Philosophy of Business Ethics: Insider Trading - Essay Example

Insider Trading The reputation of insider trading is one that has accumulated a lot of discussion that leans toward a more than less usual illegal conduct. However, the private information that is passed in trade securities often assists in profitable results that many investors deem to possess more than less positive effects in regard to efficiency, and thus, should be legal. Moreover, the argument of insider trading as being legal, or illegal, is a battle, and one article on the ethics of insider trading suggests that: “We introduce a distinction between insider trading and market manipulation on the one hand and corporate insiders versus misappropriators on the other hand” (Engelen & Liedekerke 497). The problem with insider trading is a problem of the masses, and the unfairness that is passed throughout the public is a reaction of displacement from the possession of information that in terms of ethics should be equally provided. The questions that often rise out of the public eye are those that stress the desire to know what advantage insider trading has economically, for it has thus far caused the public to feel unfair treatment. Consequently, as a moral decision the unfairness of insider trading in the public eye is, henceforth, unethical and should be illegal. Many people think the use of insider trading should be illegal. Moreover, by choosing to provide significant information to only a select few, or groups of individuals, and disregard the mass public, you risk loosing potential and profitable economic gain. One of the ways of looking at insider trading as causing more than less negative than positive effects is found in an article by, E. Mine Cinar who states: What is the damage caused by insider trading? One potential damage is the public’s perception of financial markets as scams. Perceptions of unethical trading in the stock markets are one of the biggest stumbling blocks, which stop savings flows into the market. When the public loses faith in the stock market and put savings elsewhere, firms cannot raise domestic capital via stock issues. (Cinar 345) The more I look into the notion of insider trading I’m engaged by the ethical side of the matter, which to me suggests that there is an unbalance between the good and bad of insider trading. Furthermore, the unbalance leans towards a far greater harm being done than a beneficial factor that creates a positive resolution in the economy. So, in regard to those select few who deem insider trading should be legal based on profit, I agree with Cinar who states: “The question of how much wealth has been redistributed due to insider trading is not measurable, and therefore, the questions still remain unresolved within the confines of academic and judicial discussions” (Cinar 345). In terms of business ethics its seems to be a hard task to establish an argument on either side of insider trading being legal, or illegal, but in any case, there is an issue of ethics involved in the treatment. When speaking of insider trading there will always inevitably be one side that thinks it should legal and another side that thinks of it as illegal. However, if there is undoubtedly a treatment of unfairness involved there is reason to find it far more negative than positive. The vital information that is formed and passed through market systems, financial systems and securities are pivotal in the role of economics. So, to not allow this information to be viable among all people puts the whole spectrum of economy at a disadvantage. Initially, I think this disadvantage comes from loosing trust. Hence, distrust within potential stockholders, investors and common exchanges in the public are unfair not only to the people, but the overall brilliant notion of market itself. Is it true to say that those who are allowed this information were once nothing but a common folk who strived for such information to prosper? So, insider trading in unfair, and thus, should be illegal, as Cinar states: “…that insider trading violates the golden rule of treating others as we treat ourselves” (Cinar 346). While I can definitely see why the reaction to insider trading would be negative and unfitting to those who are against unfair use of the information, I feel that I should investigate into how it can have a positive effect. In regard to insider trading being a moral decision, Robert W. McGee, states: “One might also point out that what is ethical may not be legal and what is unethical may not be illegal” (McGee 205). When I think of the investors and the market system, I think of an array of ideas and suggestions, rapid movements of product, ongoing business and effective communication. Hence, the role of information moving throughout the system is a matter of effectiveness and organization. I think that in some cases certain information has little time to pass through the masses and must be strategically placed and, or given, in order for certain transactions to be profitable and prosperous. Hence, by saying this, it would seem to be that I’m on the side of insider trading, but I’m not. I stress that the information should not be kept from the public but accessible to all those who desire to obtain it if they so choose. However, as there are quite a few different levels of insider trading, one article suggests that: Prohibiting insider trading allows markets to perform efficiently by encouraging fairness and liquidity. In contrast, Leland (1992) found support for the hypothesis that insider trading makes security prices more efficient as markets impound insider’s information into security prices. (Abdolmohammadi, Sultan 168) In my research I found that there are in fact more results that prove that insider