Do the European rules governing insider trading make sense?

Does authorized trading by insiders (say, by the directors of a listed company) contribute to pricing efficiency or should we ban it altogether? Is there some legal certainty with regards to the kind of information that is reqarded as inside information? Those questions were addressed in a recent TILEC/AFM seminar held in Tilburg. Eric de Bodt (University of Lille 2 and CORE) presented some empirical evidence gathered with co-authors Nihat Aktas and Hervé van Oppens. Using data on more than 2,000 US-listed companies, covering almost five years of trade, they show that, even though financial markets do not strongly respond (in terms of abnormal returns) to insider trading activities, the significant change in the price sensitivity to relative order imbalances associated with abnormal insider trades suggests that price discovery is hastened on insider trading days. François Kristen (University of Amsterdam) analyzed some key elements of the definition of inside information, as set by the recent European Union directive on market abuses. To fall under the prohibition, a piece of information must be of a precise nature, which he argues excludes market rumours, and have the capacity significantly to affect the price of an asset if publicly known, a feature that is even more problematic to assess.