A Study On The Regulation Of Insider Trading On The Securities Market

Insider trading is a common problem in the securities markets in many countries, and it has damage to the fairness and efficiency of the securities markets. How to regulate the insider trading for protecting legal right of small and medium investors, as well as realize the fairness and efficiency of the market are the difficulties the regulators of all countries are encountering.This paper presents the developing progress of the regulation on the insider trading, and proposes a model which simplifies the regulation on the insider trading. This model divides the traders in the market into three kinds: insider, market professional and liquidity traders. Insider could get information through their position in the firm without costs. They have natural information advantage on the marker professional. Market professional build up the research departments and investigate the public information to get more precise information. The competition between the two kinds of traders based on information, insider and market professional exists then. The trading loss of liquidity traders equals to the sum total of the trading profits of insider and market professional. Between the insider and the market professional, the degree of information asymmetry will be reduced; and the competition will be increased, through the operation of the system of regulation and the system of information disclosure. Thus the total trading profits of insider and market professional is cut down, and the enormous loss of the liquidity traders is avoided.Qualitative analysis is processed on the different kinds of traders on the markets in the model. And several methods to optimize the regulation on insider trading are given. Firstly, increased strength of regulation will enhance the authority of the regulator on the insider trading. Secondly, a perfect system of information disclosure will reduce the degree of the information asymmetry. Thirdly, a well adjusted market structure will keep insider trading within limits by itself. At last, the status of the regulatory system on insider trading in China is researched with the model. Some proposals on legislation, mechanism are given to regulate insider trading in China.