Insider trading can harm financial markets by giving unfair advantages to insiders, leading to loss of confidence and reduced investment. New Zealand's laws on insider trading were seen as ineffective, with insiders making higher profits than in better-regulated markets. To address this, the Securities Market Amendment Act 2002 was passed, requiring insiders to disclose their transactions promptly and allowing prosecution for insider trading. This change aimed to reduce insider trading and boost confidence in the New Zealand Stock Exchange.