| After a short period of development, the stock market of China has become an important part of economic since started in December 1990. But the structure and mechanism of China stock market is still not perfect. A large number of insider trading seriously disturbed the normal order of stock market and make the basic functions more difficult to run. The reaction of market price to the real value and the resource allocation function of the stock markets are damaged by Insider trading. From the international experience, insider trading weakens the confidence of the market and increases market volatility. In extreme cases, insider trading may even lead to market collapse.Since the late 80's in 20th century, the foreign financial reach in insider trading has developed to a mature stage. By using noise rational expectations equilibrium model for the research tools, the analysis of insider trading is more comprehensive. At the same time, foreign scholars on the insider trading also research the impact of insider, outsider and company. However, the domestic research on insider trading is still at the initial stage. The theory and practice of insider trading scatter in separate area, such as market efficiency theory, information asymmetry theory, regulatory economics theory, legal theory, information disclosure and regulation and regulation theory.The existence of insider trading is relevant with the market system. The insider trading restrictions and the impact of insider trading in different market system is quite different. So it is necessary to research the market system to find the problem to restrict and even eliminate insider trading. The core of the market system is the trading mechanism. The securities market microstructure research focuses on the process of price discovery and trading operation mechanism. We can grasp the law of the financial market price changes and the impact factors by the research of micro-structure of the stock market. It is great significance for reduce the degree of market information asymmetry, strengthening market supervision and the design of more rational trading mechanism.Combining the characteristics of China stock market micro-structure, this paper attempts to use micro-analysis method to study insider trading. This paper select some representative micro-system, such as the order-driven market, the form of orders, information disclosure and market efficiency, transaction duration and intensity of such transaction, to analyse insider trading. I try to reseach different traders trading strategy and the impact of liquidity on the market, explore the effect on market and participants by insider trading. Some policy advices on restrict or monitor insider trading by adjusting the micro-structure will be given in this paper.This paper has the following six parts: Part I introduces the theoretical background and significance of topics. Using micro-structure to research insider trading has a good theoretical basis and practical significance. The article structure and method are introduced in this part. The second part recommends a comprehensive system on insider trading and financial market microstructure theory. At first, I define the conception of insider trading, include the insider information, the role and the main act of insider trading. Secondly, I systemic introduce insider trading theory and stock market microstructure theory. Finally, the development of China stock market micro-structure is described. The third part focuses on the trader strategy in order-driven market. I modify the Burton model to discuss the various trading strategies and the impact to market mobility. Some suggestions about order-driven system of China stock market are showed in the chapter. Partâ…£studies the relationship between the effectiveness of market and insider trading. The effectiveness of insider trading has directly relationship to market impact of insider trading. We can found that China stock market is not completely weak effective by auto-correlation test, runs test, unit root test and variance ratio test. The TT-kyle model is derived from kyle model by adding weak effectiveness and irrational factor. This chapter describes impact of weak effectiveness and irrational factor on the trading volume and price. The fifth part analyses the relationship between the transaction duration and insider trading. The transaction duration reflects the strength of the market and shows the days of trading activity, market liquidity, trader behavioral characteristics. This chapter focuses on the ACD model and expansion. I use the Information-WACD, joined the good news and bad news variable factors, to empirical testing the impact of duration on transactions. The last part summarizes the conclusion and indicates the lack of reseach and direction of future reseach.Innovation of this article as follows: systemic research insider trading with micro-structure theory; modify Burton(2003) the strategy of the dealer model with joining the insider trading and external traders to explore the order-driven market traders trading strategy; extend the Kyle (1985) model, introduced in the model variables of the effectiveness deviation and liquid trader's non-exogenous volatility; apple ACD model to analysis of insider trading for the first time, induct a active information exchange as a substitute for the information variables.The main conclusion of this article: traders submit limit order or market order based on their respective valuations of the stock in order-driven market. Market orders submitted by traders consume market liquidity and limit orders submitted by traders offer market liquidity; China stock market has yet to reach the validity of the weak effectiveness by data analysis. Different market depth leads insider trader to change the trading strategy in different effectiveness market; We can found good news will lead to increased strength of the transaction and bad news will lead to a long duration in very high-frequency data analysis.
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