Assessing the effectiveness of the Brazilian insider trading laws

Abstract: This paper aims to better understand the Brazilian insider trading regulatory system by conducting empirical research on the enforcement activities of the CVM and the courts (both at civil and criminal levels).[1] To assess the enforcement system, the development of the Brazilian institutional design is described, allowing for the identification of legal and regulatory instruments related to the punishment of trading on non-public information. This broad description reveals mechanisms of the current system and points to challenging features that need specific enhancements in order to further improve enforcement.[2]


The data gathered throughout this empirical research demonstrates that, in regards to its enforcement regime, Brazil has advanced far beyond those countries that have formal insider trading laws but fail to enforce them.[3] However, Brazil is still susceptible to having regulatory practices in place, but lacking concrete evidence if this is enough to ensure compliance with the laws proscribing insider trading. The objective of this paper, though, is not to evaluate the enforcement system in order to know whether it is sufficient or not to combat the practice of trading on nonpublic information. Rather, this paper sheds light on the need to better understand the role of institutional design in improving the enforcement system. It is important to understand the tools available to a single institution, as well as the coordination, competition or conflict among the various institutions that participate in the enforcement system.


[1]  There are studies that advance a negative understanding of the Brazilian insider trading enforcement system: James H. Thompson, A Global Comparison of insider trading regulations, International Journal of Accounting and Financial Reporting, 2013, vol. 3, N.1, available at: http://www.macrothink.org/journal/index.php/ijafr/article/viewFile/3269/2976 (arguing that “Insider trading is currently in Brazil and will likely continue until the government steps up its enforcement activities”); Otavio R. de Medeiros, Insider trading in the Brazilian Stock Market, available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1457444 (concluding that “although an institutional framework exists in Brazil to fight insider-trading practices in the stock market, the actual success and willingness of the authorities with respects to this form of corruption is inefficient”).

[2] For other securities regulation enforcement perspective, for example, there is the private or public enforcement debate. For this perspective, see, e.g.: Rafael La Porta, Florencio Lopes de Sinalnes, Andrei Schleifer, What works in securities laws?, 2003, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=425880(defending the private enforcement as most efficient); Howell E. Jackson, Mark J. Roe, Public and private enforcement of securities laws: resource-based evidence, 2009, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1000086 (criticizing the idea that private enforcing is necessarily more efficient than public enforcement).

[3]See Utpal Bhattaharya,  Hazem Daouk, The Word Price of Insider Trading, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=249708; Utpal Bhattaharya,  Hazem Daouk, When no law is better than a good law, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=558021. Based on their empirical research, the authors present data about countries that have insider trading rules, but do not enforce them.


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