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An economic analysis of trading on private information by external administrators: international comparisons

Hillier, David J. and Hodgson, Allan and Marshall, Andrew and Whincop, Michael J. (2004) An economic analysis of trading on private information by external administrators: international comparisons. Journal of Corporate Law Studies, 4 (2). pp. 421-464. ISSN 1473-5970

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This paper examines the regulation of trades in listed securities by external administrators (EAs), such as trustees in bankruptcy, liquidators, receivers, and administrators on the basis of private information. We consider the economic policy issues associated with such trades. The principal considerations counsel in favour of taking a permissive approach. These are: the difficulties of associating trades with insider information, given the EA's necessarily short expected holding period, the asymmetric application of the insider trading prohibition to sales (rather than decisions not to sell), the market incentives not to misuse private information that apply to EAs, and the unlikelihood that the EA has monopolistic access to the information in question. We consider these considerations by reference to a number of hypothetical scenarios. The paper argues that the law should regulate the subject by coupling a broad exemption for EAs with a "goiod faith" proviso, a continuous disclosure obligation, and a requirement to sell "all or nothing" of a holding of listed securities.