West Germany Handles Inside Trading Informally

Concern that loosening regulators’ reins on stock markets might breed fraud and manipulation has led some countries to reach for the statute book.

But in West Germany, where banks do the bulk of share dealing while helping to run the companies whose shares they handle, the problem is tackled on a less formal basis.

There is no law barring insider trading, which occurs when company officials or stockbrokers use information not available to other investors to make a profit from share dealing. But West Germany does have a set of voluntary regulations, laying down a code of practice for share dealers and company officials.

So far it has had no major insider trading scandals.

“We take the view that the present voluntary system is quicker and more flexible than statutory regulation,” Ruediger von Rosen, chief executive of the West German Federation of Stock Exchanges, said in an interview.

Von Rosen said mergers and acquisitions were nowhere near as common in West Germany as in the United States or Britain, adding, “For this reason the scope for insider trading is very limited.”

But because the European Commission, the European Community’s executive body, has proposed that insider trading be outlawed throughout the 12-nation bloc, a working group of brokers, bankers and company officials is examining how to improve the system.

“We will press the European Community to leave scope for the German system of regulation,” Von Rosen added.

Otto Lambsdorff, the economics spokesman for the Free Democratic Party and head of the Assn. for the Protection of Shareholders, said: “We do not think that what exists at the moment is sufficient.”

But he added that an effective voluntary agreement would be preferable to legislation.

Lambsdorff, a former economics minister, feels the current code of practice is too limited, noting that it does not cover company auditors or journalists.