Insider Information and the Limits of Insider Trading

Abstract

This essay offers brief observations on the internal coherence of the rationales underlying the prohibition against insider trading, taking the opportunity offered by Newman and Salman to reflect on its central policy aims. I do not discuss these cases specifically, or what a resolution by the Supreme Court might mean for the future of insider trading. Scholars and commentators have thoughtfully critiqued Newman alongside the doctrinal whiplash that has followed in its wake. Rather, I take this opportunity to look under the hood of securities trading to examine information flows within the mechanisms by which securities are bought and sold. I argue that the design of modem markets-and the allocation of informational access it institutionalizes-entrenches the place of a cohort of actors that systematically enjoy first sight of information coming from exchanges and the ability to react to and change prices before others on the "outside" can get a look. I have termed this select group of traders "structural insiders."