Applying Utilitarian Ethics and Rights Theory to the Regulation of Insider Trading in Transition Economies

Abstract

The press has given the public the impression that insider trading is evil, unethical and illegal, when in fact such is not always the case. In some cases, insider trading is beneficial to the economy and to shareholders. Whether insider trading is harmful, unethical or illegal depends on many factors. Policymakers in transition economies are trying to reform their legal and economic systems to more closely reflect those of the developed market economies. However, those policies are often flawed because they tend to outlaw some forms of insider trading that are beneficial to the economy and not unethical in nature. This paper examines recent trends in the regulation of insider trading in transition economies, then applies utilitarian ethics and rights theory to determine which policies are appropriate. More than 35 links to other insider trading articles and World Bank studies are also provided.