There's nothing evil in inside trading. It's a shame that it's against the rules in most markets. It only benefits some parties that aren't really invested into the company.
This also ignores the large number of people with insider information who are not execs at the company. Clients, partnering firms, etc. If it's all about fiduciary duty, then the law firm doing a large M+A deal should mismanage that deal, so they can trade on it for their own profit.
If insider trading is allowed, the market will turn into a game called 'who has the best insider information'. No one will buy or sell stocks based on public information alone, because they will always be at a disadvantage.
If you want to allow shenanigans and / or only people with a vested interest, stay private and buy / sell only to savvy investors. That's allowed too.
Insider trading means insiders can and will:
1) Buy stock and launch (dishonest) positive press releases
2) Sell stock thereafter and launch (dishonest) negative press releases
Loop, rinse, and repeat. That happened, and if permitted, that would happen again. Much worse things happened too.
Your grandma can't do due diligence on every stock in her index fund. A savvy investor making targeted investments can.
The argument against it is that markets would be more efficient if people were allowed to trade on information not yet available to the public
Seems like a worthy tradeoff to me
While I do not agree with the OP on insider trading being good.... I also think short selling is a net negative and should be banned right along side insider trading
Why? The potential losses for shorting are infinite whereas the profit is capped, so entering a short requires high conviction. Stock markets are also a market for information: banning short selling takes away a large amount of information and has negative impacts on price discovery, liquidity etc.
If you think a stock is underpriced, you can buy it and bet your knowledge is superior to the general market’s.
Shorting is just the logical reverse, and aids price discovery in the opposite direction.
How would you incentivize people to find fraudulent companies like Enron?
If that is true, then markets would be even more efficient is such information was made public immediately.
Matt Levine's most recent article touches on insider trading pros and cons (in relation to sports betting) and is, as usual, a great read - https://archive.is/jJ25g
You know the stock will go up, the other party unfairly doesn't. The other party would not have sold if he had known, so you have cheated the other party.
Same if you know the stock will go down. The other party would not buy if he had known the thing you unfairly do. This is also cheating someone.
Buying a rivals stock depends on the reason why, but it would be against company interest. The SEC doesn't need to enforce this, the board should fire him for it.
Whoever's on the other side of the trade is by definition invested into the company, either before the sale, after the sale, or both.