crc  .  syllabi collection  .  alumni syllabi  .  legal studies  .

   Course Title    Prevention and Regulation of Insider Trading in Central and Eastern Europe
Lecturer    Zorica Vasovic
Institution    University of Belgrade
Country    Yugoslavia


"Corruption exists ever since money and people occupying certain positions exist. Do we have legal, moral, economic and political responsibility to consider this problem and use all means at our disposal?

Mickey Kantor
Ambassador of the USA
(Speech given in front of the Committee for Trade on 6 March 1996)


Financial and capital markets now play an important part in the Central and Eastern European countries and international economic relations which is of increasing interest to governments of these countries. Through international direct investments, the stock markets and enterprises can bring substantial benefits to home and host countries contributing to the efficient utilisation of capital technology and human resources between countries and can fulfil an important role in the promotion of economic and social welfare.

In Central and Eastern European countries post-war economy corporate finance has either been provided by self-financing by the governments or by borrowing capital, meaning that the capital markets have been non existent. Starting from 1990s when the market economy replaced the central one and when the privatisation process in these countries started, it became obvious that industrial growth without the development of a capital market system of corporate finance was not feasible. The stock exchanges were re-established in these countries after 50 years and they are performing very well. The markets in transferable securities play an important role in these countries. The governments of Central and Eastern European countries began devoting increased attention to the phenomenon of trading in transferable securities based on inside information.

The common aim of the governments of the Central and Eastern European countries is to encourage the positive contributions which financial markets can make to economic and social progress and to minimise and resolve difficulties to which their various operations may give rise.

The growing reputation of Central and Eastern European countries as financial markets would be damaged by the perception that they lack a credible system of insider trading regulation. The present attitude in those countries toward the statutory regulation of insider trading is that it is both inevitable and unavoidable.

The Central and Eastern European legislators are convinced of the need for statutory regulation of insider trading in order to protect investors and the integrity of the markets. Considering as the priority goal of these countries to join the EU and the accession agreements of some of them, it is evident that they must develop and harmonise their insider trading regulatory regimes according to the 1989 EC Directive on insider trading. The intention of the Directive is to ensure the all member states make insider trading illegal by adopting a common approach as well as to introduce minimal standards throughout the EC and facilitate broader policing and enforcement. The delay in promulgation of those laws in Central and Eastern European countries is due to their specific historical, economic, political and social development, lack of financial institutes as well as the knowledge of the functioning of these institutes.

There are no rules or regulations prohibiting insider trading in these countries. Insider trading is likely to undermine the confidence and may prejudice the smooth operation of the markets. The rules should make it possible to prevent insider trading and combat it effectively. The lack of adequate insider trading legislation can negatively effect the privatisation processes which are underway in the region and which include many companies. Only well organised and legally protected financial markets should produce faster economic growth. These countries must get the financial markets under legal control and well prepared legislation is a must.

For those markets to be able to play their role effectively, legislative measures should be taken to ensure that markets operate smoothly. The smooth operation of the markets depends to a large extent on the confidence they inspire in investors. The assurance afforded to investors that they are placed on an equal footing and that they will be protected against the improper use of insider information is inevitable.

Full support should be given to efforts undertaken in this region with a view to improving the living standards of people both encouraging the positive contributions and by minimising and resolving the problems which may arise in connection to their activities.

Mandatory education and training in the field of insider trading and the promulgation of the necessary legislation is considered as a must by the governments of these countries. On the occasion of the ILO's Fifth Regional Conference held in Warsaw in September 1995 emphasis had been placed on the need for continuous programmes concerning employment, development and competitiveness of the enterprises.

Disastrous effects of the lack of knowledge of the financial institutes which are new for the region of Central and Eastern Europe, such as the "Ponzi effect" also known as "pyramid schemes", lead to the collapse of several private banks in Central and Eastern Europe. As a consequence, many people in the region stayed without their savings that, for many of them, represented the major economic support. Moreover, in Albania, the lack of knowledge of the new financial institutes lead to violent riots in the beginning of 1997. If only the "Ponzi effect" had been studied in Central and Eastern European universities, it would have been much easier to confront it. However, the "Ponzi effect" was not, and still is not, a part of the universities' courses in Central and Eastern Europe. The lack of basic knowledge of the Ponzi effect resulte in the growing lack of confidence of the citizens and the existence of these institutes is often considered as normal product of market economy reforms.

