Insider Trading and Regulatory Efficiency in Europe

Abstract

How insider trading affects market efficiency and whether it should be regulated has long been controversial. Nowadays, it is widely recognised that insider trading is a harmful activity in capital markets and should be prohibited. However, proponents of insider trading argue that it should not always be viewed as a destabilising, illegal and harmful market practice. This paper attempts to organise their views and evaluate the arguments of the proponents on three levels: legislation legitimacy, corporate governance and market efficiency. Based on a critical analysis of these arguments, the paper states that regulating insider dealing therefore becomes a legal imperative, aiming to ensure the proper functioning of markets, safeguard them from illegal practices, and maintain investor confidence in the premise that the markets offer a fair trading environment in a context of informational equality and transparency.