(116) This opacity makes it easier for the corporation to generate profits for insiders by trading illegally on material inside information and legally on valuable but sub-material inside information.
Of course, one might believe that firms currently do not trade in their own shares when in possession of material inside information. However, this belief cannot be tested without specific information about firms' trades in their own shares.
222, 227-29 (1980) (stating that a corporation's officers and directors must disclose material inside information or abstain from trading in the firm's shares under Rule 10b-5 because they are in a relationship of trust and confidence with the firm's shareholders).
(60) If Rule 10b-5 were interpreted to permit a firm to repurchase its shares on material inside information, the problem of indirect insider trading described in this Article would be even more severe.
Returning to the analytical framework introduced in Section III.C, suppose that CEO, lacking material inside information bearing on the value of ABC's shares, either gives irrevocable trading instructions to a third party or enters into a binding contract to sell ABC shares.
Thus, whether CEO receives material inside information indicating that ABC will outperform the market or material inside information indicating that ABC will underperform the market, CEO's shares are sold pursuant to the irrevocable instructions or binding contract.
Because the expected cost associated with required trade cancellations offsets the expected benefit associated with self-interested trade cancellations, insiders under such a regime cannot expect to outperform public shareholders using material inside information.
