A Free Market Approach to Insider Trading

financial symbols coming from handFernando Herrera-Gonzalez writes in today’s Mises Daily: 

This problem can be solved by the stock markets themselves. Conditions imposed on insider trading (including its prohibition) should simply be features of each stock market. Thus, each stock market’s definition of what constitutes unacceptable insider trading should be in the hands of the owner or operator of the market. In turn, competition among stock markets, i.e., the “stock-market market,” would reveal the preferences among stock market customers in the matter of insider-trading rules.

If there is (or may be) competition among stock markets, that is, if firms can choose in which stock market to list their stock, they will prefer, ceteris paribus, those stock markets in which more investors (i.e., more possible buyers) participate. The number of participating investors of course depends on the conditions in which they can access information relevant for their investments, among other features. These investors may choose to buy stock in one or other stock markets depending on prices of transactions or, if they wish, on the conditions imposed to insider trading, or on other factors.

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