Legalizing insider trading would compress the exploitation window for well-connected traders

Well-connected traders, known as 'sharks,' can currently maintain a trading advantage for weeks or months because of the current prohibition on insider trading. Thomas Peterffy, founder of Interactive Brokers Group, argues that legalizing insider trading across all markets would reduce this advantage by compressing the exploitation window to a second or two.

Peterffy's position is based on the premise that insider information eventually filters out through secretaries, lawyers, and families, making enforcement of the law difficult and cumbersome. He contends that the current prohibition does not prevent exploitation, but instead extends the window of time for well-connected players to position themselves before the rest of the market catches up.

As a society, we are better off knowing as soon as possible anything that is knowable. Legalizing insider trading would allow information to be known as soon as possible, and the current system prosecutes a handful of insider traders while information asymmetry remains pervasive.