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The history of the regulation of insider trading is largely the story of the legal system's quest to find an internally consistent justification for banning such trading. It is not unusual for a legal rule to prove difficult to apply, but what is remarkable about Rule 10b-5 is that there is such ambiguity as to its basic nature and purpose. Initially, the rule was thought to be grounded on notions of "fairness" and "equity." These justifications were vague and ill formed and did not provide a coherent basis for imposing legal sanctions. This Article argues that the real concerns about insider trading are concerns about the optimal allocation of information among parties.

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