A Study on the Regulated Subjects and the Liabilities of Insider Trading Regulation

This thesis focuses on the liability coverage of various subjects under Taiwanese insider trading law and the justification of different liabilities on insider trading. Ultimately, this thesis combines analysis of liability coverage and liability models, and suggests that different liabilities should be subject to more tailor-made scenarios in order to better specify what subject matters and acts should be dealt with which models of insider trading law. This thesis is divided into six chapters. The first chapter highlights the issues, research scope and the findings. Chapter 2 aims at insider trading regulations with a comparative law approach. It shows that under different legal systems, the structures of insider trading regulations and their theoretical basis varies. From the studies above, Chapter 3 identifies the problems of regulated subjects under Taiwanese insider trading law. There are three types of regulated subjects that will be discussed in relation to their “liability coverage”. Chapter 4 includes the types of liabilities in insider trading law in six jurisdictions. Readers should get the big picture of the international trend regarding the types of liabilities under insider trading law through comparative law analysis. When looking into the nature of these liability types, the question of “whether the punishment can be justified” arises. First, the author differentiates between the natures and functions of the types of liabilities along with current Taiwanese insider trading regulations. This thesis proposes the ideal approach concerning criminal, administrative and civil liabilities under Taiwanese insider trading law. After incorporating the concluded liability types and liability coverage, this thesis make a brief conclusion about how to impose different types of liabilities on different subject matters. Chapter 6 concludes this thesis. Interpreting insider trading law by the rule of law, the author finds that Taiwanese insider trading law is market-oriented and emphasizes on protecting the integrity of the securities market and confidence of investors. Adopting the above theoretical basis, there are still possibilities to limit tippers’ and tippees’ liability coverage and types thereof under Taiwanese insider trading law. Concerning the liability of the scenario of tipping inside information, this thesis suggests relieving the liability of tippees who indirectly receive inside information (hereinafter “remote tippee”) from tippers and abandoning the concept of “joint-perpetrator” when establishing their liabilities. The possible sanctions on remote tippees include reducing the years of sentence, punishment solely by administrative sanctions, or no punishment at all. It is also the author’s suggestion to impose insider trading liability on those who not only tip the inside information but also persuading others to trade. In other words, inducement and recommendation, on the basis of inside information, to acquire or dispose of securities to which that information relates, constitute insider trading violation, but mere inside information disclosure does not. This article also proposes that legal person shall be one of the regulated subject matters under Art. 157-1 of Taiwanese Securities Exchange Act (hereinafter TSEA) since it is unjustified to distinguish the liability of a legal person from a natural person. In addition, the reasonable sanctions on a legal person are criminal penalties and administrative liabilities. As to one who possesses inside information by virtue of his criminal activities for using that information by trading securities to which that information relates, for instance the behavior of “mere thief”, insider trading law shall be applied and the liabilities shall be imposed. Regarding the “types of insider trading liabilities”, through the observations of comparative law, the author concludes that criminal liability is necessary under insider trading law since its deterrent effect cannot be substituted by other kinds of liabilities. Moreover, criminal sanction is the international trend. Administrative liability shall be adopted into Taiwanese insider trading law since administrative measures provide various means of preventions and sanctions. The administrative penalty sometimes even possesses better deterrence than criminal fines. The characteristics of administrative measures, such as the requirement of evidence and flexibility etc., together with criminal liability provide an integral regulated system for fighting insider trading. As to the way administrative liabilities correspond to the current criminal liability system under TSEA, this thesis also proposes several methods. These methods include the adjustment of the litigation process, the amount of the criminal fine and administrative penalties. The cooperation between the competent authority and the prosecutors will also play an important role in the future. The author also indicates the possible arrangement of the administrative fine aimed at deterring insider trading, such as funds and the award for whistle-blower. After adopting administrative liabilities into Taiwanese insider trading law, the original civil liability contained in Art. 157-1 of TSEA shall be abolished since the causation between insider trading and investors’ trading, damage does not exist. The fund coming from offenders’ administrative penalty could be a substitution of civil indemnification. Besides, the three-time civil compensation designed by Art. 157-1 of TSEA is not an appropriate arrangement and the author suggests a revision.