11/10/2012 13:07 BST | Updated 10/12/2012 05:12 GMT

Getting Tough on Insider Trading

She was the US's culinary queen, like Gordon Ramsay without the swearing or Nigella Lawson without the finger-licking. But, despite being America's sweetheart for decades, Martha Stewart still ended up in jail for her involvement in the ImClone stock trading scandal, in which several of the company's executives plus some friends and relatives sold off their stock ahead of disastrous news. Stewart sold about $230,000 worth of ImClone shares after being tipped off by her broker and was sentenced to five months in prison for lying about a stock sale, conspiracy and obstruction of justice.

Unfortunately, it's not only celebrity chefs who try to take unfair advantage of the market by trading on knowledge that is not in the public domain (although not all of them end up being played by Cybill Shepherd in a film about their time behind bars). It's a serious problem, causing real damage to the economy by undermining people's confidence. Until now many EU countries have lacked the wherewithal to pull a Martha Stewart on trading tricksters and have them locked up.

At a time of crisis it is more important than ever to ensure people play by the rules. Although there is a single market in the EU, there is no uniform approach to insider trading. Not all member states have the power to hit offenders with sanctions in line with the money earned from their violation, for example fines in Portugal and Sweden are limited to €1 million . However, the European Parliament aims to change that.

On 9 October Parliament 's economic and monetary affairs committee will adopt new tougher sanctions against insider dealing and market manipulation, including the introduction of criminal sanctions. The idea is to harmonise the rules for market abuse so that EU financial services legislation can be effectively implemented and to stop people from exploiting different regimes across the EU. However, harmonising legislation does not mean there will be a one-size fits all approach. British Labour MEP Arlene McCarthy, who is steering the legislation through parliament, stresses the need for flexibility. She says the complex nature of market abuse requires EU countries are able to apply their own range of sanctions and penalties in accordance with national laws and provisions.

MEPs have generally welcomed the original Commission proposals, but have been keen to further improve on them. They stress the rules should take into account the latest technological developments, such as high-frequency trading, and require accurate definitions of what constitutes insider information.

The plans are far from finalised as they still have to be voted on in plenary and approved by the Council, but once adopted these laws will not only encourage high-profile cooks to stick to their kitchens, but also boost market confidence. Bad news if you like Cybill Shepherd films, but good news for the rest of us.