Content area
Abstract
Insider trading is illegal and is widely believed to be unethical. The principal ethical arguments against insider trading are the claims that: 1. the practice is unfair, 2. it involves a misappropriation of information, and 3. it harms ordinary investors and the market as a whole. An examination of these arguments reveals some serious deficiencies in them. The fairness argument appears to be the least persuasive. The effectiveness of the fairness argument is restricted to situations in which the insider trader owes a duty to the other person with whom the trader is trading. While no one of the arguments by itself provides a sufficient reason for outlawing insider trading, it does not mean that there are no reasons for prohibiting the practice. It is argued that the real reason for outlawing insider trading is that it undermines the fiduciary relationship that lies at the heart of US business.