Should Investors Join Insiders - Term Paper Example

Download file to see previous pages In the world of economics and finance, when it comes to financial malpractices, insider trading tops the list. Insider trading is one of the most notorious financial crimes practiced by managers, directors, and other employees all around the globe. Insider trading can be defined as the buying and selling of a security by an individual who has direct and reliable access to non-public information about the security. Insider trading is not always considered malpractice or illegal and is subjective to the underlying intention of the transaction. The statement can be further elaborated because if the trader is reaping profits based on such information which is not public yet, then the insider trading transaction is illegal. In addition, insider trading does not always mean that buying and selling of the security are taking place. Providing confidential information to a third party, in exchange for money or any other form of consideration, is also illegal.
The practice of insider trading is not confined to Directors of any corporation but the practice also prevails among brokers and even the family members of the directors. Although, once the information is public, the inside transaction is not illegal as the parties involved do not derive any unfair advantage over the general public. Media has made the masses generally knowledgeable with time and they have also equipped themselves with the technicalities of insider trading, especially after the cases of Enron and Martha Stewart. The Securities and Exchange Commission of the USA has adopted the practice of enforcing strict and practical guidelines which distinguish legal and illegal trading of shares by the inside people. Insider trading is not a recent or the latest money-making gimmick which has been exploited by directors and managers to earn higher returns. The history of insider trading dates back to the great depression as well.
The securities and exchange commission of the United State has made it compulsory for the key management personnel and other officers of the company. ...Download file to see next pages Read More