Editing Insider trading (section)

==Legal==
Legal trades by insiders are common,<ref name=Newkirk>Thomas Newkirk. (1998). [https://www.sec.gov/news/speech/speecharchive/1998/spch221.htm Speech by SEC Staff: Insider Trading – A U.S. Perspective] {{Webarchive |url=https://web.archive.org/web/20171119121933/https://www.sec.gov/news/speech/speecharchive/1998/spch221.htm |date=2017-11-19 }}. 16th International Symposium on Economic Crime at Jesus College, Cambridge, England on September 19, 1998</ref> as employees of [[public company|publicly traded]] [[corporation]]s often have stock or stock options. These trades are made public in the United States through [[SEC filing]]s that are also being made available by academic researchers as structured datasets.<ref>{{cite journal |last1=Balogh |first1=Attila |date=26 April 2023 |title=Insider trading |url=https://doi.org/10.1038/s41597-023-02147-6 |journal=Scientific Data |volume=10 |issue=237 |page=237 |doi=10.1038/s41597-023-02147-6 |pmid=37185601 |access-date=3 May 2024|pmc=10130014 |bibcode=2023NatSD..10..237B }}</ref><ref>{{cite journal |last1=Balogh |first1=Attila |date=3 May 2024 |title=Layline insider trading dataset |url=https://doi.org/10.7910/DVN/VH6GVH |journal=Harvard Dataverse |doi=10.7910/DVN/VH6GVH |access-date=3 May 2024}}</ref>

U.S. [[SEC Rule 10b5-1]] clarified that the prohibition against insider trading does not require proof that an insider actually used material nonpublic information when conducting a trade; possession of such information alone is sufficient to violate the provision, and the SEC would infer that an insider in possession of material nonpublic information used this information when conducting a trade. However, SEC Rule 10b5-1 also created for insiders an [[affirmative defense]] if the insider can demonstrate that the trades conducted on behalf of the insider were conducted as part of a pre-existing [[contract]] or written binding plan for trading in the future.<ref>{{Cite web|url=https://www.investopedia.com/terms/r/rule-10b5-1.asp|title=Rule 10b5-1|date=Sep 17, 2019|website=Investopedia|url-status=live|access-date=February 9, 2020|archive-date=February 4, 2020|archive-url=https://web.archive.org/web/20200204170810/https://www.investopedia.com/terms/r/rule-10b5-1.asp}}</ref>

For example, if an insider expects to retire after a specific period of time and, as part of retirement planning, the insider has adopted a written binding plan to sell a specific amount of the company's stock every month for two years, and the insider later comes into possession of material nonpublic information about the company, trades based on the original plan might not constitute prohibited insider trading.

There are very limited laws against "insider trading" in the commodities markets if, for no other reason than that the concept of an "insider" is not immediately analogous to commodities themselves (corn, wheat, steel, etc.). However, analogous activities such as [[front running]] are illegal under US commodity and [[futures trading]] laws. For example, a [[commodity broker]] can be charged with fraud for receiving a large purchase order from a client (one likely to affect the price of that commodity) and then purchasing that commodity before executing the client's order to benefit from the anticipated price increase.{{Citation needed|date=August 2019}}

===Arguments for legalizing===
Some economists and legal scholars (such as [[Henry Manne]], [[Milton Friedman]], [[Thomas Sowell]], [[Daniel Fischel]], and [[Frank H. Easterbrook]]) have argued that laws against insider trading should be repealed. They claim that insider trading based on material nonpublic information benefits investors, in general, by more quickly introducing new information into the market.{{Citation needed|date=November 2024}}

Friedman, laureate of the [[Nobel Memorial Prize in Economics]], said: "You want more insider trading, not less. You want to give the people most likely to have knowledge about deficiencies of the company an incentive to make the public aware of that." Friedman did not believe that the trader should be required to make his trade known to the public, because the buying or selling pressure itself is information for the market.<ref name="Harris" />{{rp|591–7}}

Others argue that insider trading is a victimless act: a willing buyer and a willing seller agree to trade property that the seller rightfully owns, with no prior contract (according to this view) having been made between the parties to refrain from trading if there is [[asymmetric information]]. ''[[The Atlantic]]'' has described the process as "arguably the closest thing that modern finance has to a victimless crime".<ref>{{cite magazine |first=Megan |last=McArdle |author-link=Megan McArdle |url=https://www.theatlantic.com/magazine/archive/2011/11/capitol-gains/8692/ |title=Capitol Gains – Magazine |magazine=The Atlantic |date=October 3, 2011 |access-date=December 21, 2011 |archive-date=June 14, 2012 |archive-url=https://web.archive.org/web/20120614135908/http://www.theatlantic.com/magazine/archive/2011/11/capitol-gains/8692/ |url-status=live }}</ref>

Legalization advocates also question why "trading" where one party has more information than the other is legal in other markets, such as [[real estate]], but not in the stock market. For example, if a [[geologist]] knows there is a high likelihood of the discovery of petroleum under Farmer Smith's land, he may be entitled to make Smith an offer for the land, and buy it, without first telling Farmer Smith of the geological data.<ref>{{Cite web|title=18 U.S. Code § 1905 - Disclosure of confidential information generally|url=https://www.law.cornell.edu/uscode/text/18/1905|access-date=2020-11-05|website=LII / Legal Information Institute|language=en|archive-date=2020-11-11|archive-url=https://web.archive.org/web/20201111170229/https://www.law.cornell.edu/uscode/text/18/1905|url-status=live}}</ref>

Advocates of legalization make [[free speech]] arguments. Punishment for communicating about a development pertinent to the next day's stock price might seem an act of censorship.<ref>{{cite web |url=http://www.walterblock.com/wp-content/uploads/publications/information_privilege.pdf |title="Information, Privilege, Opportunity, and Insider Trading" in the Northern Illinois University Law Review |access-date=January 7, 2013 |archive-date=April 12, 2019 |archive-url=https://web.archive.org/web/20190412164119/http://www.walterblock.com/wp-content/uploads/publications/information_privilege.pdf |url-status=live }}</ref>

Some authors have used these arguments to propose legalizing insider trading on negative information (but not on positive information). Since negative information is often withheld from the market, trading on such information has a higher value for the market than trading on positive information.<ref>Kristoffel Grechenig, The Marginal Incentive of Insider Trading: An Economic Reinterpretation of the Case Law, University of Memphis Law Review 2006, vol. 37,  p. 75-148 [https://ssrn.com/abstract=883642 (link)].</ref><ref>Macey, Jonathan. "Getting the word out about fraud: a theoretical analysis of whistleblowing and insider trading." Michigan Law Review (2007): 1899-1940.</ref>