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

The Abuse of Insider Knowledge as a Form of Corruption 63
of insider trading and knowledge, therefore, that the utilization of economically relevant
knowledge is tied to statutory regulations, and the law distinguishes between
the type of knowledge that may be utilized for profit and the type – examples being
all knowledge divulged to a doctor, a tax consultant or a father-confessor, which is
covered by a duty of secrecy – that may not be utilized for gain.
The problems of insider trading also touch on the question of which economic
activities may rightfully yield a profit, i.e. the problem of the generation and justification
of profit. This becomes clear from the fact that even in the utilization of
insider knowledge on the stock exchange, distinctions are made once again between
the target groups of the statutory provisions. Thus, on the one hand, much more
stringent provisions are applicable to banks than to state or government agencies,
which are permitted to make use of insider knowledge.
Refraining from acquiring or selling insider securities on the basis of insider
information is not a purchase or sale transaction and is not therefore covered by the
prohibition on insider deals. For banks, however, stricter requirements are applicable
in some circumstances. 29
When the utilization of insider knowledge benefits the community and is not for
private gain, it is permissible. Thus, state bodies may make use of insider knowledge
or transactions made “in pursuit of monetary, exchange-rate or public-debt management
policies enacted by the Federation, one of its special funds, a state of the union
(Land), the German Central Bank (Deutsche Bundesbank), a foreign state or its central
bank or another body commissioned to conduct such transactions or with any
person acting for their account.” 30
The statutory provisions on insider trading simultaneously define rights to make
profits and draw a line between those activities from which profit can legally be
made and those from which profit-making is not permitted.
The Abuse of Insider Knowledge as a Form of Corruption
Insider trading on the stock exchange can be seen as a form of corruption of those
who work at the stock exchange and in financial institutions and markets. As in the
case of the universal phenomenon of corruption, they violate their position of trust
and abuse information that has been entrusted to them in confidence for the purpose
of personal enrichment. Even where the stockbroker or financial intermediary
has been authorized by the shareholder to make use of the insider knowledge, corruption
is still evident, since the broker is violating his position of trust in relation
29 Thus HOPT (1996), p. 17.
30 Transactions using insider knowledge are permitted if they are enacted “aus geld- oder
währungspolitischen Gründen oder im Rahmen der öffentlichen Schuldenverwaltung vom Bund,
einem seiner Sondervermögen, einem Land, der Deutschen Bundesbank, einem ausländischen
Staat oder dessen Zentralbank oder einer anderen mit diesen Geschäften beauftragten
Organisation oder mit für deren Rechnung handelnden Personen getätigt werden.” Quoted after
HOPT (1996), p. 27f., who discusses Section 20 WpHG. (Own trans. from the German).