It is doubtful that the stock market values would be anywhere near its current value if not for speculation.
Goldman Sachs Investigation
The Goldman Sachs investigation inquires into whether traders at a number of hedge funds and trading firms, improperly gained nonpublic information from Goldman Sachs (who gained the information from industry informants) about pending health-care, technology and other merger deals.
In the Goldman Sachs situation, certain traders benefited from privileged information of impending mergers by buying stock on those mergers before the merger was officially announced.
Thus, they were able to acquire a promising stock at a lower price than they would have otherwise. They profit by selling the stock after the merger announcement induces other traders to buy the stock and push the stock price up.
According to Werhane, the wronged parties here would be: 1) the other traders who did not get the opportunity to buy the stock at the price the insiders did; 2) the traders holding the stock if/when the stock price decreases. According to Manne's reasoning, none of these parties were wronged because they should have based their decisions on their understanding of the fundamental value of the stock, not their understanding of market trends, or how other traders will act.
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Even if he hints around in a non-direct way that his friends should sell their stock without coming out and saying it, he may be guilty of insider trading because the information on the merger has not yet been made known to the public. This is unethical and what the corporate officer should steer the conversation in a different direction and if his friends insist on continuing to ask questions
And the ability to know when to sell shares made the executives careless in their management, as they would know when they could "cut their losses." Critics of insider trading laws would contend that the problem with Enron and WorldCom was insufficient oversight of these corporation's accounting procedures, not insider trading. The criminal behavior was not the fact that key executives knew when to buy and sell their shares, but
Further complicating the issue is that the definition of insider trading differs from one jurisdiction to the next. Given the increasing globalization of business, it seems unreasonable that we can continue to exist in a world with a poorly-defined and highly variable definition of insider trading. The everyday investor, certainly, cannot invest with any confidence under the present circumstance. Efficient market theory demands that information be perfect, but it is difficult
Insider Trading On June 4, 2003, the Securities Exchange Commission announced that it was pursuing charges against investor Martha Stewart and stock broker Peter Bacanovic for securities fraud. The fraud occurred on December 27, 2001 when Stewart sold stock in ImClone Systems, after receiving an unlawful tip from Bacanovic, who at the time was working for Merrill Lynch. The SEC also accused the two of attempting to cover up the insider
In other words, trading based on private information might benefit investors, as it stimulates a quicker absorption of new information into the markets, making them more efficient. It is clear that insider trading continues despite vigorous enforcement of the existing regulations. This is because of the difficulties in detecting and prosecuting it. Further regulations will only add unnecessary complexity to market participants and eventually bind the already limited resources of
Insider Trading from a "Utilitarian" ethical point-of-view. The paper discusses types of insider trading, the Utilitarian theory of Ethics and the arguments for and against insider trading. Ethics of Insider Trading Insider Trading generally refers to the buying or selling of financial instruments (usually in the stock market) on the basis of privileged information that is known to a restricted group of people. Debate has raged among economists, traders, businesspersons, philosophers
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