A profitable trade – the record on insider dealing and market abuse

Since insider dealing and market abuse were made unlawful, there have been few cases of either brought to the courts and even fewer proved successfully. Why is this? asks Professor Paul Barnes of Nottingham Business School. Perhaps they are not as prevalent as generally believed or perhaps it is due to the difficulty in proving a case. He argues that both insider dealing and market abuse are common but it is difficult to identify the culprits (certainly in the case of insider dealing) although the law now is more helpful to the prosecutor than it was.

Professor Paul Barnes is the author of ‘Stock Market Efficiency, Insider Dealing and Market Abuse’, published by Gower earlier this year. He has acted as an expert witness in all the large criminal cases. See his website, www.paulbarnes.org.uk.

The size of the problem

According to most newspaper commentators, insider dealing is widespread. Insider dealing most commonly occurs at the time of a takeover bid and the general view is that it occurs in almost every bid. Unfortunately, there has not been an official estimate for many years. The nearest is that by D&B (2006) (‘D&B’ [1]) at the FSA, who found that between 24% and 32% of takeover bids each year during the early 2000s involved insider dealing which significantly moved the target’s share price.