An Analysis of the Role of "Insider Trading" on Futures Markets

Abstract

Section 23(b) of the Commodity Exchange Act requires the Commodity Futures Trading Commission (CFTC) to examine the possession by futures traders of nonpublic information concerning other persons' cash market or futures activities and to report to Congress on the adequacy of the commission's authority to prevent resulting from those circumstances. This request for a study of represented a compromise between groups that wanted to outlaw insider trading and those who felt that current regulations in the area were adequate. Unfortunately, section 23(b) does not define material nonpublic information, or state what abuses are associated with its possession, or require the CFTC to produce a costbenefit analysis of the effects of increasing the CFTC's authority. This paper provides a framework in which to analyze the role of insider trading in futures markets. Within this framework it will be possible to provide meaningful content to the terms mentioned in section 23(b) and to consider what evidence could be collected regarding correctable associated with insider trading.

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