In Search of a Giant Leap: Curtailing Insider Trading in International Securities Markets by the Reform of Insider Trading Laws under European Union Council Directive 89/592

In a robust effort to attain more effectively the goals of the Treaty of Rome and more efficiently promote the free movement of capital within a genuine common market, the European Union (EU) has recently taken significant steps to ensure a truly barrier-free, pan-European securities market. The goal of eliminating all market barriers arose from the continuing drive toward an economically integrated Europe, which gave rise to the Single European Act of 1987. In addition, the more persistently adverse effects of these barriers have been exacerbated by the increasing number of international securities transactions. As of September 30, 1990, France, the United Kingdom, Germany, the Netherlands, and Denmark had all introduced a number of measures against insider trading, varying in stringency. Ireland and Italy were in the process of introducing such legislation. Stock markets in the other EU countries had been either dominated by policies that promoted a no-questions-asked posture, or had been less affected by the ravages of insider trading. These countries, therefore, lacked the necessary justification for the relatively heavy expenditure required to properly administer a full set of sophisticated, regulatory insider-trading laws. More recently, however, the ever-increasing flow of capital across national boundaries, which picked up speed in the 1980s, exposed both larger and smaller exchanges in EU, as well as in non-EU countries - to the vagaries of insider-trading tactics. Switzerland, long a destination for off-shore capital, serves as an example. Against this backdrop, EU Council Directive 89/592 adopted in November, 1989, mandated member states to enact insider-trading legislation that met or exceeded certain identified minimum specifications, before June 1, 1992. In anticipation of this Directive, some member states embarked upon drafting laws impacting insider trading as early as 1986. The language and requirements of EU Council Directive 89/592 have even led a number of nonmember countries to adopt similar measures or to increase the strictness of existing insider-trading enactments. This is particularly true of the members of the European Free Trade Association (EFTA). Indisputably, the influence of the United States' experience of highly regulated securities markets under the supervision of the Securities and Exchange Commission (SEC) has contributed to the sense of immediacy fueling adoption of insider trading regulations among both EU and EFTA nations.This Article presents a backdrop into how insider trading has been attacked internationally through legislation. It also sheds light on how Germany was slow to adopt the EUs new directive, and why that presented a problem to future investors. Part I provides the Introduction, while Part II breaks down the European Union Council Directive 89/592. Part III gives insight into Germany’s response to the EU 89/592, followed by Part IV’s analysis of the German statute that contrasted with Germany’s voluntary guidelines on insider trading. Part V concludes the article.