Insider Trading Insider Trading

This paper general supports the argument that insider trading should be deregulated. As will be seen, there are several benefits to be gained by the allowance of insider trading. First, insider trading tends to be economically efficient. Stock prices will generally reflect their real value if insider trading is allowed. In addition, changes in stock prices will occur more quickly and frequently if insiders are allowed to trade on the information they possess. Second, insider trading is an economically efficient method of compensating insiders. Allowing them to trade on the information they possess will encourage them to work for the benefit of the corporation, since they stand to profit from the company's fortunes.

A Short History of Insider Trading Regulation

Before the enactment of the Securities Act and the Securities and Exchange Act were passed, insider tradin

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on is usually available only to insiders; access to such information has often been cited as one of the reasons for prohibiting insider trading. However, without this information, outsiders cannot fairly evaluate the price of a stock. If insiders were allowed to trade with this information, the price of the company's stock would more accurately reflect its value. Outsiders would benefit from insider trading since the stock would not be so artificially priced. Similarly, the price of the company stock would be more accurate if insiders were allowed to trade on the information concerning the state of affairs of the management. Problems in the management would likely be known only by insiders, yet these problems can have tremendous effect on the true value of the company's stock. The dumping of stock by an insider would provide a sign to outside investors that all is not well with the company and that the price of the company's stock is artificially high. In addition to the examples provided above of how insider trading makes the market more efficient, there is one more way in which it promotes efficiency. Insider trading smoothes out the ups and downs of a stock's price by making the market react to even small inappropriat
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Approximate Word count = 5701
Approximate Pages = 23 (250 words per page)

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