trading does create profit, and often it is in resourceful areas. The rise and fall of prices and stocks is rapid, and not always immediately controllable. Hence, many researchers suggests that its not always necessary to make a public statement, for the market will take action and will suitably react efficiently. The wealth that’s accumulated with shareholders increases quite steadily with the use of insider trading, and so, if some companies and investors require a boost, then insider trading isn’t fully unethical. The consequence of insider trading and the exclusive information carries will not in all cases be unfair, or take away specific rights, and so, I think there is no sound argument. Everyone in the market game has their own rights, and like anything else, insider trading has established its own set of rights. Those who wish to be part of insider trading, or lack certain information involved, feel it is unfair that they are unable to progress accordingly to such information’s. I think there will undoubtedly be some cases in the market where insider-trading increases economic flow from the standpoint of stock prices, buying and selling. Hence, Access to certain information provided by insider trading often can cause the price of shares to rise and create substantial benefits. Albeit, there are many who argue against the benefits of insider trading, it’s been said that it is considerably, or even inevitably, a factor in the progress of the economy. For instance, one article suggests that certain corporations have their own right to the information that may benefit them, such as for example, McGee states: “where the corporation has received valuable services from an outsider, one way of providing indirect compensation for those services is by providing the outsider with the authorized use of inside information owned by the corporation” (McGee 210). I find that insider trading is hard to catch or disbar, and can be quite beneficial to corporations and businesses that aid in the progress of the economy, and so, the notion of a law against it is not the answer. I learned so far that in looking at both sides of the issue there are people who will lose a substantial amount of economic gain, while there are corporations, businesses and investors who stand to achieve it. Albeit, insider trading may defiantly be unfair to many, I cannot help but to think of what a strict law against it would do. Many researches feel that to rid of insider trading, or have a law against it would only, as one article states: “…rearranges the ranking of, winners and losers…and clearly show that a ban on insider trading causes the largest gains to be earned by market professionals” (Engelen & Liedekerke 501). The harm that insider trading is inflicting is quite minimal when one ponders the situation with a more open view from all sides of market. The small investors and shareholders will gather information that often comes from inside information in order to succeed in gaining efficient stability in the market. The financial benefits often associated with insider trading are not the only ones we have to consider, because there are also many social benefits that rise out of insider trading. Furthermore, the social benefits can often range from recognition for developing businesses, and the individual, or group entrepreneurs who aid in establishing economic value to the wealth of markets. Hence, I find that in regard to insider trading you cannot have a law against something unstoppable, unavoidable and, or inevitable, but what you can do is continue to enhance where there is gain in order to fix where there is decline. So, the question of whether insider trading should be illegal still lingers, as one that neither wins nor looses in the endeavor to banish it completely, because its weight balances between both “fair” and unfair”. When people feel that they are treated unfairly there is damage and loss within the social construct of the economy, and the result is often a battle between the moral decisions and ethical standards that are built in a given society. However, within these many social constructions it is necessary that not all information be out in the open, because it can often hinder certain movements within the market economy that can potentially improve, enhance and develop beneficial areas. The reason I lean towards the illegal side of the situation is because I feel that a majority of this inside information should at least be available to who ever desires to acknowledge it. I think that businesses, corporations and individuals should have equal opportunity in the market game. Moreover, since inside information will happen regardless of the endeavor to create equal opportunity, I think that a law against will not do anything. Insider trading, albeit, unfair to many, is also quite often a necessary and fair advantage for some aspects of the market and economy. Hence, insider trading cannot be illegal, and, or legal, but simply a part of the market and economy. Works Cited Snoeyenbos, Milton & Smith, Kenneth. “Ma and Sun on Insider Trading Ethics.” Journal of Business Ethics, Vol. 28, No. 4 (Dec. 2000) pp. 361-363. Abdolmohammadi, Mohammad & Sultan, Jahangir. “Ethical Reasoning and the Use of Insider Information in Stock Trading.” Journal of Business Ethics, Vol. 37, No. 2 (May. 2002) pp. 165-173. Cinar, E. Mine. “The Issue of Insider Trading in Law and Economics: Lessons for Emerging Financial Markets.” Journal of Business Ethics, Vol. 19, No. 4 (May. 1999) pp. 345-353. Engelen, Peter-Jan & Liedekerke, Van Luc. “The Ethics of Insider Trading.” Journal of Business Ethics, (2007) pp. 497-507. McGee, Robert. “Applying Ethics to Insider Trading.” Journal of Business Ethics, (2008) pp. 205-217. Read More