Securities and Exchange Commission of the USA - Essay Example

Price-sensitive information, according to the definition of moneyextra.com website, is any information about agiven business’ trading operations or otherwise, which if known is expected to impact on the stock price of the same company. An example is knowledge that a company is in the verge of being declared bankrupt. If a person uses such information to buy or sell a company’s shares in the stock market this could amount to insider trading and which is a highly prosecutable criminal offence in the UK. (moneyextra.com, 2007) Further, price-sensitive is a class of information that is seen to affect two things:- It’s a business’ obligation to make it disclosed, and Whether utilisation of such information or otherwise results in to a scenario called insider trading. For fair treatment of investors, thus, all price-sensitive information should be disclosed and in a regulated manner. Disclosure is called for to be simultaneously carried out to all investors and therefore, nobody should profit from usage of such information before it reaches the public domain. Information cannot be said to be price-sensitive if it’s not factual or specific. Examples may include: Financial information about profits and losses, figures of sales of a company, take over bids information, big buys or disposals of shares by large shareholders, among others. The rules governing the London stock exchange stipulate that any price-sensitive information should this be made publicly available in the reasonable time so as to have a similar influence on the investors’ decision. (Graeme Pietersz, 2009) This is going to be a study related to price-sensitive information and its set out to answer, comprehensively, the question, “How has price-sensitive information evolved and how has it influenced the stock markets in U.K and U.S?” Use of price-sensitive information was legal, but before 1980. It could be applied by employees and people with close connections to a company. This resulted to insider trading because there was asymmetric information usage. Banning of insider dealings is seen as a later issue. Until 1980, insider trading was not a criminal offence. (Chadwick et al, 2002 p152) People convicted for breaking the insider trading rule are required under IDA 1985, to be sentenced for up to six months imprisonment of be fined an amount not more than the statutory maximum or in other cases both. If convicted under the crown court the person may be sentenced for up to seven years or affine that’s not limited or in other cases both. Since the 1985’s IDA Act, however, the record of enforcement is dismal. Conviction rate is said to be at low levels where about 50% have been convicted on this rules breaking. Low levels of conviction have been blamed to the so strictly set definition of the term insider as per the UK’s statutes. In other cases this has been termed criminal in the U.K only. U.S.A for instance, is no exception to condemning of insider trading but the rules set for prosecuting the same have been seen as a fusion of criminal approach. In its bid to ensure the price –sensitive information is well utilised, the London stock exchange has a rule requiring that companies disseminate all price-sensitive information immediately it’s available. The transmission to the stock markets must be via a PIP (Primary Information Provider). In case the news is available after hours of normal trading like during weekends it’s should be transmitted via two newswires and two newspapers as well as the equivalent PIP during the weekend. By 2004, besides the FSA’s said laxity, the PricewaterhouseCoopers studied the U.K stock markets and made a conclusion that it’s well-developed. (Dallas, 2004, p330) In mid 1997, though, there was a reform on the rule of insider trading. Exchequer’s chancellor made the announcement regarding the rule as well as the centralisation of its enforcement authority in the FSA (Financial Services Administration) of UK. The Act giving such powers to the FSA was the “Financial Services and Markets Act of 2000. However, the FSA had not made any actions regarding the usage of price sensitive information by insiders by year 2004. (Salinger, 2004 p 431) FSA is a company which was established in the year 1997 with an aim of regulating firms in the U.K’s stock markets. It was formerly the Securities and Investments Board. Due to the transfer of the obligation of supervision of banks it was given the name Financial Services Authority, the responsibility was previously Bank of England’s Today FSA is an independent body of government and its Board is appointed by the Treasury, while finances come from the industry of financial services. It is answerable to the