Abstract: Insider trading leads to low efficiency of resources allocation in stock market, and insider trading regulation can lessen market maker’s adverse selection problem. Enforcement of insider trading regulation involves regulation cost, thereby optimal enforcement is to make a trade-off between regulation revenue and cost. This paper tries to explore the optimization problem of enforcement policy under the assumption that the regulator’s goal is to maximize the expected utility of uninformed investors who trade because of portfolio consideration.

Key words: stock market, insider trading regulation, optimal enforcement, asymetric information