The law governing insider trading is unclear and controversial. The confusion results from the absence of either case law or statutory specification of a clear theory on which to base insider liability. The economic impact of a law against insider trading is also unsettled. Law and economics articles differ over whether it is desirable to prohibit insider activity and over the form of such a rule. This note first discusses the economic relevance of the allocation of initial property rights to firm-specific information and describes the placement of these rights under existing law. It then considers alternative perspectives that might be used to choose an appropriate insider trading rule. Next, it presents an efficiency rationale for prohibiting various market participants from trading on material, nonpublic information. Guidance is offered for fashioning a definition of insider trading consistent with the results of the note's analysis and raises issues for further study. 80 footnotes.