Insider Trading And Free Speech

My comment to a very good post about insider trading on Truth on the Market blog, "Some Myths About Insider Trading" by Henry G. Manne, Dean Emeritus of the George Mason University School of Law and Distinguished Visiting Professor at the Ave Maria School of Law:

There is also a free speech issue.

Price is a fundamental statement of economic information in a capitalistic society. Any government restrictions on incorporating available, accurate information in prices are an abridgment of speech. There is also an element of fraud (although technically, I would guess governments do not commit fraud). Any buyer or seller of the stock or asset, after material information is available to insiders, is trading without that information and at prices that do not incorporate that information. If not for the government insider trading restrictions on that material information, the information, and the pricing reflecting trades with that information, would be available to non-inside buyers and sellers. Later release of that information does not help buyers and sellers who trade between the time the information becomes known to insiders and the later time that it is released. A buyer or a seller is involuntarily aggrieved by the unavailability of the insider information to determine their price of a trade and accept the trading price as is. With the earlier release of the information, directly or through trades based on that information, parties voluntarily make trades with the information, accept the price as is and are not aggrieved.

It would seem to me that SEC and other legal restrictions on trading on inside information are prior abridgments of speech. It is then a question of whether there is sufficient governmental interest to allow a prior restraint of information by prohibiting insider trades and whether that interest overrides the rights of buyers or sellers to trade on complete available information during the period prior to release and after the information is known by insiders.