How Important is Market Integrity? Revisiting the Reasons Why We Prohibit Insider Trading?

The accepted rationale for prohibiting insider trading in Australia is to protect and maintain market integrity. While a number of other jurisdictions also base insider trading prohibitions on a market integrity rationale, the United States relies on ‘anti-fraud’ laws to prohibit insider trading on the basis of fiduciary duty and misappropriation rationales. How important is the underlying rationale for the insider trading prohibition to the construction, interpretation, and application of relevant laws? With the Australian Law Reform Commission currently conducting an inquiry into the' Legislative Framework for Corporations and Financial Services Regulation', with chapter 7 of the 'Corporations Act 2001' (Cth) under review, it is timely to reconsider this question. This article will compare and contrast different approaches to the prohibition on insider trading. The legislative history, along with past and present law reform proposals concerning insider trading will also be addressed to determine the extent to which the market integrity rationale underpins the relevant laws. This article will also analyse and assess the impact of judicial commentary on the interpretation of the insider trading provisions. The meaning of market integrity will be examined, and the impact of the rationale on sentencing will be reviewed to determine the extent to which damage to market integrity is considered in sentencing decisions, particularly in the context of co-conspirators and co-offenders. This article will conclude with comments about potential future developments.