question whose answer likely depends in part on the direct and indirect consequences of the Law of Conservation of Securities. . . . Full Article.
Recommended Citation: William K.S. Wang, The Importance of “The Law of Conservation of Securities”: A Reply to John P. Anderson’s “What’s the Harm in Issuer-Licensed Insider Trading?”, 69 U. Miami L. Rev. 811 (2015).