With the introduction of a new type of traders, incompletely informed traders, the paper develops a model of rational expectation equilibrium to analyze how regulations affect asset prices and welfare.It is found that rational expectation equilibrium exists in the financial market and that the corresponding traders’distribution equilibrium is not unique.If the discrimination coefficient changes, the fraction of both completely informed traders and uninformed traders would change in the same direction, with completely informed traders being the most sensitive to the change.The paper also shows that increasing the switching cost would decrease the fraction of informed traders, but the welfare would decrease.Two interesting results are found:Although decreasing the level of ambiguity faced by incompletely informed traders cannot restrain insider trading, extreme trading would be decreased sharply;decreasing the level of ambiguity faced by uninformed traders not only decrease the fraction of completely informed traders, but also may improve the level of welfare.