Abstract

Under the present judicial interpretation of federal securities law, an individual is prohibited from trading on non-public information that has been misappropriated in contravention of a fiduciary duty. Trades made using non-pubIic information that has not been misappropriated are not prohibited by Rule 10b-5, promulgated under the Securities and Exchange Act of 1934. The current requirement of misappropriation to trigger Rule 10b-5 liability creates a gap that permits transactions that are both ethically and economically undesirable. Judicial or legislative reforms are recommended to close the gap and help ensure the fairness and efficiency of securities markets.