ENFORCEMENT SILENCE AS EVIDENCE: INTERPRETING THE ABSENCE OF INSIDER-TRADING CASES IN FRONTIER SECURITIES MARKETS

Abstract

Comparative securities research treats enforcement activity as an indicator of market
integrity: jurisdictions that prosecute insider trading are held to have functioning prohibitions, and
the cost of equity falls when enforcement begins rather than when statutes are enacted. The
inference is asymmetric, however. A positive enforcement count is informative; a zero count is
not, because it is generated equally by a market in which the offence does not occur and by one in
which it is never detected. Frontier securities markets, where zero counts are the norm, are
therefore systematically mis-classified — typically as low-asymmetry markets, which inverts the
likely truth. Following a theory-adaptation design, this article theorises enforcement silence as an
equilibrium outcome rather than a data gap. It identifies four generative mechanisms — prohibitive
void, surveillance void, prosecutorial-incentive void, and absence of the offence's precondition —
and shows that each leaves a distinct observable signature in disclosure behaviour, ownership
structure and price dynamics, so that the mechanisms are separable without a single prosecuted
case. It then develops the detection-capacity paradox: because building surveillance converts
undetected violations into recorded ones, measured enforcement is a non-monotonic function of
market integrity, and reform programmes evaluated on case counts will appear to fail precisely
when succeeding. Nine propositions and an identification protocol are advanced, with attention to
markets in which the state is concurrently dominant shareholder, principal issuer and ultimate
regulator. The protocol's legal audit is applied to Uzbekistan, where the prohibition proves
sanctionless rather than absent — a sub-case of the prohibitive void that the taxonomy is extended
to accommodate.