Foreward on Insider Trading Regulation

Since the passage of the Securities Exchange Act of 1934, federal securities law has proscribed the use of material nonpublic information in buying and selling securities. However, the term “insider trading” has not been defined in federal legislation. Rather, the nature of its proscription has been left to the ingenuity of the Securities and Exchange Commission, private litigants, and the courts. Proponents of insider trading regulation properly assert that an intuitive sense of fairness supports the prohibition. However, these traditionalists face serious problems with the jurisprudence that has evolved, providing a source of much humor to their adversaries, the free market theorists, at the sidelines. In favor of insider trading generally, the opponents argue that the opposing social consensus, if it exists at all, is wrong, that insider trading is utilitarian, with benefits accruing in the form of economic efficiencies for all of us. This essay briefly explores the critical issues involved in the insider trading debate