Insider Trading

Page one of the Sunday New York Times carries a story containing data on what most in the investment community already know, insider trading occurs frequently before large merger announcements in the United States. (Gretchen Morgenson, Whispers of Mergers Set Off Bouts of Suspicious Trading")  In 41 percent of the big mergers over the last 12 months the securities of the target "exhibited abnormal and suspicious trading in the days and weeks before those deals became public..."  The story does, however, struggle to define why insider trading is illegal, and Ms. Morgenson's list of "victims" is problematic. Her argument that stock sellers are injured, because they could have held their stock until after the announcement and recieved more value, makes no sense unless one assumes that only the higher price, created by insider trading, induced the sale, that the sellers would not have sold at the lower pre-announcement market price had there been not insider trading before the announcement.  This is a stretch for many sellers, who had decided to sell pre-announcement and get the market price, whatever it was.  Those that sold only on the rise, refusing to wait, accepted the risk that they would give up any more increases in the price.  Victims?  The real reason for the illegality of insider trading (the disadvantaged buyer who wanted to buy and could not at market prices pre-announcement) remains elusive to even educated reporters.