Scribd
Upload
106 views2 pages

Insider Trading: Ethics and Regulation

The document discusses insider trading, including definitions and arguments for and against it. It defines insider information and lists groups who may possess it, such as employees, consultants, and those who obtain it unintentionally. Arguments for insider trading include that the market can regulate it and it improves efficiency. Arguments against include that it discourages market participation and distorts information. Ethical arguments against are that it leads to unfair competition, reduces trust, and violates professional and company obligations. External measures to prevent insider trading discussed are monitoring transactions, penalties, training, and establishing internal barriers within companies.

Uploaded by

RAFAEH ALAM
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
106 views2 pages

Insider Trading: Ethics and Regulation

The document discusses insider trading, including definitions and arguments for and against it. It defines insider information and lists groups who may possess it, such as employees, consultants, and those who obtain it unintentionally. Arguments for insider trading include that the market can regulate it and it improves efficiency. Arguments against include that it discourages market participation and distorts information. Ethical arguments against are that it leads to unfair competition, reduces trust, and violates professional and company obligations. External measures to prevent insider trading discussed are monitoring transactions, penalties, training, and establishing internal barriers within companies.

Uploaded by

RAFAEH ALAM
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Insider Trading

• Inside information: any specific information regarding one or several securities or one or several
issuers of securities which has not been disclosed to the public and which, when or if it is
disclosed, could substantially influence, or could have substantially influenced the price of said
securities.

Manne’s arguments
• market would take care of regulating these practices through the reactions of investors.
Information that becomes available through stock transactions carried out by a company’s
executives could turn out to be advantageous because the executives’ interests coincide with
those of outside stockholders
• insider trading is technically beneficial for the securities market because it increases the speed
with which stock prices change and, consequently, improves market efficiency

Fishman and Hagerty’s arguments


• it dissuades others from acquiring information and participating on the market (if just a few
insiders are going to have all the advantages, it is safer to place funds in something more
profitable)
• it distorts the information provided by market operators and received by other investors

Ethical arguments used to declare insider trading morally illicit


• Everyone should have equal opportunities of access to information -> insider trading leads to
unfair competition
• Trust is needed to ensure that the market operates properly -> insider transactions will reduce
the trust of outside investors
• Professional secrecy and loyalty -> when information is shared with top management / advisors
/ consultants / law firms / investment banks, they are obliged to keep It secret and not use it for
their own benefit.
• Respect for the rights of the owners of inside information -> insider information is not owned by
any person in the management of the company. It actually belongs to the company until it is
made public. There management using that information is violation of the rights of others.

Groups of People who may have insider information


• Partners / Members / Management / Employees
• Professionals such as consultants / lawyers / bankers / advisors / journalists
• People who bribe to get insider information
• Third parties who obtain the information through someone’s lack of discretion (relatives,
friends, colleagues in other departments of the company)
• there may be people who obtain information without being certain that it is, in fact, inside
information

External measure to prevent insider trading


• keeping records of all orders and operations to facilitate control
• monitoring transactions
• tightening up surveillance
• granting broad powers for selecting and questioning operators
• imposing proportionate penalties

External measure to prevent insider trading


• top management’s attitude and conduct with respect to insider trading
• check on candidates’ honesty during the personnel selection process.
• establish a compliance function on insider trading, with a direct line to top management
• Training programs can also help make people aware of the problem and inform them of the
specific ways in which they could be providing inside information.
• a stop list for brokers and dealers
• establish staff dealing rules for employees who trade on the market
• establish internal barriers (Chinese Walls) within the company so that a department handling
information that could affect share prices cannot pass that information on to another
department that could make use of it

You might also like