Go easy on insiders

I cannot get myself worked up about dealing on inside information. I don't approve of it but it does not seriously offend me and, in fact, I think it does no great harm to financial markets.

I shall go further than this. It is my opinion that most of the indignation voiced about insider dealing is the work of securities regulators, who would find employment lacking if they could not generate it for themselves by imposing standards of morality appropriate to convents.

And while such strict rectitude is ostensibly enforced in order to protect small investors, I think it actually has the effect, in practice, of putting them at a disadvantage by raising their transaction costs and depriving them of worthwhile information.

Most of all, I think it just doesn't work, except, of course, in its purpose of creating employment for regulators.

Take, for example, the question of price discovery. It is a simple fact that no individual investor can know everything there is to know about the share price of an individual stock, let alone how much significance to ascribe to each item of information. And what is not possible for one stock is certainly not possible for any individual to know about every stock on the entire market or the entire range of tradable securities.

But the overall market, the combined knowledge of every investor who takes an interest in a stock, is a fairly good determinant of what the share price ought to be. The only difficulty is that this opinion is not voiced. It is only expressed in the share price itself.