A newspaper article entitled ‘Hannes “knew of TNT valuation”’ ( The Australian , 18 June 1999, p. 24) reported a case involving a person who was before the courts on a charge of insider trading. In part, the article stated:

Macquarie Bank executive director Simon Hannes learnt of the value the bank had placed on TNT shares three months before the transport giant was subject to a takeover bid by Dutch company KPN, a jury heard yesterday.
The Crown has alleged that Mr Hannes, using the alias Mark Booth, used that confidential information to make a $2 million profit trading in TNT options at the time of the October 1996 takeover offer. Macquarie was advising TNT on the bid and the Downing Centre District Court jury has previously heard Mr Hannes claimed to have had only a general knowledge of a possible transaction involving TNT. Mr Hannes, 39, has pleaded not guilty to one charge of insider trading and two of structuring bank withdrawals to avoid reporting requirements.

(a) Which of the theoretical perspectives of regulation reviewed in this chapter might best explain the existence of laws that prohibit insider trading?

(b) How would advocates of a free-market approach justify the removal of legislation pertaining to insider trading?