The Ethics of Banking: Conclusions from the Financial Crisis (Issues ...

52 4 Insider Knowledge and Insider Trading
efficiency of the stock exchange, 2 most jurists reject that argument and favor the
prohibition of insider trading, drawing on arguments from justice, particularly the
principle of parity of rights for all shareholders and that of legal certainty and legal
stability at the stock exchange. 3
This conflict between the standpoints from which economists and jurists assess
insider trading reveals a deeper-seated difference between the normative criteria of
the two disciplines. While the economists have a tendency to concentrate on the
efficiency aspect of allocation and the allocative function of the capital market, the
jurists generally argue from a standpoint that takes account of several normative criteria.
In its attempt to synthesize the criteria of efficiency and justice, here the ethical
economy approach is closer to the juristic approach than to the purely economic
approach, since the former is more open to the integration of several normative
criteria.
Compared with a purely economic view, the judgment we arrive at from the perspective
of ethical economy or economic ethics is of a higher order, because it aims
to incorporate both aspects of the good – the aspects of efficiency and justice – into
its criteriology. If we apply this to the capital market and the issue of insider trading,
the question to be addressed from the perspective of economic ethics is not whether
insider trading is either efficient or fair, but whether it is both efficient and fair.
If the dimension of law is added to that of economic ethics, the further criteria of
legal certainty, the calculability of rules, and the justiciability of rule-violations in
the capital market enter our field of vision. The law is defined both by its ability to
guarantee certainty of expectation, and hence legal certainty, and by its capacity to
render potential conflicts justiciable, i.e. adjudicable and enforceable before a court.
The question of the ethical economy of the capital market and the permissibility
of insider trading is twofold in nature. In the first place, we have to ask questions
about the institutional ethics and economics of the capital market, considered as
an institution. These are part of the ethics and economics of the broader cultural
domain or subsystem of society that we call the economy. By those lights, it is also
an inquiry that touches on business law. Secondly, though, if we ask questions about
the economic ethics of insider trading, we are looking into the personal ethics of
those who make a living by operating within the rules of the stock exchange.
A duty is derived from the purpose or the teleology of the institution, from the
idea of justice, and from the requirements of legal certainty. The duties applicable
in stock-exchange ethics and the law are determined partly by the purpose of the
2 Cf. ENGEL (1991) and DIETER SCHNEIDER: “Wider Insiderhandelsverbot und die
Informationseffizienz des Kapitalmarkts” [Against prohibiting insider trading and the informationefficiency
of the capital market], Der Betrieb,46(1993), Heft/Issue 29, pp. 1429–1435.
3 Cf. B GRUNEWALD.: “Neue Regeln zum Insiderhandel” [New regulations on insider trading],
Zeitschrift für Bankrecht und Bankwirtschaft, 2(1990), No. 3, pp. 128–133, and K. J. HOPT:
“Europäisches und deutsches Insiderrecht”, Zeitschrift für Unternehmens- und Gesellschaftsrecht,
20 (1991), pp. 17–73.