Abstract
As the securities markets were expanding rapidly in the second part of the 20th century, a widespread assumption maintaining that insider trading must be prohibited on moral grounds took root in the collective consciousness. These economic transactions are illegal in most stock markets and the legislative responses to insider trading have been strengthening over the last decades. Indeed insider trading which refers to the "ability of key employees to profit from knowledge or information that has not yet become public" , is considered as being contrary to the rules of good and moral conduct in respect of business practices. Insider trading is unfair in the same way as a fixed horse race is unfair; it gives the market a bad image.
Nonetheless, the illegality of insider trading is one of the most controversial debates among economists and legal scholars, since some argue that these economic transactions are not harmful, but beneficial to the whole economy. Undeniably they make the markets more efficient and closer to the reality, so that it is sometimes claimed that the regulations prohibiting insider trading should be revoked. From a moral perspective, insider trading can be seen as being reasonable and sound, whenever it does not involve the breach of any insider's duties or the violation of other's rights. Morally speaking, is insider trading in the securities markets acceptable? Could this practice be eradicated totally? Is it desirable?
We will first assess critically, from a moral point of view, the main arguments that legitimize insider trading in the securities markets. They will be scrutinized in order to determine their validity, and help conclude on the morality of these economic transactions. Then, a short study on the impact of the current regulations implemented to eradicate this practice will be performed in order to measure their efficiency. Finally a certain degree of flexibility in the legislations concerning insider trading will be considered in order to determine whether it would be desirable to allow these transactions from an economic perspective. This will enable us to decide on the necessary balance between economic efficiency and morality.
