# Why is insider trading illegal? **URL:** \ **Category:** Great Debates\ **Created:** [April 15, 2013, 12:01am UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731 "2013-04-15T00:01:15Z")\ **Posts on this page:** 4\ **Page:** 4
**Author:** ![Trom](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Trom](https://boards.straightdope.com/u/Trom)\ **Post date:** [April 18, 2013, 8:16pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/61 "2013-04-18T20:16:00Z")
On a practical level as a current market practitioner, I’d drastically alter my business decisions or exit the business all together. Market makers would widen spreads and reduce their size. In stocks with some type of news event that could cause extreme volatility (FDA announcements, mergers, etc) nobody with half a brain would be willing to risk capital and trade. This would result in significantly higher transaction costs for all types of investors. ---
**Author:** ![smiling\_bandit](https://avatars.discourse-cdn.com/v4/letter/s/e9a140/32.png) [@smiling\_bandit](https://boards.straightdope.com/u/smiling_bandit)\ **Post date:** [April 18, 2013, 8:51pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/62 "2013-04-18T20:51:35Z")
> [@Really\_Not\_All\_That\_Bright](#): > > That’s not how it works at all. Insider trading laws bar actions based on any information that is material to a security’s value and not yet public, not just stuff that has to appear in SEC filings. That. Was. My. **POINT**. > [@Hellestal](#): > > If anything is still confusing in my post, you can ask and I’ll happily answer. But I’d strongly recommend not making hasty assertions to me about all of these things that I “implied”, because I remember writing my post, and I know what implications are actually intended to be there. Your snark would be better earned had you not posted this: > [@](#): > > Rather than have the wastefulness of each player doing the diligence on their own, repeating the effort of others, we can do it once, together. This is the general spirit of the insider trading laws. On its face, this is (A) flat wrong and (B) flat wrong, and (C) flat wrong. Avoiding duplication of effort isn’t remotely related to the purpose of insider trading laws. If you’re upset that I was trying to make sense of your statement, then feel free to explain it sensibly. Your previous explanation is a giant sideways handwave. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [April 18, 2013, 10:13pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/63 "2013-04-18T22:13:59Z")
> [@smiling\_bandit](#): > > On its face, this is (A) flat wrong and (B) flat wrong, and (C) flat wrong. Avoiding duplication of effort isn’t remotely related to the purpose of insider trading laws. If you’re upset that I was trying to make sense of your statement, then feel free to explain it sensibly. Hey, you’re right. On the face of it, those two sentences are wrong. I would hope the context would help, but even then, they are arguably confusing. Let me rephrase. The context: the OP was wondering why it wasn’t a caveat emptor market, where everyone had to do research themselves. Obviously, this is costly. “Rather than have the wastefulness of each player doing the diligence on their own, repeating the effort of others, we can do it once, together. When this information is made public, traders will naturally want to have some assurance that this is the relevant information for the public pricing of the asset. This is the general spirit of the insider trading laws.” An easy fix. You can argue correctly that that notion wasn’t there originally, and my only defense was that it seemed too obvious to me to state. I thought the context would make that clear, but apparently not. So it goes. > [@smiling\_bandit](#): > > Your previous explanation is a giant sideways handwave. Obviously, I didn’t understand you the first time. This was indicated in my post, when I wrote, “As far as I can tell (and I could easily be wrong)”. I try not to belabor my literal meaning too much, but when I said I could easily be wrong about your meaning, what I meant was that I could easily be wrong about your meaning. No sarcasm. No “snark”. You had a genuine substantive issue, and I’m sorry to say I didn’t address it in my first response to you, but since I explicitly acknowledged that I might be misinterpreting you, I would hope you would ask for clarification. It draws things out when we start inferring up a storm instead of just admitting that we might have misunderstood. I generally don’t like discussions of tone, but since you accused me of “snark” and of possibly being “upset”, I feel it’s appropriate. So let’s just record here: You are the one that asked “WTF?”, in response to a post that clearly indicated it might have misunderstood you. You have written sentences where each word starts a new sentence. (“That. Was. My. **Point.** ”) You have written a list where all three points in the list were the same point repeated over again. As far as I can tell, there is only one person in this thread who is exhibiting an aggressively confrontational tone, possibly due to being “upset”. If you’re perceiving an excessively snarky tone in others, you might consider that you are unknowingly attributing your own emotional state to other people. ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [April 18, 2013, 10:56pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/64 "2013-04-18T22:56:23Z")
> [@Trom](#): > > On a practical level as a current market practitioner, I’d drastically alter my business decisions or exit the business all together. Market makers would widen spreads and reduce their size. In stocks with some type of news event that could cause extreme volatility (FDA announcements, mergers, etc) nobody with half a brain would be willing to risk capital and trade. This would result in significantly higher transaction costs for all types of investors. Yes, I suppose that is possible. For at least a little while. The higher transaction costs might reduce the pool of available investment capital to the businesses, as well as shrink the supply of willing investors. Then what might happen next? [Previous page](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731.md?page=3)