Information efficiency benefits the average investor. Doing away with insider trading as a crime benefits all market participants. Information is the driver of market efficiency. While a perfectly efficient market will never be achieved, getting information to the market as quickly as possible helps to alleviate asymmetry and allow that information to reach a maximum of participants as quickly as possible. By encouraging people to seek out non-public information and bring that to market more quickly, you even out volatility, lessen the exposure to bad information and increase the exposure to good information, each of which benefits all market participants.

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Profits to be made from information acts as an incentive, which helps expedite that flow of information. However, if insider trading were legal, you would have more participants seeking out that information, so not only would it get to market faster, it will lessen the reward and profits of those trading on it. That's a fancy way to say the big guys would actually make less money if you got rid of insider trading.

It's hard to separate proprietary research and insider information. While trading on an M&A deal, like the examples cited in the aforementioned study, are clear-cut cases of insider trading, many times the line is blurred between information and research. For example, if I sent a team to the mall to count traffic and interview customers outside of a store and noticed from that research that sales were up from previous months, that's technically non-public information. But that information is derived from research and trading on that research is legal. However, if I had dinner with the CEO of that same retailer and he told me that sales were up from month-to-month before he put out a press release, that would still be non-public information but it would be illegal to trade on it. It's the same information, so should the methodology of retrieving it make a difference? No, the market doesn't care how the information was obtained, it only cares that sales are up.

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There's selective enforcement. The Stern/McGill professors' study shows that the SEC only investigates a small portion of the deals where the study found suspicious trading activity. But that's not the only type of non-enforcement of insider trading. If someone receives insider information, you may be able to prove when they acted on a piece of information, but you can almost never prove when they don't act. If I was planning to sell a stock, but received information that things were going really well and don't sell because of it, that's no different than buying for the same reason, except that you can prove the latter. The same thing goes for not buying something you were planning to buy but heard unfavorable information.

Not to mention the recent activities of hedge-fund managers like Bill Ackman, who build a position in a stock ahead of announcing their involvement in a takeover bid for that company (such as was the case in his recent Allergan bid). That's legal, so why have a law that only applies in some cases?

I take issue with making something illegal when half of the outcomes are unenforceable.