ministers of the treasury. Its main purpose is to provide all the information regarding firms and centres especially on policies, plans, rules and consumers of a given firm so as to enable the investors to make more accurate and informed investment decisions in the stock markets. (Financial Services Authority, 2007) Price-sensitive is deemed so important that it influences the stock market of UK. People have as well used the information illegally. Among the first European actions to enact the rules against insider trading was U.K. the 1985’s company securities Act (IDA 1985) about insider trading made the vice illegal and thus a criminal offence. The goal of this Act was to help or aid in stopping insiders of a corporation, tippees, and any other business relationships or professionals from using the price-sensitive information for their own benefits or others persons. (Dallas, 2004, p330) Use of price-sensitive information has been benefiting insiders of various companies for a while in the U.S.A. As a matter of fact Seyhum says that despite the rise in sanctions related to insider trading in the 1980s the insider trading have not diminished; instead they have been on the rise. Many firms have reported more insider-trading in the 1990s than was the case in the 1970s and 1980s. Graft was ‘normal’ in the USA from 1880 – 1930.on wall sheet. Around 1900, use of price-sensitive information by insiders was a common occurrence. It wasn’t necessarily an illegal undertaking. Inside deals were politically useful since they assisted politicians in becoming wealthy. But today insider trading is an illegal exercise in the US. (Glaeser and Goldin 2006 p81) Price-sensitive information has as well influenced the USA stock markets that it has been highly used by insiders for their own benefit, like Levine. Levine, who was an MD at the company of Drexel Burnham, made about U.S $ 12 million by utilizing price-sensitive information of 50 companies before it got to public domain. This was between the periods 1980 and 1985. SEC investigated this man’s account since it was always profitable in all its deals. The account of Levine was in a Bahamanian bank. Eventually he was arrested in mid 1986. (Markham, 2002, pp 124-125) SEC is the Securities and Exchange Commission of the USA. SEC’s mission is to ensure fairness is maintained, protection of investors, efficient and orderly markets. It fundamentally, regulates the actions of the securities exchange markets in the USA. It calls for all companies that are publicly traded to disclose all price-sensitive information to the public domain. To this all financial information that’s meaningful about a company and any other relevant information should be availed to the concerned in a timely basis. Their aim is to ensure that investors make investment decisions that are sound , accurate information, comprehensive and timely flow of information is seen as a prerequisite to the sound decision making by SEC. (SEC, 2008) Thus, the conclusion from the findings while trying to answer the question, “How has price-sensitive information evolved and how has it influenced the stock markets in U.K and U.S?” is that investors utilise price-sensitive information at high levels. But the most notorious and illegal usage in both U.K and the USA is by insider traders. These insiders utilise the information before it reaches the rest of the public, hence reaping all its importance. That’s profitability and caution alike. Reference list: Chadwick, R.F. et al. (2002). Applied Ethics: Critical Concepts in Philosophy. Taylor & Francis. p 132. Dallas, G.S. (2004). Governance and Risk: An Analytical Handbook for Investors, Managers, Directors, and Stakeholders. McGraw-Hill Professional. p 330. FINANCIAL SERVICES AUTHORITY. (2007). About FSA. Retrieved February 27, 2009 http://www.fsa.gov.uk/Pages/About/Who/index.shtml Glaeser, E.L. and Goldin, C.D. (2006). Corruption and Reform: Lessons from Americas Economic History. University of Chicago Press. Edition: illustrated. p 81. GRAEME PIETERSZ. (2009). Price-Sensitive Information. Retrieved February 27, 2009 http://moneyterms.co.uk/price-sensitive/ Markham, J.W. (2002). A Financial History of the United States. M.E. Sharpe. Edition: illustrated. pp 124-125. Moneyextra.com. (2007). Definition of Price-Sensitive Information. Retrieved February 27, 2009 http://www.moneyextra.com/dictionary/price-sensitive- information- 003833.php Salinger, L.M. (2004). Encyclopedia of White-collar & Corporate Crime. SAGE. Edition: illustrated. p 431. SEC. (2008). What We Do. Retrieved February 27, 2009 http://www.sec.gov/about/whatwedo.shtml Seyhun, H.N. (2000). Investment Intelligence from Insider Trading. MIT Press. Edition: reprint, illustrated. p 33. Read More