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

62 4 Insider Knowledge and Insider Trading
For large joint-stock corporations, the duty to publicly disclose facts relevant to
the share price under the statutory provisions against insider trading is part of their
general public relations policy. Since maintaining a consistent share price is one
of the objectives pursued by the public relations work and the investor relations
departments of most major corporations, the interests of the joint-stock corporation
go hand in hand with the intentions of the statutory provisions against insider trading.
Compliance with the duty of public disclosure is becoming an element in the
general information policy of the corporation. 25
Corporations can also substantially allay any compliance fears stemming from
the comparative imprecision of the legal concept of the “price-sensitive fact”, which
they have a duty to disclose, by following the maxim, “In dubio, opt for disclosure!”
26 The law also follows this maxim by extending the requirement for ad hoc
public disclosure of price-sensitive facts in that corporations must now inform the
public about such facts prior to the annual general meeting; merely informing those
present at the joint-stock corporation’s annual general meeting is no longer sufficient
to meet public disclosure requirements. 27
It had been feared that the new statutory provisions on insider trading would
impair the functional capacity of the stock exchange because trading in the
corporation’s shares frequently had to be suspended following notification of a
price-sensitive fact. Since the suspension of trading often leads to rumors about the
corporation concerned, this was assumed to have a destabilizing effect on the capital
market. However, the suspension of trading is evidently a problem that the stock
exchange is capable of addressing. Nowadays, trading is suspended only briefly after
publication of a price-sensitive fact, not for an entire day. 28
We can assume the deterrent effect of the laws against insider trading to be
especially significant. For instance, a Swiss banker told the author in 1995 that
Switzerland’s laws against insider trading had been in force for three years, but in
all that time, nobody had yet been convicted of any insider trading offense. It seems
reasonable to attribute this not only to a high level of undetected offenses but also,
as already mentioned, to the strong deterrent effect on individuals who contemplate
passing on a tip.
Insider knowledge is a universal phenomenon that goes far beyond the utilization
of insider knowledge on the stock exchange. It is clear from the overall phenomenon
25 Thus H.-G. BRUNS: “Finanzpublizität nach Inkrafttreten des 2. Finanzmarktförderungsgesetzes
– Zur praktischen Umsetzung bei Daimler-Benz” [Publicity duties under Germany’s Second
Financial Market Promotion Act – practice at Daimler-Benz], in: J. BAETGE: Insiderrecht und
Ad-hoc-Publizität, Düsseldorf (IDW-Verlag) 1995, pp. 110ff.
26 Thus Caspari in J. BAETGE: Insiderrecht und Ad-hoc-Publizität [Law on insiders and ad hoc
publicity], Düsseldorf (IDW-Verlag) 1995, p. 81.
27 Cf. K. J. HOPT: “Das neue Insiderrecht nach §§ 12 ff WpHG – Funktion, Dogmatik,
Reichweite” [Germany’s new insider trading law – function, dogmatics, scope], in: Das Zweite
Finanzmarktförderungsgesetz in der praktischen Umsetzung. Bankrechtstag 1995, Berlin, New
York (Walter de Gruyter) 1996, p. 19.
28 Cf. SCHWARZE (1995), p. 105.