Therefore, it is important for the participants to be familiar with the concept of insider trading, the insider trading legislation, its objectives and implementation and to learn the most important elements for insider trading regulatory framework.

The course is interdisciplinary and includes law, economics, management, ethics, sociology, psychology. It is innovative since it proposes completely new topic to the countries in the region and to the universities' curricula. Besides, it offers new and modern methodology.

The course is very flexible both in terms of its length and organisational aspects. It could be tailored to last shorter or longer, depending on the needs and interest of the group of participants. Also, it can be offered both as the regular university course and as the summer school course. Finally, it can be organised on national level, that is with the participants from one country only, and on interregional level with the participants from various countries of the region.


The course is primarily designed for students and post-graduate students of schools of law, economics and management. Besides, the course is open to scholars, practitioners, lawyers, economists, managers of private and public companies and industrial establishments, bankers, personnel of stock exchanges.


The course is specifically designed to meet educational needs Central and Eastern European countries to teach participants in the fields and issues which are new in theory and practice of these countries in order to achieve more efficient and more effective transit of these countries' economies.

This course aims at:

  • strengthening national capacity in the legislative sector
  • intensifying efforts to achieve the insider trading regulation in the subject matter
  • improving financial markets' environmental climate
  • bringing greater transparency to the markets.


At the end of the course the participants will have:

  • knowledge of insider trading laws in the EU and the USA
  • learnt the nature and characteristics of insider trading
  • recognised the arguments for regulation v. deregulation
  • discussed the suggestions for insider trading regulations in Central and Eastern Europe
  • recognised how to improve competitive equality
  • learnt how to promote wider opening of these markets to the foreign investors


The activities of the course would be covered in a period of 1 academic year and will concentrate on presentations and practical exercises. It will cover, among others, the following topics:


  • What is insider trading?
  • Inside information
  • Insider
  • Tippers
  • Tippees
  • Insider trading regulation
  • Experience of the EU
  • Directive of the EEC (1989)
  • Nature and characteristics of insider trading
  • Historical and statistical data on insider trading
  • Regulation v. deregulation
  • Why regulate insider trading?
  • Insider trading regulation and cases in the EU (Switzerland, Germany, UK, Italy)
  • Insider trading regulation and cases in the USA
  • Monitoring, Enforcement and Prosecution of Insider Trading
  • Other constraints on insider trading
  • Other market offences
  • International Co-operation
  • Suggestions for insider trading regulation in Central and Eastern Europe


The designer of the course developed:

  • a) teaching materials which will be the basis for the activities of the course
  • b) transparents
  • c) a daily workplan and program
  • d) the pedagogical and methodological parts including exercises - case studies, role-playing and individual and group work.

    The course will be conducted using a highly participatory, pragmatic and balanced approach. It will concentrate on practical issues. That approach will allow active intervention of all participants. In such a way the participants will contribute to the creation of a conductive atmosphere and constructive exchange of ideas and information.

    Teaching methods will include presentations, role-playing, case studies, discussions and individual and group work under the guidance of a specialist on insider trading regulation.

    As a part of a final course activity, participants will be asked to prepare an outline of insider trading rules, e.g. "Chinese walls".


    Most class days will be devoted to group discussion, case-studies, and role-playing. The professor will distribute to participants the guidelines for each individual or group activity in advance. The course participation will contribute to the grade of the participants. Tardiness and absences will result in missing materials and outcomes of the exercises will important for the understanding of the subject matter.


    The grades will be based on class participation and attendance. Point values are assigned to grades as follows:

  • 10 = A
  • 9 = B
  • 8 = C
  • 7 = D
  • 6 = E
  • 5 = F

    There will be a final exam. The final exam will be written one and will include multiple choice, short answer identification, and essay questions.


    During the course, a continuous feed-back will occur between the professor and the participants through individual and group exercises foreseen throughout the programme.

    At the end of the course a course evaluation instrument will be used to register participants' reactions to the inputs from the specialist, the teaching materials and learning aids used during the course and various organisational and management aspects of the course. Participants will also be requested to provide suggestions to improve future courses on the subject matter.

       crc  .  syllabi collection  .  alumni syllabi  .  legal studies  .